Does Coinbase Have a Diversification Problem?

6 days ago 18

Coin Metrics latest “State of the Network” report takes a heavy dive into Coinbase’s revenues, a perennially absorbing taxable for those looking to recognize the crypto speech marketplace successful the U.S. According to the latest figures, Coinbase has seen currency inflows diversify distant from trading fees, which for years accounted for upwards of 90% of the exchange’s revenues.

Looking astatine its astir caller quarterly earnings report, Coinbase reported revenues of $707 cardinal with $327 cardinal coming from spot trading. While inactive the largest root of currency flows, fees present relationship for conscionable 77% of its full revenues. Other concern lines including subscription fees for a pro merchandise arsenic good arsenic wallet, staking and on-chain scaling services are an progressively ample stock of the pie.

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Why not beverage the currency cattle forever? Well, Coinbase has historically been capable to complaint above-market trading fees arsenic possibly the astir trustworthy U.S. speech and due to the fact that U.S. crypto users are not truly expected to beryllium utilizing cheaper, overseas competitors.

This concern isn’t precisely astir to alteration anytime soon – adjacent contempt the firm’s ongoing U.S. Securities and Exchange Commission’s (SEC) suit (then, what fintech hasn’t been dinged by the SEC?). But it does mean Coinbase has constricted runway for growth, which is concerning considering its planetary enlargement has been deed oregon miss and caller rollbacks successful markets including Japan and India.

There are inactive plentifulness of Coinbase bulls successful the world, not adjacent counting the firm’s largest banal holder Cathie Wood. The Coin Metrics folks seemed to extremity connected a affirmative note, including thoughts connected a fig of imaginable concern lines with maturation imaginable including a necktie up with MakerDAO, revenues from USDC arsenic good arsenic its nascent derivatives push.

But successful look of the increasing communicative astir Coinbase’s seemingly palmy propulsion towards diversification, I privation to bring successful a dose of reality: Coinbase’s full revenues from trading fees are down due to the fact that trading fees are down. Period. If this were a twelvemonth arsenic frenzied arsenic 2021, I’m definite the seemingly increasing sectors similar sequencer fees and staking-as-a-service would beryllium a pittance successful comparison.

Let’s not hide the realities that tether Coinbase to its U.S. lawsuit base, which is the aforesaid crushed wherefore CEO Brian Armstrong’s threats to determination overseas autumn hollow (and wherefore Coinbase’s media squad tried to rotation backmost the tape). I judge Brad Garlinghouse erstwhile helium said helium would instrumentality Ripple overseas, due to the fact that he’s a madman who plays with occurrence similar selling hundreds of millions of dollars of XRP successful transactions that intelligibly lucifer (but are not always) securities offerings.

But is Coinbase trapped? Can it turn oregon get its mode retired of its existent situation?

Here’s a non-geographical non-growth story: Despite determination present being implicit 600 plus pairs connected Coinbase, Coin Metrics recovered that coins and tokens listed earlier successful the company’s past – similar bitcoin and ether – inactive relationship for the bulk of volumes.

“[S]imply adding caller assets isn’t a guaranteed mode of generating trading interest revenues,” the researchers write.

Depending connected however you look astatine it, this could beryllium ominous for Coinbase’s aboriginal maturation oregon simply a substance of communal sense. ETH and BTC are the 2 largest networks, but that hasn’t prevented, say, Solana from uncovering a idiosyncratic base. Not each token volition beryllium a winner, but presumably unless thing catastrophic happens caller launches similar Sui and Aptos volition find uses and users too.

And it’s not similar “adding much tokens” is truly a crippled program for dealing with a protracted carnivore market. The contented isn’t the coins, but the deficiency of users – hence Coinbase’s driblet successful comparative trading fees.

Thankfully for the company, attempts to grow into staking arsenic good arsenic L2 rollup operations via its precocious launched Base has seen aboriginal success. For Coin Metrics, this bodes good for the aboriginal of on-chain activities. Better yet for Coinbase is the extractive returns it earns connected staking commissions, utilized by retail and organization traders. Ethereum staking accounts for implicit 13% of the exchange’s nett revenues, and it’s each fundamentally passive income aft the archetypal bundle and hardware costs.

To beryllium fair, Coinbase’s staking cognition is flying successful the look of the U.S. Securities and Exchange Commission’s (SEC) “Wells Notice” and ineligible concerns meaning it could 1 time beryllium unplugged.

I’d reckon akin risks basal for the Ethereum scaling furniture Base, which is afloat monetized by Coinbase arsenic the lone validator earning sequencer fees for validating transactions. While Base is not yet a people for Gensler’s SEC, it is becoming a money-maker for Coinbase successful portion due to the fact that of the astonishing occurrence of the social-media level

But Base comes with clearer expenses, similar the information rollups to mainnet Ethereum, which sometimes, amazingly relationship for implicit 1% of each ETH fees paid per day.

Are each of the concern lines Coinbase is oregon could conceivably go progressive successful pyrrhic? Somehow, yes. For instance, Coinbase is being tapped for a fig of bitcoin ETF proposals that, if approved, could devour into its bitcoin trading market.

I’m mostly kidding astir that past point, and Coinbase is inactive sitting beauteous connected a massively palmy speech business, nascent staking level and backer of USDC (which virtually prints wealth via involvement earned connected deposits).

But considering the restrictions connected its imaginable growth, it’s nary astonishment that Brian Armstrong is spending his escaped clip reasoning astir hail mary startup ideas similar "on-chain ads," putting the existent satellite on-chain and thing called “flatcoin.” I mean, it’s not precisely similar innovation capitalist Cathie Wood is going to perceive that Coinbase’s concern program is fundamentally “mess around, find out” and beryllium upset.

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