Coinbase: Dismal Performance, Hard to Extinguish the 'On-Chain Fire'

In the early morning of August 1st, Beijing time, after the U.S. stock market closed, $Coinbase(COIN.US) released its Q2 2025 financial report. Since its listing in June, Coinbase's stock price has been largely unrelated to its short-term performance. Therefore, for this financial report, while we focus on short-term operations, we are more concerned about the management's medium to long-term strategies and short-term actions for business expansion and extension.

Specifically:

1. Cooling of trading is a consensus: Despite a new high in the total market value of cryptocurrencies at the end of the quarter, the second quarter experienced a significant roller coaster due to tariff turmoil. Short-term panic-induced sharp declines inevitably affect current trading sentiment, so from an industry-wide perspective, trading volume in the second quarter was generally cold. Coinbase's average monthly trading users decreased by 10% quarter-on-quarter.

However, the decline in Coinbase's retail side was even greater, with a direct reduction of 45% compared to the first quarter, performing worse than Robinhood, which released its earnings yesterday. The company mentioned that the proactive adjustmentof stablecoin trading pair pricinghad an additional impact. Dolphin Research believes that the essence of this pricing strategy adjustment is to expand the advantage of USDC within the platform. However, since USDT is currently the most penetrated stablecoin, it is difficult to avoid an impact on trading volume.

75% of cryptocurrency trading volume is in the derivatives market. The acquisition of Deribit at the beginning of the year has not yet been consolidated, and starting in July, Coinbase will launch perpetual futures contracts, which are expected to fill the market share disadvantage in the derivatives market.

2. Disappointing subscription revenue: Short-term trading revenue is subject to temporary fluctuations, so the market's focus is mainly on subscription revenue, which is primarily based on staking, custody, and stablecoins. Although the platform's client asset scale AOP reached a new high in the second quarter, the actual performance of subscription revenue was average, and the guidance for the current and next quarters was below expectations.

The reason here is that 80% of the AOP increase in the second quarter was mainly due to asset appreciation rather than new inflows. Further breakdown shows that Bitcoin contributed the most, with its share rising from 66% in the previous quarter to 70%. In subscription revenue, whether it is stablecoin income or staking income, Bitcoin does not directly create an increase. Instead, the core asset types of the staking business, ETH and SOL, saw a decline in average asset prices during the second quarter, which undoubtedly affected short-term staking returns.

3. Profit pressure under rigid expenses: With high-margin trading revenue under pressure, the second quarter also saw a significant increase in employee costs (due to personnel expansion and equity incentives swelling with market value), and a £300 million fine from the UK FCA due to a data leak, significantly slowing core operating profit growth.

However, after excluding these impacts, the adjusted EBITDA margin still fell by 12 percentage points quarter-on-quarter. As a trading platform, the main rigid expenses are bandwidth server depreciation and employee costs, so short-term profitability is highly sensitive to fluctuations in the revenue side.

In addition, the originally high-margin stablecoin income, since last year, to incentivize users to use USDC, Coinbase has been increasing the reserve fund rebate to users. The subsidy ratio in the second quarter decreased compared to the first quarter but was still 40%.

4. Overview of key performance indicators

(Since BBG did not reflect the market's downward revision of expectations before the financial report, Barclays' expectations are listed separately as the main reference indicator)

Dolphin Research's View

The recent rise in Coinbase's logic is not much related to short-term performance. The valuation increase is due to regulatory relaxation, leading to on-chain ecosystem expansion brought by stablecoins in the future, but this is difficult to immediately reflect in performance boosts in the short term.

Instead, the cooling of trading first puts pressure on performance. Cryptocurrency trading volume in the second quarter fell by 26% quarter-on-quarter, and speculative sentiment has not yet recovered. In addition, staking and stablecoin income also failed to take up the banner in time, falling short of expectations to varying degrees. Under rigid expenses, once income is under pressure, profits are basically not worth looking at.

However, since the third quarter, trading sentiment has quickly warmed up. Although Coinbase's own stablecoin strategy adjustment is expected to slow down the platform's recovery speed, performance is likely to bottom out, and Deribit is expected to fill this gap through derivatives trading starting in July.

Since June, Coinbase has risen nearly 60%, at its peak 80%. Taking advantage of the short-term performance's underperformance to return to its original form, there is finally a chance for a pullback entry opportunity. Previously, in the deep report series, Dolphin Research provided a valuation range under different expectations from an endgame perspective (can be traced back at the end of the article). The post-market valuation of 87.5 billion is still slightly above our neutral expectation. If this opportunity (short-term performance pressure + tariff turmoil + policy window) is used to adjust downwards by 15% to around the neutral valuation of 75 billion (15% annual discount rate), the risk-reward ratio will be relatively attractive.

From a short-term perspective, because the long logic reflects on performance slowly, it mainly relies on pure valuation pull. Taking the 2026 performance expectation as an example, we assume a 10% revenue growth rate (vs. 2025's 6.5 billion), a 40% EBITDA margin level (considering cost reduction and interest rate reduction impacts, slightly lower than 2025), adjusted EBITDA of 2.86 billion, and a valuation level of 30x for top fintech, the neutral valuation is 86 billion, slightly higher than the present value discounted from the endgame.

The conference call will focus on management's statements on subsequent business development, especially regarding stablecoins, on-chain stocks, Coinbase Wallet, and Coinbase Pay, and Dolphin Research will release the minutes later.

Detailed Analysis Below

I. Introduction to Coinbase's Main Business

Coinbase is a platform centered around virtual assets, emerging from an exchange, dedicated to creating an on-chain comprehensive financial scenario. Compared to peers, its biggest advantage is compliance-friendly. This is expected to give it a head start as regulators actively recognize and promote the virtual asset market.

In terms of major revenue contributions, Coinbase has three main sources of revenue: trading revenue, subscription revenue, and others.

Among them, trading revenue is highly susceptible to trading market conditions but is also the current revenue pillar for Coinbase, accounting for more than 50%. Subscription revenue and others(including custody settlement, staking, stablecoins, data/cloud, and company investment income, etc.), serve more as a lubricant, as their growth is relatively stable, they can slightly smooth out the volatility of trading revenue.

However, a clear trend is that: with the broadening of scenarios, intensified competition, and changes in the structure of incremental capital sources, Coinbase's future dependence on trading revenue will decrease.

By attracting users with low fees and then expanding added value through comprehensive financial services, Coinbase aims to achieve its business model.Currently, it mainly leverages its compliance advantage to offer rate discounts to institutional users.

With the penetration of stablecoins in cross-border B2B transactions and RWA on-chain scenarios, leveraging the tailwind of virtual asset scale expansion, Coinbase is expected to become the "water seller" in the gold rush.

II. Platform Asset Expansion, Net Increase is Only a Small Part

Let's first look at the changes in Coinbase's user ecosystem.

In the second quarter, trading users decreased by 1 million quarter-on-quarter, falling back to 8.7 million. However, it was mainly due to the panic of old users, with the average trading volume per person dropping by 38%, resulting in dismal trading volume.

In terms of asset scale, the client asset scale on the platform reached a new high in the second quarter, totaling 43 billion including segregated custody funds, a 30% increase quarter-on-quarter. However, Dolphin Research's simple calculation shows that the increase in asset scale mainly relied on the appreciation of existing assets (especially Bitcoin, with its scale share rising from 66% to 70%), with only 20% of the increase coming from new inflows from outside.

III. New High in Market Value, but Trading Cools Down

Coinbase's short-term fundamentals are still heavily reliant on trading revenue. Therefore, any fluctuation in trading sentiment has a significant impact on short-term performance.

In the second quarter, the market value of cryptocurrencies reached a new high, but due to tariff fluctuations during the period, trading volume shrank significantly quarter-on-quarter. The industry as a whole fell by nearly 30%, with retail trading fluctuations being more pronounced.

Logically, Coinbase, with a higher proportion of institutional trading, should have some relative resilience. However, since March, it adjusted the pricing of stablecoin trading pairs, simply put, to promote USDC by intentionally reducing USDT and virtual currency trading pairs, further dragging down trading on the Coinbase platform.

Ultimately, the overall trading volume in the second quarter fell by 40% quarter-on-quarter, with retail trading volume down 45%, and the turnover rate dropped to the lowest in nearly two years.

Due to panic during sharp declines, many small and medium retail investors may have "immediate trading" needs, resulting in a higher proportion of Simple mode trading, which has a higher fee rate, increasing the comprehensive fee rate on the retail side by 15 basis points quarter-on-quarter.

However, the fee rate itself does not have a fundamental driving force for continuous increase, and the short-term increase space is difficult to resist the impact of trading volume decline. Ultimately, trading revenue fell by 39% quarter-on-quarter and also decreased by 2% year-on-year.

Looking at the third quarter, industry trading sentiment has improved. The trading volume in July in the above chart rebounded by 50% quarter-on-quarter. In addition, Coinbase itself has the launch of perpetual futures contracts, which is expected to offset some of the impact of USDT trading.

Looking solely at Coinbase's current derivatives trading situation, it is still in the early stages of penetration, and the growth trend mainly depends on its own penetration pace. The acquisition of Deribit announced at the beginning of the year has not yet been consolidated, and it may need to wait until the end of the year to complete the transaction.

III. Disappointing Subscription Revenue

Although the platform's client asset scale AOP reached a new high in the second quarter, the actual performance of subscription revenue was average, and the guidance for the current and next quarters was below expectations.

In subscription revenue, apart from institutional custody fees (expected to grow 13% quarter-on-quarter with custody scale this quarter), Bitcoin does not directly create an increase. Instead, the core asset types of the staking business, ETH and SOL, saw a decline in average asset prices during the second quarter, affecting short-term staking returns (down 27% quarter-on-quarter).

Stablecoin income is related to the amount held on the Coinbase platform during the second quarter. At the end of the second quarter, the platform held 9.64 billion, but at the end of the quarter, due to the rebound in cryptocurrency prices, users exchanged USDC back to cryptocurrencies, causing a slight decline in the scale of USDC at the end of the quarter.

However, the actual average holding amount during the second quarter was 13.8 billion, a net increase of 1.5 billion from Q1's 12.3 billion. Ultimately, stablecoin income increased by 12% quarter-on-quarter. (The USDC scale in the figure below is the end-of-quarter value)

IV. Profit Pressure Under Rigid Expenses

The core operating profit margin in the second quarter was under dual pressure from revenue and expenses, falling significantly quarter-on-quarter from 36% to 18%.

On the expense side, it mainly reflects the growth in employee costs, driven by the expansion of total employees and the swelling of equity incentives with market value. Additionally, core profits were also affected by a £300 million fine from the UK FCA due to a data leak.

However, after excluding these impacts, the adjusted EBITDA margin still fell by 12 percentage points quarter-on-quarter. As a trading platform, bandwidth server depreciation and employee costs account for nearly half of the rigid expenses, so short-term profitability is highly sensitive to fluctuations in the revenue side. There are also short-term non-returnable subsidies and rebate expenditures, such as since last year, to incentivize users to use USDC, Coinbase has been increasing the reserve fund rebate to users. The subsidy ratio in the second quarter decreased compared to the first quarter but was still 40%.