Coinbase (Minutes): New Business Flourishing in Multiple Lines—Payments, DEX, CAS...

The following is a summary of the FY25Q2 earnings call for $Coinbase(COIN.US) compiled by Dolphin Research. For an interpretation of the earnings report, please refer to 《“Bleak” Performance, Hard to Extinguish the “On-Chain Fire”》

I. Review of Core Financial Information

3Q25 Guidance:

a. Performance Expectations: Trading revenue in July was approximately $360 million, with Q3 subscription and services revenue expected to be $665-745 million (midpoint up 8% quarter-over-quarter), driven by increases in average cryptocurrency prices and stablecoin revenue growth.

b. Expenses:

- Technology development and general administrative expenses: $800-850 million.

- Sales and marketing expenses: $190-290 million.

c. Personnel Growth: Q3 growth will exceed Q2, with a focus on previously mentioned core product areas (trading, stablecoin payments, etc.).

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

1. Trading Business Progress: All asset classes will eventually be “on-chain,” with the customer, technology, and regulatory environment now mature, needing to meet cross-asset (stocks, commodities, real estate, cryptocurrencies, etc.) investment demands.

a. Spot Crypto Assets: Over 300 assets were launched in Q2, and next week, decentralized exchanges (DEX) will be integrated into the Coinbase app, ultimately supporting the trading of millions of tokens.

b. Derivatives Products: Launched 24-hour trading services for Bitcoin and Ethereum contracts; perpetual futures launched in the U.S., with trading volumes reaching record highs; announced the acquisition of the world’s leading crypto options exchange Deribit (with open interest exceeding $30 billion).

c. Tokenized Stocks: Plans to launch under a new regulatory environment, with advantages including global coverage, 24-hour trading, instant settlement, and support for perpetual futures, aiming to capture 3% of stock trading volume (equivalent to twice the current crypto market size).

2. Stablecoin Payments: Payments are the next major application scenario for cryptocurrencies, with stablecoins becoming the mainstream payment track due to being “faster, cheaper, and global.”

a. Vertically Integrated Payment Stack: Covers USDC (the largest regulated dollar stablecoin), BASE (a popular Ethereum Layer 2 solution), consumer applications/wallets with tens of millions of users, and enterprise-grade payment APIs.

b. Implementation Results: Launched a stablecoin payment API in Q2, supporting enterprises, merchants, and developers in accepting stablecoin payments, with partners including Shopify (already launched).

c. Policy Benefits: The passage of the “GENIUS Act” will promote stablecoin innovation and adoption.

3. Infrastructure and Ecosystem Cooperation: Serving over 240 enterprises (such as BlackRock, PNC Bank, Stripe, PayPal), meeting their custody, trading, and payment needs. Providing custody services for 80% of cryptocurrency ETF issuers. Offering compliant and secure crypto asset management solutions to over 150 government agencies and institutions, becoming a benchmark of trust in the industry.

2.2 Q&A Session

Q: How does Coinbase plan to launch tokenized securities and capture market share as demand grows? How does Coinbase ensure risk management compared to traditional finance and tokenized securities? Is there a timeline for stock tokenization or real-world asset tokenization?

A: We are very excited about tokenized securities, which are as significant as the introduction of the digital dollar—just as dollars in a bank account can be minted 1:1 into tokens. Cryptocurrencies are poised to revolutionize the financial system in the securities field, although the specific development is still unclear, there are many opportunities for global distribution around securities, such as strong demand for U.S. assets in regions where it is difficult to open brokerage accounts, and the tokenized securities field may see new markets like perpetual futures, as well as real-time settlement, 24-hour trading, fractional trading, and even novel on-chain voting and governance forms, ultimately unlocking significant value as assets go on-chain.

Achieving this goal requires a multi-step approach, possibly involving cooperation with traditional brokers, with the method of underlying asset custody being crucial, and risk management (for margin trading needs) being our strong suit. It depends on recruiting professional talent from the technology and financial sectors to build the system together, and Coinbase has excelled in creating the most trusted, compliant, and user-friendly products over the past 12 years, where users do not need to understand the underlying blockchain technology, only to be able to trade assets, which is our direction.

Q: What are the expected growth in revenue and usage for the Base application? What measures are being taken to promote widespread adoption of blockchain identity on Base to compete with mainstream tech companies like TikTok and Meta?

A: I am very excited about Base. It is our attempt at the forefront of cryptocurrency utility, integrating multiple technologies co-developed by the industry over the past decade, such as decentralized identity based on ENS, USDC stablecoin, scalable blockchain, decentralized protocols, etc., and is a super app in the testing phase, with 700,000 people already in line, indicating strong demand.

The most exciting aspect is that content creators (whether creating podcasts, artworks, videos, or texts) can profit directly from their audience, changing the traditional ad-driven model of the internet, as the internet now has a native currency layer. Our goal is to bring 1 billion people on-chain, and self-custodial wallets like Base and related new applications will help achieve this goal, though there is still a long way to go.

Blockchain-based identities (such as Base names) are obtained and controlled by users for free, with related data not controlled by big tech companies, which will attract a large number of consumers and creators.

Q: What is the strategic goal of Coinbase's partnership with PNC Bank? Are there plans to collaborate with other banks in the future?

A: Our goal is to expand the market. Many companies are entering the crypto space but are unwilling to build complex private key storage, blockchain integration, on-chain transaction payment facilities themselves, so they choose to partner with experienced Coinbase.

We have long opened our internal services to the outside, offering them as “Crypto as a Service” (CAS) to third parties, similar to Amazon AWS. Currently, about 240 institutions use our service channels, and we recently announced a partnership with PNC Bank, while also advancing collaborations with JP Morgan, eToro, Revolut, Webull, and more to come.

It is expected that most Fortune 500 companies will eventually integrate crypto business, just like using the internet. Interested companies can search for “Coinbase Crypto as a Service” to learn about cooperation.

Q: Who are the target customers for the stablecoin and payment system? How does it differentiate itself in the market? Is there a plan to disrupt Western Union, Visa, or banks? How do you view the competition between our product system and other payment products in the market?

A: The payment field is vast, covering merchants, e-commerce, peer-to-peer payments, etc. We first focus on B2B payments, especially in the cross-border field, where the market opportunity is about $40 trillion, with B2B accounting for 75%. Stablecoins have already seen some application here, with annual transaction volume growing from nearly zero two years ago to about $100 billion, showing rapid growth.

We are bringing our full-stack payment solution to market:

With the most popular Layer 2 solution BASE, enabling efficient global payments at less than one transaction per second and less than one cent in fees;

USDC, in collaboration with Circle, is the most trusted regulated dollar stablecoin;

And payment APIs built for enterprises and developers, as well as applications and physical cards that allow consumers to spend with cryptocurrencies.

We are one of the few companies globally with such a full-stack solution, driving payment transformation.

Many enterprises have already inquired about cooperation, we have announced partnerships with Shopify and others, with more to come. This is a key area of focus for us with significant growth potential.

Q: What is Coinbase's long-term positioning in the payment field? Behind the two major cooperation announcements with Shopify and Commerce this quarter, is there a plan to build a network open to everyone that can replace Visa and MasterCard, or to create use cases for Coinbase customers (such as through Coinbase credit cards)? Is it reasonable to have both, and what is the ultimate focus? Is the payment business's profit point transaction fees, USDC payment income from Circle, or is Coinbase expected to obtain both?

A: Coinbase does not compete with Visa or MasterCard, but rather collaborates extensively in the physical card business. However, decentralized protocols form competition with them, with open standards being more efficient and fair, similar to the development logic of the internet, reducing costs, promoting the democratization of information dissemination, and reducing gatekeepers, which is a major upcoming transformation, and Visa and MasterCard are also actively involved in stablecoins and cryptocurrencies.

We are working on two fronts: serving cryptocurrency holders with consumption needs and expecting better rewards; and meeting merchants and enterprises looking to reduce fees. For example, in our partnership with Shopify, merchants saved on fees and offered 1% cashback to customers spending with USDC, improving market efficiency. Coinbase builds infrastructure for other institutions and also develops its own products.

Stablecoins may replace part of the existing network, but related companies can profit through nodes, and if they embrace the future of digital assets, there will be ample room for development.

Q: What potential licenses are included under the “Project Crypto” framework? Why does the SEC want to promote the development of super apps in the U.S.? Why do you believe the Base app has the capability to realize this super app vision?

A: Chairman Atkins' speech is significant, as the current environment of the SEC and the entire U.S. federal government has changed in ways unimaginable not long ago, and I recommend reading the speech.

A single license is clearly beneficial for many companies, including Coinbase: First, it can reduce compliance and operational costs associated with multiple licenses, especially in terms of regulatory inspections and supervision; second, the SEC has committed to following up with formal rule-making and other official actions, and the commitments and vision in the latest report from the President's Working Group will also advance.

Therefore, whether from the benefits of the license itself or the tone of the chairman's speech, we have ample reason to be optimistic. As the SEC advances work through the “Project Crypto” and “Crypto Task Force,” the vision of President Trump and Chairman Atkins will continue to be implemented.

Q: What is the potential market size for currently tradable assets and new types of assets that may become liquid due to tokenization? Will Coinbase act as a liquidity hub and broker for these asset trades, and will it assist product issuers in asset tokenization? In which areas does Coinbase plan to participate in revenue (such as custody, lending, etc.)? When is the tokenized stock business expected to launch?

A: First, we aim to capture the brokerage front-end relationship, covering various customers (retail, advanced traders, institutions, third-party interface users, etc.); while operating a centralized exchange, we also invest in decentralized exchanges, customers do not need to worry about the trading platform, only that orders are routed to the optimal place.

Additionally, many companies contact us for assistance, involving initial issuance, financing (such as investment funds, real estate projects, startups, film production, etc.). In collaboration with the SEC Crypto Task Force and the current relaxed regulatory environment, we are poised to assist clients in financing in a more efficient crypto-native manner, with related areas under study.

On the timeline, we are working hard to advance, hoping to proceed in a correct and trustworthy manner. Currently, no institution has launched tokenized securities, and doing this well requires a lot of work, but this is our expertise. We will provide timely updates on progress in the coming quarters.

Q: Besides retail and institutional holdings of USDC on the Coinbase platform, where else is there potential growth? Will there be efforts to integrate USDC with banks, digital banks, and remittance companies? Will these integrations be counted as USDC-related business on the Coinbase platform?

A: We profit from USDC balances on the platform and USDC circulation in the ecosystem, as explained in the shareholder letter regarding revenue composition and our share of USDC earnings.

Attracting more partners such as banks, digital banks, and remittance companies,aims to enhance USDC adoption, increase interoperability, and drive network effects, with both Circle and us having this motivation. Some balances remain on the platform for direct profit, while the increase in total USDC volume leading to off-platform circulation allows us to share 50% of the revenue. We offer incentive programs to partner companies, attracting more partners through revenue sharing.

Stablecoins have network effects, especially in the payment field—it is more effective when both the sender and receiver use the same stablecoin and underlying payment channel. Although theoretically, it can be exchanged instantly like foreign exchange, actual operations are complex and involve fees, so there will be more integration in the stablecoin field. USDC is the largest regulated dollar stablecoin, with most stablecoins backed by the dollar, and sharing revenue with partners, it is expected to win the network effect.

Q: What is the specific profit model for the payment business? Does it rely solely on the promotion of stablecoins, or does it include transaction fees on platforms like Base? Are there other charging methods such as subscription fees?

A: The payment business profit model includes: first, supporting the stablecoin business, profiting from USDC balances on the platform; second, direct profitability, such as providing payment services to enterprises at rates far below current levels, still forming a good business model; third, transaction sequencing fees on Base, and in the future, when Base is decentralized, partners running its validator nodes can also earn this fee.

The payment business profit model is not difficult to achieve, with the key being that payment costs are expected to decrease by one or even two orders of magnitude, significantly reducing the friction cost of payments in economic activities.

Q: How are economic benefits and revenue generation considered in partnerships with major banks like PNC and JP Morgan? Who ultimately controls the user experience, the scope, and accessibility of Coinbase services? What is the timeline for such services?

A: Regarding user experience, the initiative is in the hands of partner banks like PNC and JP Morgan. We provide fully white-labeled infrastructure services, similar to AWS's cloud service model, without embedding the Coinbase brand, and they will have full control over the user experience (we only control the user experience on our own platform).

These partnerships are exciting opportunities, with the potential to expand more business in the future. Our “Crypto as a Service” is a one-stop solution, allowing partners to select services like a buffet or Lego blocks as needed (such as starting with global payouts, then adding custody, wallets, USDC balance earnings, other cryptocurrency holdings, etc.).

Profitability is mainly achieved through existing products, and as integration is implemented, institutional business transaction volume and custody asset scale may grow, reflected in the growth of existing projects rather than as independent items on the profit statement.

Q: How is the interest mechanism for stablecoins structured? The “Genius Act” does not allow interest, but rewards seem to be allowed. How do you view the development and evolution of stablecoin earnings? Do you expect users to prefer tokenized money market funds over stablecoins, or will they switch between the two?

A: We offer reward programs for users using USDC on the platform, which is related to the value users bring to the platform, promoting more transactions and the use of other products and services, similar to marketing or loyalty programs.

If stablecoins and tokenized money market funds, tokenized deposit accounts have similar utility, users will focus more on utility and network effects, i.e., the degree of widespread acceptance. Therefore, we focus on promoting USDC adoption, enhancing network effects, and attracting more partners to increase its utility.

The “Genius Act” prohibits stablecoin issuers from paying interest and earnings, but we are not the issuer, and what we pay are rewards. We plan to continue offering competitive rewards, which is a differentiated product and an important reason for users to choose to store funds with Coinbase.

Q: What is the economic consideration behind adding decentralized exchanges to the platform? How does adding decentralized exchanges achieve profitability? To what extent will adding these related services impact the trading volume of its own retail trading platform?

A: We profit from decentralized exchanges in a manner similar to centralized exchanges: the brokerage business layer charges transaction fees, with rates similar or sometimes slightly higher, and orders are routed to decentralized exchanges.

We have investments in some decentralized exchanges (decentralized exchanges are not owned by any company, and we have no intention of fully owning them). If decentralized exchanges run on Base, we may also earn Sequencer Fees, but the main source of profit remains the brokerage business layer.

Q: You have launched the most extensive CFTC-regulated crypto perpetual contracts in the U.S., how has the initial progress been? When is this business expected to become a significant source of revenue?

A: We are very excited about the derivatives business roadmap. In the past two weeks, we have launched the first domestic perpetual contract product for U.S. retail users.

Derivatives trading accounts for 75% of the cryptocurrency market, with over 90% conducted overseas. Currently, this business is in its early stages, but trading volume has doubled week-over-week, showing good momentum. In the short term, we focus on increasing liquidity, open interest, and trading volume to capture market share, not focusing on profitability for now, and will further explain its contribution to revenue in the coming quarters.

Perpetual futures were previously the main category of overseas crypto trading, and launching them in the U.S. required significant technical, regulatory, and policy efforts, which is our specialty—integrating technology and policy capabilities to drive business implementation, and we have already seen initial success: Q2 derivatives trading volume exceeded $1 trillion, with open interest reaching a record high of $10 billion, showing significant progress.

Q: In light of the data breach incident this quarter, what considerations does Coinbase now have for its customer service strategy? To what extent do Coinbase's efforts help improve user satisfaction?

A: From the lessons of the data breach incident, we recognize that as hacker attacks become more sophisticated, we must properly control business process outsourcing (BPO) strategies, so we plan to bring many business processes back in-house. We are focusing on advancing automation and AI transformation while maintaining customer satisfaction (CSAT) scores, with significant room for improvement in social and chat customer service areas. Current response times are good, but user inquiries are complex, and automated services are still in the early stages, requiring assurance of a good user experience. From this incident, we also realized the need to establish quality control mechanisms to prevent customer service personnel from being exploited by hackers again.

We are strengthening system protection, investing heavily in the platform to enhance customer data and asset security. Additionally, we have just opened an office in Charlotte, North Carolina, expanding onshore customer support facilities, and offered a $25 million reward for information leading to the capture of the threat actors, hoping to work effectively with law enforcement and deter future similar incidents.

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