Q3 2021 Coinbase Global Inc Earnings Call

November 9, 2021

Good afternoon. My name is Celine and I will be your conference operator today.

At this time I would like to welcome everyone to the Coinbase third quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise.

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After the speakers' remarks, there will be a question and answer session. To ask a question during this session you will need to press star one on your telephone.

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Please be advised that today's conference is being recorded. If you require any further assistance please press star zero. I would now like to hand, the conference over to your speaker today, Anil Gupta, Vice President Investor Relations. You may begin your conference.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your speaker today.

Yogurt.

Vice President Investor Relations.

You may begin your conference.

Thank you. Good afternoon, and welcome to the Coinbase third quarter 2021 earnings call. Joining me on today's call are Brian Armstrong co-founder and CEO, Emily Troy, President and COO and Alesia Haas, CFO.

No.

I hope you've all had the opportunity to read our shareholder letter, which was published on our Investor Relations website earlier today. Before we get started I would like to remind you that during today's call we may make forward looking statements. Actual results may vary materially from today's statements, information concerning risks uncertainties.

And other factors that could cause results to differ from these forward looking statements is included in our SEC filings and shareholder letter available on our IR website at investor.coinbase.com.

Head of Investor that Coinbase Dot com.

Our discussion today will include references to adjusted EBITDA, a non-GAAP financial measure.

We believe that certain non-GAAP measures of financial results provide useful information to management and investors regarding trends relating to our financial condition and results of operations.

Non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP measures. You can find additional disclosures regarding adjusted EBITDA, including a reconciliation to net income to the comparable GAAP measure in our shareholder letter and current report on form 8-K, which are posted on our IR website.

<unk> a reconciliation to net income to the comparable GAAP measure.

In our shareholder letter and current report on form 8-K, which are posted on our IR website.

I want to note that we are once again using the Say technology platform to enable our shareholders to pose questions to our management team.

To enable our shareholders to pose questions to our management team.

In addition, we will take some live questions from our research analysts and with that I'll turn it over to Bryan and Alesia for some introductory comments.

Alright, thanks, and thanks, everybody for joining us as well. So we had another solid quarter. The volatility happening out there in the crypto market. So we never know exactly what's going to be happening this quarter in crypto , but you're seeing really strong and accelerating pace of crypto adoption globally.

<unk> had another solid quarter.

The volatility happening out there in the <unk> market. So we never we never know exactly what's going to be happening this quarter brookdale, but.

Youre seeing really strong and accelerating pace of <unk> adoption globally.

In the letter we actually shared some insights on the pace of its adoption and how it mirrored that of Internet 25 to 30 years ago.

And we looked at some third party research, which indicates that crypto users have doubles in the first half of this year now over 200 million people not growth is accelerating. So what we're going to focus on four main areas. The first is about products, where a product led company and we focus a lot on how we can improve the customer experience to get 1 billion people accessing the crypto economy through our products every day.

So what we're going to focus on four.

Four main areas. The first is about products, where a product led company and we focus a lot on how we can improve the customer experience to get 1 billion people accessing a crypto economy through our products every day.

So how are we doing that? Well, we're investing in our core app. The main retail App. We're also investing in our brokerage app for institutions we're building Coinbase cloud, which is our AWS like developer platform for any business out there that wants to build into the crypto economy. And we're even investing in new initiatives like our NFT marketplace and our direct deposit offering.

<unk> cloud, which is our AWS like developer platform for any business out there that wants to build into the circular economy and leave and investing in new initiatives like our <unk> marketplace and our direct deposit offering.

The second area is around customer service. So you saw that we announced 24/7 phone customer support, which we are going to be rolling out next quarter. We're also investing in product reliability.

In the midst of all this growth we're very focused on maintaining adequate uptime for our apps and websites. In an unprecedented growth period, and then lastly, we're focused on our policy and government relations efforts in regulation. So this was continuing the tradition that Coinbase had since the beginning of seeking out regulators being the most trusted getting licenses and actually being an educational resource to help educate folks around the world about how this industry can be something very positive for the world.

Adequate uptime for our apps and websites.

Unprecedented growth period, and then lastly, we're focused on our policy and government relations efforts and regulation. So there.

This was continuing the tradition that point basis had since the beginning of seeking out regulators being the most trusted getting licenses in actually being an educational resource to help.

Help educate folks around the world about how this industry can be something very positive for the world.

So I know there's lots of questions to get to you, but let me stop there and I'm going to turn it over to Alesia next to share a summary of our financial performance.

Brian.

Thanks, Bryan. As Bryan shared intrigued with the strong data we provided a lot of disclosure in our letter, but I thought I would share a few perspectives.

It starts with volatility. The story of our third quarter really centers on lower volatility that we saw early in the quarter.

Our monthly transacting users and trading volume and therefore transaction fee revenue all correlate with our 2000 and so it's a very important driver of our financials. Trading volume across the entire crypto market declined quarter over quarter in Q3.

Trading volume.

crypto market declined quarter over quarter in Q3.

For Coinbase, our institutional volume outperformance of the broader market and our retail volumes performed in line with the industry.

Next, I want to share a bit of color on our retail transaction fees. I know well watch that closely. As you'll see from our disclosures, the blended average fee rates are lower in Q3 versus Q2 for our retail business.

As you'll see from our disclosures the blended average fee rates are lower in Q3 versus Q2 for our retail business.

We want to be clear. There was no change to our retail transaction fee rate in the quarter. The decline that you see is a result of [math]. It is the result of the facts that in low volatility period, we see our low dollar volume traders become less active.

There was no change to our retail transaction fee rate in the quarter.

The decline that you see.

As a result of nap.

And as a result.

The facts that in low volatility period, we see our low dollar volume traders become less active.

We've seen this transaction reimbursed in October as customers have been very active on Coinbase given the change in crypto prices and volatility in October and our blended average recoveries were higher in October. So I wanted to share with you again. This is just an outcome of activity on our platform and there's no underlying changes to the fee rates.

Three other important trends I want to call out. First, our focus on asset and [inaudible] and today we see a 59% of our trading volume in Q3 coming from other crypto assets.

We don't know precisely which asset customers are going to adopt so our strategy of wanting to support all of these assets will give our customers the broadest and deepest choices to use them. Second, our customers are deepening their engagement with our products, 28% of our retail MCU that invested also engage with a second product online this quarter. And 49% nearly 50% of our EMTs are engaging with non investment products overall, we see this as a great indication that we're moving to the utility phase of cryto.

Second.

Our customers are deepening their engagement with our products, 28% of our retail MCU that invested also engage with a second product online this quarter.

<unk>, 49% nearly 50% of our emts are engaging with non investment products overall, we see this as a great indication or moving to the utility.

Tom.

Third, our subscription and services revenue was strong at $145 million. This is up 41% compared to Q2. We have previously disclosed despite the impact of volatility on the transaction revenue. And again this is just an encouraging sign that perhaps is increasingly moving to utility, particularly business cases around yield and rewards.

I want to turn to our outlook. In our shareholder letter, we noted a key important off to a strong start. Volatility prices have increased in October which has resulted in October monthly transacting users of 11.7 and October trading volume of 186 billion.

In our shareholder letter, we noted a key important off to a strong start volatility prices. Both increased in October which has resulted in October monthly transacting users of 11 seven and.

In October trading volume of 186 billion.

Additionally, as I mentioned before we've seen an increase in those retail fee rates in the month of October.

As a result of the strength, we've increased our MCU scenarios for full year 2021.

Our LOE is now 8 million MCU which is the average over the course of 2021 and our high at $8.5 million as outlined in our letter.

We also shared that we anticipate our 2021 annual average net transaction revenue per month will be in the high $50.

On the expense side, our updated outlook reflects our strengthening view of Q4, including transaction expenses in the mid teens as a percentage of our revenue.

Sales and marketing will be higher compared to Q3, as we ramp up our brand investments.

In our tech and Dev and G&A spend should come in the neighborhood of a $1.4 billion combined. It's important to note that that excludes, it does not include stock based compensation. With that, I'll turn it back to Anil to get started with Q&A.

Excluding <unk> it does not include stock based compensation.

With that I'll turn it back to announce get started with Q&A.

Thanks, Brian and Alesia. Before getting into Q&A, I wanted to clearly lay out some principles for our Q&A session today.

First, we will answer the most up voted question determined by a number of shares and made good questions together that touch on the same themes.

Second, we don't plan to answer questions related to the potential listing of new assets. And third, we will avoid questions we've answered in the past that there are no updates for example, we still don't plan to issue a dividend.

So our first question is from Sylvie P. and Jason M. They asked about Coinbase ventures can you talk a bit about our venture strategy investment process, and maybe highlight one or two investments you're particularly excited about.

Can you walk us through the capital allocation strategy? And how these investments are captured in our financials?

How these investments are captured in our financials.

This is Emilie Choi President and COO, thanks for being on the call. So we're very pleased with the progress of Coinbase ventures, we launched it in 2018, primarily with the mandate to support the growing crypto ecosystem. And we have become one of the most active corporate investors with more than 200 portfolio companies at this point.

So we're very pleased with the progress of <unk> debentures, we launched it in 2018, primarily with the mandate to support the growing ecosystem and we have become one of the most active corporate investors with more than 200 portfolio companies at this point.

One of the questions was about the ones we're most excited about. And we look at it as dramatically what is really interesting and popping and what teams and technologies are really interesting. So this includes everything from open fee, which we invested in our seed round in 2018, because we thought NFT is going to be interesting. <unk> spent and coin tracker because taxes are so important in crypto block buy for lending, unit swap for decentralized exchanges and then switch because we think India and international are such important themes. And that's the way we think about the portfolio. We just we really look at interesting themes and then try to find the best teams and technologies in this space.

<unk> spent and Quinn tracker because taxes are so important in crypto block buy for lending unit swap for decentralized exchanges and then switch because we think India and international are such important themes and Thats. The way, we think about the portfolio. We just we really look at interesting themes and then try to find the best teams and technologies in this space.

And as I mentioned, we want to support the ecosystem because it helps support and grow those companies and also helps us get differentiated insights about what's popping.

A secondary goal for us is about M&A pipeline and our partnerships. So for example, biking trails is a company that we invested in as a Coinbase centers company and it has now been acquired by us and forms the basis for Coinbase cloud.

A secondary goal for us is about M&A pipeline and our partnerships. So for example, biking trails as a company that we invested in subsequent Datacenters company and it has now been acquired by US and forms the basis for corn based cloud.

Another example of us on the partnership side is that we invested in compound before partnering to support their day one less thing for custody and trading. So we think there's a lot of different ways that we can work with these companies across the spectrum of partnership to acquisition.

And then finally, we also do care about ROI, and we think that will be showing strong returns in coming quarters around that but that's kind of a secondary ball for us.

Final thing I'll say on this is just that we've been spending a lot of time as of late working with protocols, web three infrastructure <unk> and of course NFTs no matter burst and we think there's just an abundance of innovation in this space and we want to keep doubling down on those opportunities. Alesia, do you want to talk about the financial part of us?

So first part of the question is how do we think about our capital allocation framework.

And here I would say there is no hard and fast rules. When we look at our overall balance sheet, we allocate capital for different use cases, one is to working capital. Two, is to products important strategic initiatives of which venture investments in strategic investments fall into that bucket. Third is to any potential risks that we may have that we want a self insurer and then lastly is the ability to be able to fund our business through our crypto winter. So this capital allocation is a constant discussion between Emily, Brian and I are about half what is the best and highest of our resources.

<unk> is two products important strategic initiatives of which venture investments in strategic investments fall into that bucket third is to any potential risks that we may have that we want a self insurer and then lastly is the ability to be able to fund our business through our crypto winter. So this capital allocation is a constant discussion between Emily Brian and I are about half what is the best and highest of all.

Our resources.

But it is a very important area that we allocate capacity to. We hold our strategic investments on our balance sheet under other non current assets and you can see those in our financial disclosures in our 10-Q's and k's. The majority of our equity investments that we hold less than 10% through the minority passive investments, we recorded a net cost and test for impairment on a regular basis. Could be subsequently written up. This is very rare because the accounting rules for when we actually write up and investment are very precise it has to be an identical transaction. And what we typically see in these investments that they have subsequent rounds that are not identical investments. And so you will see us typically carried at cost.

Area that we allocate capacity too.

We hold our strategic investments on our balance sheet under other non current assets and you can see those in our financial disclosures in our 10-Q's and k's. The majority of our equity investments that we hold less than 10% through the minority passive investments, we recorded a net cost and test for impairment on a regular basis. Could be.

Could be.

subsequently written up. This is very rare because the accounting rules for when we actually write up and investment are very precise it has to be an identical transaction. And what we typically see in these investments that they have subsequent rounds that are not identical investments. And so you will see us typically carried at cost.

We look forward into the future to producing more disclosure and giving you more insights into that portfolio in the disclosed caremark.

So next we received several questions about NFTs. Sylvia P and Stephen D asked if we can talk about the recent announcement of the Coinbase NFT platform and the overall strategy there.

Ftes Sylvia P and Stephen be asked if we can talk about the recent announcement of the coin based on our <unk> platform and the overall strategy there.

What are your plans for international expansion of the NFT platform and cross platform usability?

Devin Ryan from JMP Securities asks about the social component of NFTs. And Rich Repetto from Piper Sandler asked about the timing of when we will launch our marketplace.

Yes. So this is Bryan. I'll jump in on this one. We're very excited about NFTs. I think this is going to be a very large area for crypto in the future and it already is today. I mean traditionally Coinbase is focused on FTE fungible tokens, and we're equally excited about NFT. I think it could be as big or bigger we don't we don't know.

We're excited about <unk> I think this is.

A very large areas.

Crypto in the future than it already is today I mean traditionally clearly into.

Focus on FTE is fungible, so good and we're equally excited about NFC.

It could be as big or bigger we don't we don't know so.

No.

Let me just zoom out for a minute because of course, we launched countries in a tier we announced that we will be launching it next quarter or two and so appointments as a multi product company we have.

But internally, we call project, 10%, which basically means that we put 10% of our resources towards these new initiatives that are kind of outside of our core competencies.

You seem to be like can be wallet included commerce.

Good.

So this has been a key product that we have.

Talked about is really just a small team.

These effort that started just a handful of months ago.

So there was a question there about the <unk>.

When we can achieve a little bit more like.

Instagram is it.

Post to say, an auction like ebay or something like that and I think having people that you can follow your favorite artists or creators.

And having a feed of content that is populated from those people you follow up that could be royalty. If you really like it into kind of showcase.

And your own social profile.

In addition to that I think we can just make hopefully NFC is much easier to use.

Kind of a hallmark.

<unk> tries to get out there to bring more and more people into the crypto space. So.

Simple things like how do you connect your wallet you don't hopefully you won't have to install a chrome extension and if your identity and your opinion methods and everything you just already connected from your funded accounts.

It could be hopefully a one click experience.

So I think this is going to be a global phenomenon, we want to make sure our NFT platform is interoperable with every other platform out there. And hopefully, we'll see something launched in the next couple of quarters here.

This is going to be a global phenomenon, we want to make sure. Our NFC platform is interoperable with every other platform out there.

And hopefully, we'll see something launched in Mexico, a couple of quarters here.

Our next question comes from Lee L who has noticed some Coinbase marketing efforts lately, including ads on Youtube and our recently announced partnership with the NBA.

She comes from Lee L, who has noticed some corn based marketing efforts lately, including ads on Youtube and our recently announced partnership with the NBA can.

Can you walk us through the evolution of your marketing strategy and how that will continue to fuel the growth of your user base and how do you measure effectiveness?

Thanks for the question. So like many classic consumer Internet companies, we use very little marketing spend prior to this year. And now I think we see a huge opportunity and we're working to right size our budget and invest more in marketing. We think that the next concentric circle to reach 1 billion crypto users globally is possible here and we want to use both organic as well as marketing efforts to help reach those users. And we're also looking to figure out what is authentic for Coinbase. How do we celebrate the unique aspect of Coinbase in the crypto community and those marketing efforts.

<unk> is possible here and we want to use both organic as well as marketing efforts to help reach those users and we're also looking to figure out what is authentic for client base. How do we celebrate the unique aspect of <unk> based on the crypto community and those marketing efforts.

And so to that end, we recently hired our first demo [Kate Rao,] who came from Facebook and first half of this year was focused largely on performance and growth marketing. And now what you're seeing is that we're expanding into the full funnel of marketing, including brand efforts such as made in America in Q3.

And we have lots more to come. We think we have a very big opportunity to invest in brand expand the channels that we reach and that includes things like esports to art to support. And we're also very excited about investing in content educating existing and new users about the past. Just to add on a little bit, Emilie.

Have a very big opportunity to invest in brand expand the channels that we reach and that includes things like esports to art to support.

And we're also very excited.

About investing in content educating existing and new users about the past.

Just to add on a little.

But emily.

What I would share with regards to the how do we measure it, how do we think about it. Marketing attribution and efficacy is a new muscle that we're building as Emily noted our marketing spend is moving beyond performance marketing. So for performance.

Think about it.

Getting attribution.

Efficacy is a new muscle that we're building as Emily noted our marketing spend is moving beyond performance marketing so for performance.

And we are planning to test.

And so you should expect to see a iterating.

And testing quite a bit and we'll share.

If they are relevant.

Our next question comes.

<unk> K and Caleb Ho, who saw the updates to our crypto investment policy can you share a bit more detail around that program for those who may not be as familiar and what please.

Purchases will have purchases look like so far and with coinbase ever consider getting into mining.

Hello, Thanks for the question. So in August we announced an update to our critical investment policy.

Crypto denominated as we think about the future and so this is one step in that direction. We've made two commitments. The first was to invest $500 million of our cash and cash equivalents and crypto and second we're allocating 10% of quarterly net income in the crypto investments.

We are a dollar cost averaging into a diverse portfolio over time. So you will not see a $500 million step up in our investments at the Q3, but you should expect to see this balance continue to grow we've.

We've invested.

Upwards of $180 million year to date as measured at cost.

And what's important to understand is the crypto assets held on our balance sheet at cost.

In a line item called Crypto assets held and you can view additional disclosures on our footnotes, which break these out for what is an investment versus what is quicker that we hold for operational purposes.

You can also C&I footnote since fair value disclosure and you can see that our crypto investments as of Q3 were $540 million of fair value on the balance sheet and we disclosed that clients. The argument other crypto assets breakout.

Detailed.

Our next question comes from John P and Erin asked who asked regulation is top of mind can you give us a bit of insight into the regulatory state of affairs in the U S. Today, how it's going to be participating and how would you like to see the conversation evolve.

And to add on Owen Lau from Oppenheimer asked about how the digital asset policy proposal has been received by regulators.

Yes, I can take this one so regulation in our policy efforts certainly top of mind for us as well whenever we see a run up in Brookdale, we see increased interest in.

From policymakers around the world and so just kind of going back to our roots claim. This has always been a company that have tried to reach out gift chief licensing be the most regulated most trusted and also be really an adviser and a helpful voice for.

Finance ministers anybody around the world is trying to think about this change that's happening to our global economy with Brookdale and how it can be really.

It will be a source of strength and growth for the countries that embraces while minimizing the small amount of activity that's out there.

So we've continued that trend in recent months.

Met with a number of different regulators out there we on a regular basis, we even had a meeting I had a meeting last week with the chairman of the SEC sure Denver, which I think were very productive.

Theres a variety of different regulators in the United States and this is part of what we've talked about in our digital asset policy all of the proposal is that.

It's kind of a jump ball right now at a federal level.

The SEC treasuries and then of course, we have state regulators as well with some transmission licenses in lending licenses. This is just in the United States one country.

Many of almost 100, where we have customers and so it's kind of amazing that we appointed 53 regulators in just one country United States and so part of what we've talked about in that proposal residual asset policyholder was maybe it's time to have one regulator at the federal level in the United States It could be.

Underneath one of the existing regulators it doesn't have to be a completely new entity, but it would be nice to consolidated a bit and use that as a way to enable more innovation in this space because of course, Colgate is a pretty large company and frankly, its almost like better for us if theres more regulators because we can show shoulder the burden of that as a larger company but.

It's really harming the startups in the space more than we really want the space to grow and have 1000 companies.

Economic growth and economic freedom here in United States as.

As a financial hub and a world leader I think it's important for the U S to embrace that so.

Part of what we proposed in the digital asset policy proposal and I think.

With the tens of millions of Americans out there that are now using this asset class for all kinds of things not just.

Financial services and payments and things like that but also for art.

New forms of governance identity in meta versus.

It's just so exciting the millions of young people talented young people all over the U S are coming into this field and so I think most of the regulators we've talked to you around the world are realizing that this is going to become.

It's going to become politically unpopular tax brookdale, but where we can argue and we all share the goal both types of companies and regulators.

To come together and figure out how do we make this a safe industry that let's get rid of the scans lets go prosecute those would have good consumer protection and disclosures.

But also help the industry grow because thats going to be the best thing for America, and the American people long term.

Thanks, Brian.

Next question comes from JK, who had a financial strategy question. How does it should we think about compression in transaction fees driven by competition and how do you plan on diversifying our revenue streams.

Great question Jacob Baidu App.

I will start with it and we've shared before that we don't think of ourselves as primarily competing on feet today.

We believe the services that we're providing are not commoditized on the retail side, we compete on access to assets, which is why we have an acquisition we focus on products that allow our users to use their crypto such as our new home.

You are speaking transacting, those claiming card and increasingly the ability to more seamlessly interact with the fine. So we're providing what we think of as a platform for crypto economy that is unique and differentiated amongst a lot of our competitors on the institutional side, we're competing against the product suite as well, while we offer an institutional grade prime broker.

Deep liquidity, we offer secure storage for a customer switching so fee that is not the primary aspect that we can put on.

The other thing I would just want to share is that we haven't changed our fee structure in Q3 and haven't in some time. However, we do see the weighted average fee vary quarter to quarter, depending on the mix of volume that we see on our platform.

So we did see a decline in our retail transaction fees and crew training as we saw more volume from our pro platform than our consumer platform.

And this is very common in periods of low volatility like we saw in July that we see high activity remain under our institutions and our pro users and retail, whereas the consumer trading subsides a little bit.

And the opposite is true periods of high volatility like we saw in September and then we saw in October and so.

We do think in the long term now zooming out level that we will see some compression as more and more products become commoditized and cross sell.

And so we've already begun focusing on diversifying our revenue and you can see that progress to the growth at the line item in our subscription and services revenue.

As we turn your opening comments, but we're really excited about is to finance the crypto entity entering phase. So you guys are not coming to us just a transaction buying stocks. They are also engaging with products like stinking earn <unk> learn and this is just the beginning as we've announced that we're launching new products and services over the coming quarters that we think will further diversify these revenues. So we can.

Our job is to continue to build compelling experiences allow our users to indeed in multiple ways beyond just transactions and our goal is to become the primary financial accountant working difficult tamping down the revenue volatility and we diversified our revenue streams over time.

Our next question is about product experience, so Timothy <unk>, Adam W. And nickel assess have asked when can we expect to see improvements in the in app functionality around cost basis profitability et cetera of our position.

And similarly, what are you doing to what are you developing to help consumers come tax season.

Yes, so I can take I can take this one so let me just talk generally about how we think about this and then I'll answer your question directly so.

How do we think about taxes and cost basis, and Brookdale, we want to make it easier and easier for every customer of ours out there to calculate this.

Clinically it just works and you don't have to Boston for two and went up in value and now you want to spend it on an FTE or with previous commerce.

That all just works we produced one simple form for you at the end of the year and governments copy you get a coffee just like any other kind of financial service firm out there. So that's going to be great for crypto and I think the good news is that we're getting very close to having that ready. So we've already started rolling out something called the <unk>.

<unk> tax center and basically this is a single portal where customers can just download that one point at the end of the year.

If you're using <unk> based products today, let's let's say point of Commerce and U box.

On <unk>, we can help track all of that for you. So you don't have to worry about it now in the future I would love to see.

The crypto industry actually even develop some kind of common standards. So between different companies, it's actually interoperable, so, but if you bought the crypto somewhere else when you move it here you spend it there like there is a way to get information sharing behind the scenes and so it might be more that we can do on that in the future, but I think your point is tax center. We're rolling out is going to be a huge step in the right direction and make it.

Clinical just work for people who run on these products at least.

Secondly, you'd asked about cost basis, the profitability of the gain loss type summary, and this is a feature that we also feel as important we've been working on for a while so bye.

By Q1 in time for tax season, we should see support for that rollout.

Thanks.

So a question from Tony.

Who asked about competition, how do you think about the competitive landscape and who or what do you view as corn basis largest competitive threat.

We think it's a very positive development when companies in terms of the crypto economy, because we think it creates more innovation in this space and we think that the Tam potential is kind of when that last year.

On the more traditional side, there are companies like Paypal and square and Robinhood and traditional financial institutions, who are entering and we believe that that's a huge validation of the whole space in many cases, we're actually collaborating with those companies and exploring ways to partner and we've talked about our differentiation point relative to those companies as being.

Crypto Natus, we can offer features in assets more scalable because we have equipped donate event.

On the other side of the spectrum you have lots of other crypto native companies.

That are out there that we admire a lot at their pace.

Renovation is kind of breathtaking.

And we also view them in many cases as partners or collaborators, but also we look to them for inspiration in terms of what is resonating with crypto native users.

In many cases those companies are not regulated and we can offer more usable more regulated versions of those products to customers.

Customers as we've talked about that choose us for trust is abuse safety and security of our services.

That ultimately the way that you should think about coinbase in this market as we are kind of the best the best growth in terms of.

We are the regulated player we are the trustworthy player that makes things as usable as possible for our many customers and.

Then we also are crypto native and we are able to offer many more assets and many more crypto native features such as staking rewards borrow earn because of our exclusive focus on crypto.

Great. Thanks, So we'll take one more question from say before go into some live questions from the analysts our last one here is from <unk> and Jason <unk>, who asks the international plans.

How do you think about the product and future roadmap internationally, notably across South Asia and South America.

And additionally, harsh it's a robot from Sanford Bernstein asks if we can provide an update on our recent launches in both Japan and Germany.

Sure.

Platform is now available in more than 100 companies globally freedom in the World We believe.

To fulfill that mission, we have to have as deep global and broad portfolio as possible.

We are working to build products with a ship international by default mindset.

Crypto is very global so our product capabilities need to be as well.

Obviously note that different geographies and so we're mindful.

Look which features to scale, where and when and we look at a host of different technology and including.

GDP crypto volumes, but Fiat to crypto and correct that crypto currency stability.

We look actively to kind of pursue both M&A and partnerships to help accelerate our path into those different geographies. Alicia do you want to talk about the latter part of that question.

Absolutely. So thank you for the question on Japan, and Germany, we have shared in our Q2 share how we want to share with everybody that we have just received licenses in both of these markets and so they were the long awaited launch of class.

Just to go back.

To answer regulated markets as you go through a long license application process with the regulators. So sometimes we don't know exactly when we will launch as a result.

When we launched in those countries. It is an MVC product is the first kind of foothold in our country and so what we see in Q3, we don't have a meaningful update to provide you in terms of those launches, but our goal is to develop.

Very similar products in those markets that we have in the U S reduce customer friction offer delightful onboarding experience within customer rail and that's what we're building towards in those markets to really be able to then market in both his customer.

Yes.

So not yet material, but we hope to have news in the coming quarters.

Okay Super Thanks, So with that we will now transition and take a few live questions from our analysts so.

Celine I will turn it over to you for the first question. Please.

Thank you.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that is star then.

Number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

We have our first question coming from the line of Kenneth Worthington with Jpmorgan. Your line is open.

Hi, Good evening. Thank you for taking my question.

The crypto currency markets have had a nice move in recent months in recent weeks do you think that the drivers of this interest in crypto currency markets ecosystem today, and I think you guys mentioned web three <unk> a number of times in the prepared remarks are different from the drivers that drove interest in the ecosystem late last year.

And even earlier this year and maybe at a higher level, how is the interest and the ecosystem evolving for retail and corporate investors as crypto currency as a fall from the fringe towards more of the mainstream.

Yes, thanks for the question Ken.

Sure My high level thinking on this and then.

Sure I don't have any thoughts as well please jump in.

I mean.

So I think if you go back.

Really 345 years, a lot of these cycles and crypto where more speculative in nature people were buying it because this is now a scarce digital good and we thought it would be valuable in the future and there was some people using it for payments and things like that but it wasn't.

Primary driver.

What's exciting now and by the way people would always ask me back then.

<unk>.

Exactly.

This case is going to be here right. Luckily nobody is really asking me that question anymore. I mean, we're now seeing the tons of use cases.

Sure.

And if keys in games, and Youre, seeing staking and borrowing and lending and credit card and I think as Alicia shared at the beginning I think almost almost half of our customers and our active customers are doing something other than trading crypto.

So I would say that.

I would hesitate to speculate on what is driving momentum because I think you tried to take a long term view of this in a little bit.

Less concerned about the recent rally or whatever we're always come in a little bit longer term, but to me. The most important thing is how do we drive more people actually using crypto for more things went.

Now seeing that in the numbers and I have to imagine that thats driving a lot of this recent growth.

West of the speculative things so.

Alicia and when do you want to add.

I agree with all that Brian I would just to connect the dots, perhaps a little bit when we see the growth of entities that has it.

Great tailwind effects to then the cerium locked <unk> assets and then we're seeing new development on Florida, which then has.

Yes.

Benefits for those underlying protocols.

And so I do think it's just the activity.

In headline and innovation that we're seeing that is driving a lot of it overall crypto market cap growth.

I think that's definitely the case on the retail side or the non institutional what I think we're continuing to see is new types of institutional investors decide to make an allocation of crypto and what we see there is an adoption curve that starts a bit coin. Typically then move to a theory, but as quickly then picking up two other crypto assets and we're seeing those investors looking for allocations today.

By finding ways that they can make bets in.

The growing innovation of crypto broadly.

Lots of different drivers, but it does feel different as Brian said, but it feels less speculative and more driven by utility and broader adoption of crypto in more traditional use cases.

Great. Thank you very much.

We have our next question coming from the line of Lisa Ellis with no sense Nathan Your line is open.

Terrific. Thank you. Thanks for taking my question this quarter, we've seen the launch of crypto Etfs in the U S. Can you talk a bit about how etfs are affecting coinbase or may in the future and I guess, maybe the broader question is can you elaborate a bit on how corn basis thinking about partnering versus competing with some of the tradition.

No.

Managers that crypto investing mainstream.

Yes.

Thanks, Lisa maybe innocently, so maybe I'll start and then Brian <unk> feel free to add on.

First of all we're actually all hear cheering for the approval of the Bitcoin Etfs and we think that it will benefit trading volumes just broadly in the ecosystem and add to broader adoption is there are some institutions that don't have the ability to invest in underlying spot.

That said, we think it's a different market. So crypto spot markets of 24, seven global there's never a dull moment in them, but in ETF market. Obviously follows the traditional securities timeline, and so it's not $20 seven and there'll be different trace that one can put on each of those markets. So we think that they own.

<unk> attract different investors in different use cases.

Obviously, the bitcoin Etfs will also benefit the broader spot market and we have the ability to provide customer solutions and are actively having conversations about how we can support broader adoption.

And while our business today is entirely spot, we do have ambitions of launching futures trading with us in the future and apply for approval to do so in the U S.

We're excited about the potential for that future growth of our own business as well. So in general again very positive. We're excited for that just growth of the crypto economy, and what that will bring more users into the space.

Great.

Thank you.

Thank you we have our next question coming from the line of Pete Christiansen with Citi. Your line is open.

Good evening, Thanks for the question and glad to be here.

Brian I appreciate your color on the question regarding policy.

It doesn't necessarily have to be under a completely different.

But certainly a separate regulatory framework.

I guess, how do you think about that in the context of.

Having some cohesion with the traditional finance world.

On a regulatory front.

You have to get Ti dollars into crypto somehow how are you thinking about.

How policy may be should should be performed around around that notion.

Thank you.

Yes. Good question. Thank you for bringing it up I mean.

I think it was certainly acting as a bridge between the traditional financial system in this nuclear fuel economy, and so we often need to play in both worlds.

For instance, we are accompanying customer funds.

Dollars until we have money transmission licenses for that as an example.

I think this might be a good question.

Lisa I don't know if you have any thoughts on it or feel free to add more contracts if anything.

Sure.

Just on crypto and the reason we would like that is that the technical differences.

Environment grew up around the need for financials.

Intermediaries banks broker dealers to really facilitate the regulations and team.

The interface between lakes and the customers the technology can provide some of those services directly.

Crept down and so we need to make sure that the regulations and around the common spirit around yes, we don't want to have broad we don't want to have scams, we want to protect customers, but can technology solve that.

With intermediaries as an example, and so we think that having a single regulator really deeply understand the technology and then.

Help frame, what the new principal for financial regulation.

But we also believe that there is going to be.

Assets that are securities and those.

Crypto commodities will be regulated.

Or under traditional financial services.

Regulation, but theres a lot of things that are new that needs to be adopted and so having that focus within this valuable I don't know if that helps kind of frame our view.

One was that would be great.

No I would agree with that I think there are some parts, which are probably applicable in this nuclear fuel economy looks like of course, we don't want Brian.

We don't want scan market structure rules or colleague there for good reason.

Some rules that we.

We are always questioning does this actually makes sense in the new Crypto company <unk> said from looking generic intermediaries aren't there or does the new technology paradigm, and so I think that kind of.

The big hard question in the room that a lot.

Regulators and policymakers are having to grapple with right now and we're trying to be helpful resource to them is what really do those.

Peripheral economy are these really relevant or is this actually holding back.

Innovation and so those are those are big questions asked maybe even above our pay grade a little bit, but I think they are important ones.

Thank you Greg.

Our next question coming from the line of will Nance with Ges. Your line is open.

Yes.

Hey, guys good afternoon.

Evening.

Just another question on the regulatory.

Our environment.

I think it's always been thought of as one of the members of the crypto ecosystem. That's been the most proactive with regulators with your approach to compliance.

What are you seeing in conversations with regulators today and.

Should we prioritize them.

Those two kind of.

Pull back on the ramp a little bit of electrical let you guys kind of be more free to rollout new products is there a pipeline of new products that you guys are most excited about but that you cant proceed with until there is more regulatory clarity.

Yes, thanks for the question.

I would say, 90% of our interaction with regulators are really positive and constructive and I generally feel like they're doing really well.

We try to reach out proactively to everybody before we launched products well in advance and kind of given a heads up.

Due to that worked out pretty well.

One of the 10 times, we see some kind of bad policy to propose and we built.

Our depot up is really just the properties.

We engaged I think Dr.

Vast majority of the time with the regulators that we interact with our.

Achieve the same outcomes same goals.

Which is consumer protection and third market.

There have been times, where we felt like.

We wanted to launch a product and we've gotten kind of a different answer at the last minute about whether we were allowed to roll it out and that's really really tough on the team clean base that have put a lot of time into building these things.

This is a fast moving space, we understand that these are complicated issues. So it's not always simple answer them.

Well.

Yeah.

With every single company in this space.

1000 <unk>.

Let us now so.

We're the largest company, we sometimes get more scrutiny.

<unk>.

Aren't able to launch it suddenly and philosophy.

It doesn't feel like that's actually creating a fair.

Okay.

Fair market a level playing field, so we try to avoid things like that.

Operator, we have time for one more.

Quick question. Please.

Thank you we have our last question coming from the line.

Rich Repetto with Piper Sandler Your line is open.

Yes, good evening.

So just the blockchain rewards.

Doubled.

Yes.

Quadruple the project.

Sure.

Runway.

Going forward.

Taking in.

But what do you expect.

To grow it at but what type of pace given the great results, we've had here at <unk>.

Okay.

Quarters.

Thanks for the question I'm going to reinstate it just because your audio was a little choppy, so but I think to your question wise and what you've seen significant growth within our blockchain rewards quarter over quarter and Youre asking about what the trajectory is can you just confirm that I understood. The question.

That's exactly it.

Okay, great. Thank you for the question, it's nice to hear from them.

Yes.

Now we are really excited about the growth of blockchain rewards, which is predominantly taking revenue today and the growth here is really around the growth of overall proof of state networks and the growth. There crypto overall. So one is we're going to add more prudent stake networks are sticking in more assets on our part.

Two is we have continue to have a waitlist for experience taking anthony existing sticky we offer and so where can you continue to roll that out and bring more users into that.

Taking assets that we do provide is that we have existing runway with those assets.

Those are going to be the two significant drivers of that growth that we believe that this is networks.

Overall industry.

Dean.

No I think prudent basis.

Being reward these walking rewarded as we call it.

The growth in the future.

Yes, I believe it at this point and in a corn basis the largest during two speakers for instance.

Great.

Emily anything also want items before we wrap up.

I think that.

Big source of innovation Thats goes back to one of the other questions about.

What is driving kind of the activity in the ecosystem and I think it comes back to that and so we're pretty bullish on the potential for this both as just helping the ecosystem as well as being an important source of subscription revenue for us.

Great. Thank you.

Thank you, Brian Emily Alicia.

You all for joining US today, we look forward to speaking with you again on our next call.

This can be you have been removed from the Aha.

You quoted by meeting you may now disconnect.

Sure.

Okay.

Yes.

Thank you.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

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