Q1 2023 Coinbase Global Inc Earnings Call
So Emily Choi President and CEO , Alicia <unk>, CFO , and Paul <unk>, Chief Legal officer.
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. These results to differ is included in our SEC filings.
Our discussion today will also include references to certain non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website.
non-GAAP financial measures should be considered in addition to not as a substitute for GAAP measures.
We are once again using the <unk> technology platform to enable our shareholders to pose questions. In addition, we will take some live questions from our research analysts.
So with that I'll turn it over to Brian and Alicia for opening comments.
Thanks Neal.
I think it's always helpful to zoom out and remind everyone why queen based exists with our mission and vision and our mission at <unk> is to increase economic freedom in the world.
Think crypto is the most important technology out there to do that so many people today. They are still thinking about crypto as an asset class that people like to trade and that certainly is part of it but it's actually a technology that can be used to update many different aspects of the financial system and we think that's really important because 80% of Americans believe the financial system doesn't work for them.
<unk>.
Issues with it they see thats too slow too expensive there is an equal access for everyone and that's not really surprising a lot of the traditional financial system is running on outdated code with laws that in some cases are 100 years old.
So crypto can help improve this that can help make payments fast and cheap and global like sending an E mail that can improve settlement times that can reduce fees. It can even token is different asset classes to make markets more efficient and help with nonfinancial use cases, like decentralized identity or voting and new types of ways for artist to monetize their content.
So you can think of crypto as a technology to update our financial system. It's also kind of the next generation of the Internet. If you will what people are calling web three and clean base has a very important role to play here, where People's primary financial account in the crypto economy, making a trusted and easy to use.
And we're going to hopefully help bring the power of this technology to eventually 1 billion more people Sunday.
So with that background I just wanted to touch on two areas that are most relevant for Q1.
The first one is going to be about how we've shifted the business to operate more efficiently in this down market and by driving positive adjusted EBITDA in Q1.
And secondly, we're going to talk about how we've had a really impressive pace of product innovation again, even in this down market operating in a more lean environment.
So lets talk about operating more efficiently.
Q1 marked a real turning point in our financial performance.
Revenue was up and costs were down so net revenue increased 22% quarter over quarter, while we decreased total operating expenses, 24% quarter over quarter. The net result of this is that we had positive adjusted EBITDA in Q1.
We're better positioned quite base to generate adjusted EBITDA in all market conditions as I mentioned on our last earnings call and to cut the expenses, 24% quarter over quarter, we had to take a close look at every investment we're making every vendor we work with every dollar that goes out the door and frankly, even every head count in the company and we have asked ourselves how can we do more.
With less to be a more efficient company.
We conducted a reduction in force in January we reduced cost substantially from our top five vendors by rebuilding parts of our technology stack to do things like optimizing data storage CPU utilization in the craft and the cloud.
We also reduced our real estate footprint to achieve additional savings.
And just in general it took a much scrap your approach with more nimble teams.
All of this of course, we continue to have a strong balance sheet at $5 3 billion or USD resources.
And with this more nimbler efficient team, we still been able to encrypt to ship an incredible amount of product.
So that's my second topic here, let's talk about how we've been continuing to drive product innovation in the crypto space.
We have a more nimble team and we're also in a bit of a down market in crypto.
And I've said this in the past I actually think down markets are the best time to do the building of new of new things because in the upmarket things seem to be growing so fast that we often have to focus most of our time on scaling.
So we've gotten a chance to build a lot of great stuff, even as we become more efficient in some recent examples of that just in the last week, we launched our international exchange, which helps us get into the derivative space. We acquired one river asset management, which helps us get into the asset management business. I think this could be a really interesting source of subscription and services revenue over.
Time.
We launched our base layer two solution, which is a really important way for us to help scale blockchain. This is going to be one of the most important ways. We unlock the next wave of crypto adoption and we launched something called wallet as a service, which is an important part of our <unk> cloud offering it helps any business out there integrate crypto custody into their services.
Yes.
So just assuming out crypto, obviously, it goes through many up and down cycles, but the best companies in the world.
The most trusted brands like coinbase, they tend to get stronger in down markets. This is the crypto cycle that <unk> gone through and we've emerged stronger after each one of them. So I think we've built a really resilient business here, we've diversified our revenue stream away from trading fees and we're in a really strong financial position with positive adjusted EBITDA in Q1.
With that let me turn it over to Alicia to discuss our financial details our financial results in more detail.
Thanks, Brian .
I'm, just telling their market conditions and the trading volume in the quarter.
Average crypto market cap increased 16% quarter over quarter.
Wow crypto as volatility increased 8% quarter over quarter, it's important to note that crypto asset Alex hurdle remain at multiyear lows.
Consumer trading volume grew in line with the overall U S stock market at 5% quarter by quarter and on the institutional side trading volume was roughly flat and we made an intentional tradeoff to focus on revenue over market share by removing some guest counts and I'll talk about that a minute.
We're really happy so that trading volume through our prime application, which record volume in the first quarter.
Against this backdrop, we generated $736 million in revenue.
At 22% quarter over quarter increase and we saw revenue growth across the board transaction revenues increased 16% quarter over quarter to $375 million.
Consumer revenue grew 14%.
For quarter, and trading volume and stay out to crypto faster than the market.
So you have the crypto if the market, where we are strongest and it's also the market where the majority of revenue was generated in the spot market.
Institutional revenue grew 67% quarter over quarter and this was driven by our decision to roll back aspects of our discounted pricing for certain market make our clients again, that's typically an intentional tradeoff of apart.
Subscription and services revenue increased 28% quarter over quarter to $362 million.
Which exceeded the high end of our outlook range.
This strong increase was driven by growth in market cap, notably with bitcoin and ethereum prices in the quarter and this contributed to better than expected revenue, particularly across sticking and custody.
Also talk about the interest income in particular, our U S. D C revenue, which was driven by higher interest rates.
Switching to the expense side as Brian shared total operating expenses declined 24% quarter over quarter to $896 million.
This is the lowest level of expense we've seen since Q1 of 2021.
Included in this number include the $144 million of one time restructuring charges related to our January headcount reduction.
When I look at recurring operating expense, including technology, and development general and administrative and sales and marketing.
Steve could have collectively declined 37% quarter over quarter.
Lastly, it is important for me to know stock based compensation declined 54% quarter over quarter to $199 million.
Combined these reports generated a net loss of $79 million and a return to positive adjusted EBITDA of $284 million.
Frank here that we ended the quarter with $5 $3 billion of USD resources I want to note that while corporate cash declined $172 million quarter over quarter. The spend included $204 million in one time item.
And we deployed $112 million towards our financing products.
We saw inflows of custodial cash and crypto during the quarter.
We believe this is a direct result of our trusted brand and ongoing commitment to risk management.
To touch briefly on the bank's Kelly from Q1, we maintained operational and risk excellent throughout the banking turbulence, we experienced no loss of corporate our customer funnel and we largely maintained business as usual operation.
As of today, we've replaced loss, making services, we've rebuilt our layers of redundancy and we've restored access to 20% and increased settlement, which is a critical infrastructure component to our marketing our claims.
Next and last I want to turn to our outlook for Q2.
Crypto market cap and asset volatility have diverged in Q2 compared to Q1.
In April we've seen average kept our market cap up 17%, while volatility was down 25%.
This market dynamic is reflected in our April transaction revenue, which is approximately $110 million.
Again, I need to caution investors to not extrapolate. These results we hear it going to continue to run scenarios, where crypto market cap increase decrease or remain flat from these levels.
Again, I need to caution investors to not extrapolate. These results we hear it going to continue to run scenarios, where crypto market cap increase decrease or remain flat from these levels.
So I wanted to shift and talk about the more predictable elements of our business.
We expect subscription services revenue in Q2 to be around $300 million.
This decline is largely driven by U S. D C market cap, which fell 23% in April from the Q1 average levels directly correlated with the banking crisis.
For Q2, we anticipate technology and development and general and administrative expenses will be between 600 $650 million and that sales and marketing will be between 80 and $90 million.
We expect higher general and administrative expenses due to higher legal expenses and a short term increase in our rent expense associated with the lease termination.
We also expect some seasonal spend associated with our NBA partnership to increase our sales and marketing for the quarter we.
We don't anticipate any meaningful changes to our head count.
Overall I just want to repeat what Brian said that Q1 marked a real turning point in our effort to operate a more efficient company. We're controlling what we can control and are really pleased with our execution and financial results.
Danielle.
To you for Q&A.
Great. Thank you both so with that I will turn to shareholder questions. We're taking the most updated questions as determined by the number of shares and we might combine some questions that touch on the same themes.
So the first question is coinbase planning to build a deck that uses data Brian .
Yeah. So for base if people don't know basis, our layer two solution that is helping scale the blockchain and allow developers to build all kinds of different applications. We acquired based on have any specific effort to build a decks at the moment. Our main goal is to just build the ecosystem and actually get base from test.
Net to maintenance, so I just want to temper people's expectations, a little bit base is still on test net we're still trying to build it out and in the future I hope that people are able to build all kinds of things with it and that index is one of many possibilities.
The last comment I'll just make is that I think this is such a great example of the breadth of innovation, we're able to do right now.
Base is really unchanged crypto forward effort, that's been really awesome to see come out of <unk> at the same time, we've been launching.
Innovation in our centralized asset aspects of our company like our international exchange and Thats entering the derivative space. So it's been really cool to see the breadth of innovation happening at the company right now.
Next question from a number of shareholders is if we have plans to move our operations outside of the U S and what the implications would be system specific questions are is coinbase, leaving the U S are willing to fight tooth and nail before making a move out of the country and how are you thinking about the prospect of moving operations outside of the.
The U S and what would the implications be for U S customers if he did Brian .
Yes, So let me be clear, we're 100% committed to the U S.
I founded this company in the United States, because I saw that rule of law for <unk> here, that's really important and I'm actually really optimistic on the us getting this right.
I go visit D. C. There is strong bipartisan support for Congress to come in and create new legislation that would create a clear rule book in the U S and I think it's really important for America to get this right. There's a number of other countries around the world pretty much every other major financial hub or they are buying to take the top spot here.
In the crypto space and so the rhetoric that we're seeing from the UK or Hong Kong, Singapore et cetera.
A little different it's more optimistic frankly than the U S.
Right now, but in the EU actually has already passed comprehensive critical legislation. So theyre actually kind of in the lead at this point, but I really think of the U S is going to get this right.
We're a global company. So we started in America.
We have a big mandates to be an international.
A multinational company and we want to serve as many people around the world as we can obviously, we have to make choices about where we're going to allocate our capital every year and so we do look at where we could think that can have the greatest ROI, but yes.
Yes, the leading financial centers. They are all working to create responsible crypto rules and clarity right now in the U S.
It is going to follow suit I believe.
Our next question is.
When there's quite a bit is expected to be a profitable company like paypal or cash out Felicia. Thanks.
For the question.
When we went public we shared that there is volatility in our business and then our business performing historically had been commensurate with crypto asset price cycle.
So we have had periods in the past, where we have been net income positive and we had to have chased in the past, where we lost 10 net income.
Last quarter, we spoke about our intention to evolve the business with a goal to generate positive adjusted EBITDA in all market conditions that was the goal that we set forth.
We've been working hard towards that goal and as we mentioned in our prepared remarks. We believe Q1 was a turning point, where we really focus on lowering our expenses and operating more efficiently and we believe these are setting the stage to get to our future.
Where we can generate positive EBITDA in all market conditions I shared all the details on revenue and expense my prepared comment, but what I want to emphasize here is we're pleased to see the diversification of revenue in the business. We're continuing to win back down that path to ensure that we have revenue that is driven by different macro drivers.
We're also seeing the benefits and increased cost efficiencies and we've taken deep lessons from growing too quickly and belief that we are going to be prudent in our spend going forward.
Lastly, I believe that this improved cost structure will serve us well.
Our goal for 2023, which is to improve adjusted EBITDA on a year over year basis.
Okay next step we received several questions from shareholders regarding the SEC. So if.
If Congress doesn't pass any bill for crypto, how many years do you expect clean base to fight the SEC in court for clarity, we're coinbase able to operate the business during that time.
Should the SEC rule that all tokens other than bitcoin and Ethereum are securities what would be the impact on corn basis, and what plan do you have to protect the investment of all stakeholders should that occur.
Paul.
Let me just say at the beginning that we're committed to being transparent about our engagement with all of our regulators, including the SEC.
As much as we can and we want to share that information with our customers or stakeholders <unk>.
Investors of course as this process plays out over time.
As for the engagement itself. Unfortunately, despite our ongoing engagement with it with the commission they.
They have not been as clear about what their specific concerns are with coinbase as we might like and so I have to refrain from speculating too much.
It's especially difficult to predict the timeline of any potential SEC litigation that we face there are a number of factors that would apply.
CT depend upon the type of case that the SEC chose to bring and the schedule that a court would set for that case.
It could be lengthy to be sure and at the same time, we fully expect that we will be fully operational during whatever time period is required in order to resolve the matter. The last thing I'll just stay on this is that the SEC of course itself does not get to decide.
Which tokens are securities that does not have that authority.
But the SEC could you begin the rulemaking process.
Standards for figuring out whether or not a given token into security and of course, we have repeatedly asked him for that.
Those determinations ultimately are going to be made in courts of law.
As that process plays out we're going to continue to seek regulatory clarity and we're going to support legislation that we believe will be a valeant just acquaintance with the entire industry, which of course, you're going to protect the value of investments for our shareholders.
Well, maybe I can jump in and just talk a little about the business impact of these questions.
Oh sure it serves to reiterate that the wells notice with bank.
Among other things it was not made clear to us which assets.
Taken issue with and so a lot left to go.
I want to assure you with part of our ongoing commitment to risk management and the way that we manage our business.
We have proactively worked to identify a number of different scenarios and evaluate a number of different impacts to our business.
I want to remind.
Everyone listening to this call, but sticking represented roughly 3% of net revenue I want to remind everyone that between theory and represent the majority of our trading volume and transaction revenue attributable to about that I also want to remind you that.
Just under 20% of our business is international.
While this is a meaningful notice from the SEC.
We have many different revenues that we are looking to grow on our platform and we're looking for revenue diversification.
So at this point, we're running scenarios and we feel really confident in our ability to operate through any of these scenarios and deliver on the financial objectives that we've laid out for this year, which is to improve adjusted EBITDA on a year over year basis.
Okay. So combining a couple of additional questions next one is what kind of new features are coming down the pipeline and what's the product roadmap for the next five years.
Yes, I can take that one.
So just specifically on new features coming down the pipe I mean, we try not to ever pre announce things we tried to announce them only when they are ready.
Vaporware, So I'll just try to focus on the broader question here about the types of things that we think about putting on the roadmap over a longer time period. So.
To answer that I'll talk about how we see crypto evolving over time now of course crypto started as an asset class that people want to trade and so a lot of the features that we launch are still around trading.
Both in the spot market and also with derivatives as you heard with our international exchange.
The second phase of crypto adoption, we think will really be about be about crypto as a new type of financial services or crypto or the technology to update the financial system and so you've seen us launch products, there around commerce, making global payments easier staking et cetera, and then the third phase of <unk> adoption, we think will be about crypto.
Powering the future of the Internet so things that are not even necessarily related to financial services at all like this.
This is commonly called web three but it could include everything from decentralized identity voting and governance systems games, social et cetera, There's a long tail of new applications now being built with crypto.
We're doing this across multiple different customer segments by the way in our retail institutional and developers.
And the common theme that we try to inject into all of our products to make them. The most trusted and easiest to use and so trust can come from a lot of things that can come from.
Being compliant having great cyber security, having great customer support having great design, we try to be the most trusted brand out there in the space I think we've accomplished that and we also try to make our products the easiest to use and so crypto can be complicated underneath but that doesn't mean that people can't benefit from it. They don't have to understand all the complexity underneath what's <unk>.
Opening in those products.
Kind of like people can benefit from using electricity turning on a light switch, it's really simple even if they don't understand how electron move through copper wires. So this.
This is this is the way we think about the product roadmap and ultimately we're really just trying to drive the utility of crypto create more and more compelling use cases helped the network scale. So that we can eventually get 1 billion people accessing the open financial system through our products every day.
Okay, We will take our final prepared question before moving over to the analysts. So the final question for you Brian from the <unk> platform is any update on crypto regulations.
Yes, So I think the general update is that there is broad consensus amongst financial hubs that crypto is here to stay its not going anywhere and the centralized actors and crypto like the exchanges in the custodian they should be regulated it's pretty it's pretty common sense. I think there is a broad view that new legislation is going to be needed.
So these centralized players to ensure that crypto as safe to use.
As I mentioned earlier, the EU is out in front on this day or adopted comprehensive crypto legislation called Mika creates a single clear rulebook for the entire region is pretty powerful.
I just got back from a trip from.
The U K in D C. Both of those.
Both have draft bills in the works that are working on things like around stable coins and market structure.
<unk>, Hong Kong, Australia, Brazil, all or essentially following in this direction and so I think it's really a myth that countries have to pick between keeping investors safe and embracing. This next generation of technology, that's really not the case I mean, even in the U S. We're seeing bright fraud.
By partisan support for new crypto legislation that protects investors and also embraces this technology is a really important way to update the financial system.
And frankly, I mean, the citizens of these countries are demanding it right 20% of U S. Adults now own crypto, it's become a major constituent intellectually and I think.
The U S is still lagging here, a little bit behind but I'm optimistic we'll get there in one of the ways claim basis, helping do this actually is that we're trying to help shape a grassroots effort in the U S around crypto advocacy from all of the people that those 20% of adults that have now used crypto it can be a really powerful.
Constituent in voice, so we've launched things like crypto $4 35, which is we now have 40000 people signed up for that it's named after the 435 congressional districts and we have people in every single one of those districts, who raised their hand, and said I want to be an advocate of champion for crypto going to town halls donating.
Boating Copywriting Congress people things like that we also launched something native Unchained, which wasn't NFC called stand with crypto and it's a way for people in the industry and the community to raise their hand, and say I want to support sensible regulation and so we've had over 100000 of those mlps now minted so far so that's been a great way for us to.
Sort of roll this out unchanged. So yeah, just zooming out I mean crypto is here to stay every major market that we're seeing is moving towards sensible crypto regulation and I think that's where this is going to go.
Okay. Thanks, so with that Christie switch and take some live questions from analysts.
Your first question comes from the line of Benjamin <unk> with Barclays.
Okay.
Hey, guys. Thanks, so much for taking the question.
I wanted to ask about it.
At least that you talked about sort of the divergence between volatility in market cap and just sort of thinking about your business in terms of retail engagement I'm curious what do you think are the major reasons why with coinbase.
Retail engagement hasn't really tracks the growth in crypto asset prices and I guess kind of along the same lines.
It almost would suggest from your trading yields that we're seeing a lot more.
Kind of resilience from like the more simple experience trade adversity advanced traders and wonder if you can kind of comment on that as well and how sustainable you think that might be going forward.
Thanks for the question Ben.
So historically, we've seen a correlation between our retail transaction volume and revenue is highly correlated with volatility and crypto asset prices and so as I shared with you in my opening remarks, but you have to come to asset prices increase but volatility is still at multiyear lows.
And that has been one of the factors that we attribute to.
The change in volume at this time however.
We are engaging our customers in new ways and so we're really excited to see engaging with our stapling products. We're excited to see the growth of our subscription and services revenues quarter over quarter.
And we're really excited by the growth as I mentioned, we reached all time highest without institutions on the platform in the quarter. So we're continuing to see good engagement there.
The market conditions are the things that we cannot predict precisely, but they do have a big impact on the trading volume and the trading revenue from the consumer side.
But our focus is growth around because the diversification and getting decent with these new products that Brian talked about and continuing to rollout new innovation.
Yeah.
Okay.
Your next question comes from the line of John <unk> with Needham <unk> Company.
Hey, congrats on the quarter and thanks for taking my question.
Two here if you don't mind first one just on that take rate is kind of hinted at it a little bit the prior question.
But really what is just kind of explain the increase there.
And then second question on volumes, just wondering how you reconcile a strategy with.
The encouraging customers to move more on genes at the same time is it encouraging some of those customers to pick up decentralized exchanges and other.
Exchanges that might cannibalize some of corn basis volumes.
Great questions I'll do the first one and then Brian maybe I'll pass it over to you.
So with regard to pricing as I mentioned in my opening remarks on the institutional side, we rolled back certain discounts for our market makers and we saw an increase in the take rate and the pricing based.
Based on that decision.
On the consumer side.
We had increased our spread in the quarter were frequently affecting pricing on different transaction types and in Q1 due to an increase in spend on certain simple trades again late last year and rolled into Q1, we saw an increase in the consumer side as well consumers have a choice of which product trade on between our simple training.
In our advanced training they can choose whatever system that but that's what's driving the results in the quarter.
Yes. Thanks, John on your second question about are we encouraging volumes to move decentralized exchanges and things like that.
Look I think there's going to be a big market for both centralized and decentralized exchanges and client base wants to play in both of those categories.
The centralized exchanges they still have a scalability that really can't be achieved unchanged and so I think that's going to it's going to be a very deep liquid market, we're going to see that with derivatives and spot all over the world for a long long time, I don't see that really going away.
At the same time decentralized exchanges offer some interesting advantages and we want to make sure we're providing that to customers as well it doesn't do us any benefit to pretend that doesn't exist or something like that and as long as we're providing what customers want I think there'll be interesting opportunities to monetize on the decentralized exchange side as well.
Your next question comes from the line of Owen Blue with Oppenheimer.
Thank you for taking my question. So I think there are some positive developments going on in our regulation Psi more crypto builds may come out soon SEC respond to coinbase petition, but could you. Please talk about how much of the current regulatory regime has actually impacted your ability to.
Launch new products, both locally and internationally and how much it has impacted your confidence to January .
Positive adjusted EBITDA in all conditions. Thank you.
Why don't I take the first step in St. Paul Brian Emily Please add in so.
Our product roadmap has not been impacted by.
The wells notice we are pleased to have it Bryan shared with you a very active quarter of product innovation based on a protocol Sheila acquiring an asset management arm to launching just this week the international exchange and putting our first derivative product in the market. So we are feeling very excited about building to this winter and about the breadth of.
<unk> that we can continue to have.
At this time as we shared previously we've run scenarios, but.
But we are business as usual and we feel really good about being able to deliver on the financial goals that we set forth at the beginning of the year, which is to improve adjusted EBITDA on a year over year basis, and we don't see anything at this time to share that would derail us from that objective.
Your next question comes from the line of Rich Repetto with Piper Sandler.
Yes, good evening, Brian and team.
<unk>. Thank you for taking my question and sorry to stay on the regulatory question, but it is important.
And you say Brian .
The shareholder letter on page 14, you say that we could we believe we could see real action.
On the legislative side before the end of <unk>. So we're getting towards the end of <unk> and just try and whether you could give any more detail on.
That statement that.
The bipartisan legislation into any more details and have you been able to engage with the SEC.
The.
The wells notice and.
Then lastly.
With ripple in the XRP.
Case do you think that that will have any precedent.
How will that Claire would that provide any clarity on the regulatory front. Thank you.
Right.
Yes.
Paul It's Eric I'll start and then ill turn it over to you I mean on the timing of legislation, obviously, we can't predict anything like that exactly but I don't I don't want to reveal something.
Sensitive that maybe being worked on over there but.
There are various parties that have a real motivation to help get that clear rule book in the U S through new legislation and we're certainly supportive of seeing that happen.
Yes, Paul go ahead Jonathan.
Just want to underscore that as you pointed out earlier, Brian we're seeing draft legislation not only here in the United States.
Coming together largely on a bipartisan basis and hopefully moving forward in the coming quarter, but also outside the United States, We're seeing the U K in other jurisdictions move on and move ahead with their own legislative proposals and initiatives so well no.
No timeline of certain it certainly appears that where we're seeing progress in legislation not just in United States, but in jurisdictions all over the world.
And I should also speak to your other question about engaging with the SEC as well since since the loss and as we always remain open to dialogue with the SEC and in conversation with them.
It makes sense and as appropriate and at the same time.
Our fully committed if necessary to defending any case that we may face in court.
And the reason then crypto and not just coinbase kept as a whole needs clarity in order to move forward in the industry and we're confident that we will be able to provide that clarity through any action that may take place in litigation.
Okay.
From the line of Lisa Ellis with Moffett Nathanson.
That's terrific. Thanks for taking my question.
I like this exhibit to you outlined on page 11 in the shareholder letter showing the three pillars of your product strategy and how they align to your long term vision can you elaborate a little bit on how we should think about coin basis, both revenues and investment sort of now and in the future outlined across the spa.
Thank you.
Thanks for the question.
We are seeing what we can see the first phase, which is crypto as an asset class.
And that's where the.
The majority of our revenue is earned today as you can see by the products that we highlighted didn't make it interesting.
Adding to this include.
Quite make dot com, which is our consumer trading platform prime business custody and the spot market, which is what facilitates the trading liquidity for those front end.
Our experiences.
We are actively looking to diversify our revenue streams and we have many products that you can see listed here that in our earlier stage. We've shared with you previously that we consider things in our core strategic adventures portfolio and are constantly looking at new venture products.
We don't give long term outlooks, but overtime.
We believe that these other revenue streams will become a larger part of our revenue stream just like in Q2, we saw subscription and services revenue get to about 49% of total revenue for the quarter.
We have many new revenue streams in that other subscription and services revenue that are beginning to.
Generate what we call little Green shoots small dollars, we're not able to give an outlook at this time.
But the goal is to get a diversified portfolio that have different drivers that some will perform stronger in some market conditions and some are performing better than other market conditions and that diversification will lead to an overall platform, where we can engage our customers with many different products and services that I don't have a specific number to give you a good day.
Your next question comes from the line of Kenneth Worthington with Jpmorgan.
Hi, good evening, thanks for taking the question.
Alicia you indicated a number of times that claim based increased spreads on retail trading this quarter. How are you determining the right spread for retail orders what sort of capacity do you have to widen spreads further over time and then maybe for Paul what ultimately gives claim based comfort that spread.
Adjustments will be okayed by regulators over time.
Thanks for the question, Ken So we're frequently affecting pricing for different transaction types.
For example spread apply teeth.
The humor simple trading experience it doesn't imply to advanced trading where customers are directly interacting with the order book and our customers have the choice of which product fits their experience.
<unk>.
Prices evolving we don't have a specific number that we're targeting are a number to share we're constantly assessing the right balance of meeting customer needs and driving our business and monitoring our pricing elasticity to see what resonate best with our user base.
Yeah.
On the question of what gives us comfort that we'll have the regulatory flexibility to continue with those practices.
The simple answer is that it all comes down to our transparency about how we go about this and our commitment that we will honor.
Whenever practices, we disclosed.
As part of our terms of service and these are agreements.
We're constantly evaluating these issues and to the extent there are questions or concerns of course front any regulations would always respond to those promptly and appropriately.
Your next question comes from the line of Bo Pie will U S Tiger Securities.
Hi management, Thanks for taking my questions. So congrats on launching the phase two test now I have two questions about base versus while it is still early what is going to be the monetization model base do you plan to make money from base are really more like a public.
And to employ a decentralized network and the second question is volume, it's not uncommon for quarterly exchanges to launch their own block chain.
Other exchanges.
Out of the U S.
That's right, however, corn basis, our U S entity.
Facing a more challenging regulatory environment, how do you mentioned a mix of running a blockchain as a U S. Public companies for example, ipsen be at base offer noncompliance services to U S residents. How do you make sure your client base, we will not become the Parkdale U S regulators.
Yes. Thanks for the question I'll start off and then Paul if others want to add anything feel free.
So the first part of your question was on monetization and.
It's too early to say on how base could be monetize again, we're still in test net we haven't even launched yet we're just trying to build out the ecosystem at this point.
We definitely made a conscious decision not to have a token associated with the blockchain, which touches on the second part of your question because we are a U S entity and.
This blockchain is something that we're helping initiate.
We wanted to make sure there was no token associated with it because we didn't believe that there was a way to do that there wasn't a way to basically registered a token to do that in the U S. At the moment.
But our goal is for this also to be decentralized overtime and that's another big piece of the puzzle.
This is going to be a decentralized chain and so.
We may contribute to one of many parties that contributes to it but it's not going to be something thats run solely by Coinbase, Paul anything you want to add.
I think Brian you said it well this is not something over time will be run by coinbase our goal of decentralization.
Consciously chosen not to include a token as part of the offering and we think that in combination and width.
Increasing adoption over time as we move out of test net hopefully sooner rather than later, but that remains to be seen we're going to we're going to see a very positive response, not only from the public but also from regulators as well.
Your next question comes from the line of Devin Ryan with JMP Securities.
Thanks, very much just a question on the international derivatives exchange.
Great to hear how quickly you guys think you can scale it could become a material contributor.
If you can quantify the addressable revenue market for Coinbase and then on the expense side will there be incremental expenses needed to get to where you want to go versus how much kind of existing infrastructure of the firm can you leverage as you scale back. Thanks.
Great well, we're not providing revenue outlook at this time, but as you know the derivative markets are multiples of the spot market in crypto generally and that's true in <unk> as well. So this is large volume opportunities.
This is our initial launch we have to order books were just beginning to onboard market makers. This is early days and I will give you more updates as this product matures.
All of the expenses needed to operate this platform are included in our current expense base and in our Q2 outlook for expenses.
And your final question comes from the line of Joseph <unk> with Canaccord Genuity.
Hey, guys. Good afternoon, just a thought maybe circle back Brian to your original comments here on financial enablement.
And perhaps you could give us a view on some of the things you're working on.
On that front and then just on a test.
Just kind of interested also in your layer to rollout.
What.
What youre thinking there and the strategy. Thanks.
Yes, well in the opening comments I did talk about our mission around increasing economic freedom in how we think crypto is the most important technology out there to do that.
We really think it's a technology to update the financial system.
So.
That's kind of what you were referring to I think around financial enablement and empowerment.
Look I mean, there's a lot of people around the world today, who don't have good access to good financial infrastructure right and it can be really holding them back in many ways. It.
Payments or this thing that if you make it lower friction.
To both move money and settlement settlement times in various asset classes can become more efficient if you took an EIS them.
This is just to speak by way of the financial use cases, theres a whole set of nonfinancial use cases with crypto.
That can kind of really grease, the skids of the economy and unlock growth and potential in many different ways.
It also increases People's Freedom, just with basic property rights and things like that and so it's a really powerful idea now that anybody who has a cell phone and internet connection which is the majority of humans on the planet. They can now get start to get access to goods sound financial infrastructure, that's really powerful thing it's really good for the world.
So those are my high level thoughts.
And yes, I'll leave it there.
Yeah.
Okay, great well. Thank you all for joining us today, and we look forward to speaking you again speaking to you again on our next call.
This concludes today's call you may now disconnect.
Yeah.
Okay.
I'm speaking to you again on our next call.
This concludes today's call you may now disconnect.