Q2 2023 Coinbase Global Inc Earnings Call
Good afternoon, My name is Jamaica and that will be your conference operator today at this time I would like to welcome everyone to the coin base second quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. If you like to ask a question you May press star one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
I will now hand todays call over to Enel Group, Vice President Investor Relations you May begin your conference.
Good afternoon, and welcome to the Cohen basis second quarter 2023 earnings call. Joining me on today's call are Brian Armstrong co founder and CEO , Emily Choi President and C O L. Alicia Hot CFO and Paul Great Wall, 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 included in our shareholder letter on our IR website.
non-GAAP financial measures should be considered in addition to not as a substitute for GAAP measures.
We are once again, using say technologies to enable our shareholders to pose questions.
In addition, we will take some live questions from our analysts with that I'll turn it over to Brian and Alicia for opening comments.
Thanks Neil.
Q2 was a strong quarter for us as we demonstrated operational discipline focused on product excellence and helped drive regulatory clarity for the industry.
I'll start by touching on operational discipline.
We drove $194 million of adjusted EBITDA in Q2, marking the second consecutive quarter of positive positive adjusted EBITDA about.
About a year ago, we started executing on cost reductions and I'm happy to say that in Q2, our operating expenses are now down nearly 50% year over year. We ended Q2 with 3400 employees and we've been able to get a lot done by being a more efficient company at this site.
Next let me touch on product excellence.
People use corn basis products, because we are the most trusted brand and we've made crypto easier to use over.
Over the past decade, we've focused on compliance cyber security great design user experience and customer support we've always taken a long term view and tried to do the right thing even when it wasn't easy or the rules weren't clear today Coinbase is consistently ranked as the most trusted trusted crypto platform across multiple markets and this is a huge competitive.
Ive differentiator breath.
We have great product coverage in this industry.
There are three distinct customer groups retail institutions and developers.
For our retail customers coinbase and coordinate wallet have moved beyond our best in class trading use cases, we know help customers make payments, Steve earn rewards access in a tease us <unk> card and access third party applications and web three.
<unk> has become a platform for a broad set of first and third party use cases with an increased range of functionality.
Our goal is to become the primary way people manage their financial lives all of the world enabled by these powerful decentralized protocols that will become a larger fraction of the global economy overtime.
<unk>, while it provides a way for retail customers to access dysfunctionality, while storing their own funds via self custody.
Now moving on to our institutional customers, we provide an integrated trading custody and financing solutions with prime and.
And for our developer customers, we're building private cloud with a powerful set of API and native on chain solutions like base that allow every business to integrate crypto technology.
In Q2, we launched our derivatives exchange in select markets outside the U S. And we were also selected as the custodian and a number of ETF applications in our institutional business.
A big focus for us over the next year is how we're going to be driving utility and crypto that goes beyond just trading.
The first 10 years encrypted were primarily about trading, but we've seen our customer base shift its activity over time, where the majority of our active customers now do something with crypto other than trade. My belief is that the next 10 years in crypto will become predominantly about non trading use cases.
So what could some of those be.
Bill payments is a big one as the scalability of blockchain improves by moving to layer <unk> solutions like lightning optimism and base will see payments emerge as a larger use case getting more scalable blockchain will be as important as the intranet moving from dialogue to broadband.
We will also see the rise of decentralized identity systems with decentralized messaging and social apps that will accompany those connected right into those decentralized identity.
And we're working hard to clean base to make it easy to connect your corn based wallets any third party app or DAP, which tends for decentralized apps in the <unk> you can actually visit the web III tab at the bottom right of the of our App and connect it to any third party application out there in the ecosystem.
More and more character utility will be happening unchanged and at coinbase, we'd like to say that <unk> is the new online. So we are fully embracing that.
As we continue to make crypto trusted and easy to use with these new use cases will help update the financial system globally, and health 1 billion more people benefit from this technology.
So finally I want to touch on how clean base is driving regulatory clarity for the industry.
One of the biggest items holding back adoption of this technology is the lack of clear rules and regulation by enforcement Thats, taking place in the U S to date, while the rest of the World has made great strides in embracing crypto and web three technology with clear legislation. The U S has struggled to keep pace.
<unk> has an important role to play here when the SEC refused to engage in rulemaking and instead pursued a regulation by enforcement approach, we availed ourselves of the court that helped bring regulatory clarity to the United States and healthcare case law creative.
We've also been actively engaged with Congress, where we've seen bipartisan support the past crypto legislation.
Just the past few weeks that house financial Services Committee and the House Committee passed the landmark crypto market structure, Bill with 'twenty, one and the stable coin Bill with bipartisan support. These bills go to the house floor for a full vote later this year and from there and back to the Senate.
<unk> is committed to helping ensure America passes crypto legislation and it is not left behind.
We've also begun activating crypto users across the U S to ensure their voices are heard in our democracy. One in five Americans have now used crypto more than hold a union cart at one point of comparison in our stand with Crypto campaign has signed up about 60000 curve advocates to date across all 435 congressional districts.
As an example of how we're activating them in New York City. Today, we are hosting an in person gathering with representatives from the offices of Senator Gillibrand Mayor Adams, and Governor Hogan and one hundreds of crypto enthusiast.
By the way Youtube as an investor can help in this effort by visiting stand with crypto Dot org to sign up as a crypto advocate.
So ensure American embraces crypto technology and helps create clear rules around it please help us by visiting stand with crypto Dot org.
Congressional town halls are happening all throughout the August recess, and we're encouraging standards advocates everywhere to reach out directly to the policymakers to support innovation and clear crypto regulation.
Crypto was even proving to be an important topic in the upcoming 2024 presidential election with most of the challenger candidates taking out a positive position and.
In a democracy the government is for the people and by the people and the citizens of the United States have made it crystal clear that they want to use crypto and they believe in the potential of this technology, we will not allow American leadership here can be destroyed by a few outliers in our government painting outside the bounds of the law.
The various court cases being decided now at a minimum prove that what we've been saying all along that there is no regulatory clarity new legislation is needed and the underlying assets themselves as decided in these cases are not securities.
In conclusion.
Although we are in a crypto bear market with volatility the lowest we've seen in years Coinbase is financially healthy with our second quarter of positive adjusted EBITDA, we even generated $156 million of cash in Q2, we.
We intend to hold head count flat for now as we keep making progress on the above items that I mentioned.
Meanwhile, we have the most trusted brand in the easiest use products and we're showing up day in and day out to do the hard work of running a trusted secure and compliant crypto platform. This is our competitive advantage. Our long term focus on following the rule has proven to be the right strategy as regulators of closing on companies, who didn't another competitive advantage for us.
And we're driving regulatory clarity in the U S. While expanding abroad in places where the rules are already clear.
All of this sets us up to be the global leader across a variety of products and our three customer groups.
Crypto is the most important technology, we have to update the financial system globally, and coinbase as the leading company in this space.
With that I'll hand, it over to Alicia to tell you tell us more about our Q2 performance.
Thanks, Brian .
As Bryan Ferry and keeps you remain good progress on our journey to build an increasingly efficient and financially disciplined company as he said, we generated $195 million of adjusted EBITDA.
And we generated $156 million of cash we ended the second quarter with a total of $5 $5 billion of USD resources on our balance sheet.
On a second talk about the drivers of our results starting with the macro backdrop, and then discuss our financial performance.
Thank you Teo crypto volatility, which is a key input into our training business continues to decline and it reached multiyear lows.
Our trading volume declined 37% in this environment.
But importantly, it outperformed the global spot market, which declined 48% as we gained market share in the quarter.
This provides the backdrop to our transaction revenue.
The low volatility environment contributed to transaction revenue of $327 million, which was down 13% quarter over quarter.
The average blended fees for both consumer and institutional increased quarter over quarter.
This increase in fees was driven by a mix shift of trading volume, we offered a simple and advanced trading experience in retail we offer trained to the exchange and three the prime platform and institutional the Fas differ by product and the mix shift drove an increase in fee rate during the quarter.
Subscription and services revenue was $335 million and exceeded our outlook.
The outperformance was driven by blockchain reward, notably higher Memphis for Laurence and higher asset prices.
In addition, we saw higher percentage of cash.
Invested in accounts that generate interest income.
On the expense side, we continue to operate with a heightened focus on cost efficiency as Brian mentioned, our quarterly recurring operating expenses. These are technology and development general and administrative sales and marketing are down nearly 50% compared to the second quarter of 2020, when we really started to focus on financial discipline.
In Q2, our total operating expenses were $781 million.
Our recurring operating expenses were $664 million and lower than our outlook, mostly driven by our ongoing operational efficiencies, we provide a lot of detail in our letter.
Okay.
Lastly, I want to turn to our outlook for the third quarter.
And our letter we note that July transaction revenue was approximately $110 million.
We expect subscription services revenue to be at least $300 million.
Assuming no material changes to ASP on platform.
Average crypto market capitalization compared to the end of July .
In terms of our expenses, we expect <unk> and G&A.
<unk> between 575, and $625 million, which is a slight increase from Q2 levels. This increase is driven by our stock based compensation expenses.
Due to our stock based compensation recognition timing, we will have elevated Q3 levels, but we expect the second half of 2023 to be largely consistent with the first half of 2023.
We expect sales and marketing to be consistent with Q2 at $80 million to $90 million.
As the lower Q3 spending from our NBA partnership is being offset by higher U S. T C reward payouts to customers.
To conclude I want to reaffirm our goal of improving adjusted EBITDA in absolute terms.
The year over year basis, but Danielle back to you with let's take some questions.
Thank you both so let's turn to questions we.
We are taking the most updated questions as determined by the number of shares and May combine questions that touch on the same theme.
For the first one starting with the Big picture a number of the most asked questions from shareholders touch on the next three to five years in crypto and for Coinbase maybe.
Maybe a question for you, Brian , but do you think or hope happens to the crypto industry over the next three to five years and what is coinbase its role in that look like.
Yeah. So there's a couple of big themes that we think about over the next three to five years.
So scalability regulatory clarity driving utility in crypto that's non treating these are three of them I'll touch on each one briefly and then talk about our rolling at Coinbase. So in terms of scalability, having more scalable blockchain, it's hard to overstate the importance of this it's again it kind of like the internet moving from dial up to broadband I think.
It's going to unlock a lot of new use cases is going to make things like payments more viable.
Today. Unfortunately on layer one solution, that's still fairly slow fairly expensive to get our payments to the final confirmation.
Ultimately, we hope to get every team in encrypted under <unk>, one second confirmation that would be a real game changer globally.
And the second one is and by the way the ways that that can happen as these layer two solutions right clean base has our own initiative there around base, but there's many others out there lightning and optimism polygon et cetera, which are really good efforts here.
The second big trend here is around regulatory clarity, which I mentioned in my opening comments. So the status quo, just really isn't working here, we're getting conflicting statements being made by the two federal regulators in the U S. The CPUC and the SEC, there's consumers being harmed as we all know.
It's just not a level playing field, where internationally companies like coinbase are welcomed with open arms.
A clear regulatory framework for instance, the <unk> legislation that we saw past in Europe , but the U K, Singapore, Brazil every financial hub out there is really making an effort to pass legislation and they're frankly ahead of where the U S.
So we were excited and really heartened to see that a few weeks ago.
The market structure Bill understand when Bill did how did pass the committees in the house and Thats, a really important first step and we're hoping that the U S can build on that to get going even further.
The last one here I'll touch on is about utility. So again trading was the big use case in the early days of crypto, but it's already starting to move away from that.
Things like stable coins for payments.
By <unk>. These are all already gotten substantial traction, but I think with layer two solutions coming online you can get much much bigger.
There is an analogy that.
Example, I think it's interesting to look at it around.
Text messages I think at their peak reached about 25 billion text messages a day, but on Whatsapp came online. It got to 100 125 billion messages a day and it just showed you people wanted to send more text messages, it's just friction with.
Talked a little bit too much the friction internationally was there the features weren't there and so I think the same thing could happen with payments.
Various types of utility with these new types of decentralized identity messaging and things built in this crypto needed way.
The demand for it will go much higher as the friction is reduced and there is still a lot of friction in the way money moves around the world today.
So those are a couple of things on the horizon.
<unk> has a big role to play here with scalability I mentioned, we're working on base with regulatory clarity I talked about how we're organizing our our users in DC with Sterne with crypto we're doing.
Doing our own court case to <unk>.
Case law created where all supporting use legislative efforts in Congress around utility. We are building a lot of this stuff natively into our own products right. So just trying to make all these things.
These enterprise identity, and <unk>, just make it easier and easier to use how people in interface with layer two solutions as well. So I think <unk> is really the only company in the world that has the trust and the scale internationally and the expertise around crypto actually make this happen and that's a really important thing that we can go to.
Next question recent enforcement actions remain top of mind for many shareholders to that end can you give an update on the litigation process with the SEC what are the key issues at stake and how should we think about the timeline and milestones from here Paul Thanks, Aneel with respect to the litigation with the SEC.
I want to be very clear, we do think we can win.
<unk> expect to win but it's important to understand that our goal across not just the litigation, but all of our efforts.
Engaging with the SEC and engaging with the U S government as a whole is to achieve regulatory clarity to protect consumers promote innovation and essentially establish clear rules of the road that everyone can understand and follow on we think that's how we all win regardless of the outcome of any particular case and that's why while we are focused on.
On the enforcement action. We are also focused on legislation and other efforts that may provide the clarity that I speak up now.
And why we are so focused on pushing for regulatory clarity here in the US is that at present under the status quo with very conflicting messages about what the law provides especially considering that many of these laws are written well before the internet even existed take for example, conflicting statements from the chair of the SEC and the chair of the.
<unk> PSC CFCC on whether the theory is the security.
Or consider the fact that the chair of the SEC has taken a very different positions in the last two years about whether or not there are even regulatory authorities. It apply to crypto currency exchanges like coinbase. So the outcome in any particular case.
Its clarity that we ultimately defined as winning now let me talk just a bit about the case, obviously we are.
Disappointed that despite our good faith efforts and our efforts to be as transparent as possible with the commission and with the markets as a whole the SEC did choose to bring an enforcement action against us earlier this summer.
And in response to that.
Pushing.
Hard and making the same point that we have made throughout this entire.
Challenge number one the coinbase does not list securities on its platform with a lot of confidence in that because of rigorous asset review process that we've undertaken over Q. The SEC. The SEC lacks any authority to regulate digital asset exchanges exactly in the way in which.
Sure Gensler acknowledged 20 testify to Congress to that effect in may of 2021.
And third that when the SEC declared our registration statement effective in April 2021, a month earlier it never suggested whatsoever that there was any requirement to register.
So what happens next.
Well tomorrow as it turns out in our case in the Southern District of New York, We will be moving the court for an order dismissing the case in its entirety and we're going to be submitting a brief to that effect, which lays out all of our arguments for the courts consideration, which we expected to be fully submitted and taking under consideration at the end.
October we have full confidence in the arguments, we're making the court. We're certainly grateful for the opportunity of the court has provided us to be heard early in the case accurately been working so hard and so long for clarity, but regardless again of any particular outcome on any motion or any court case clarity itself as the goal that's how we define <unk>.
And that can come either through a court decision or legislation passed by Congress.
Thanks, Paul our next question is.
How do you plan to drive revenue directly or indirectly from the upcoming based <unk> platform.
This hurt trading volumes by encouraging more users to go on chain away from quite a bit Brian .
Yes, I can take this one so first I just want to correct a misconception in the question itself. So the question Matt.
Users go on chain away from corn basis.
<unk> is fully embracing on chain and actually I think it's going to be the easiest way to access everything that you want to view unchanged. This is actually nothing new it's been that way for a long time, even 10 years ago.
With lives we allowed when you are sending and receiving transactions for instance, those would happen unchanged when you sent.
On and off the platform.
And in more recent years, we've allowed people to access decentralized exchanges.
Smart contract protocols through previous wallet, and we've made that easier and easier in the main retail app as well so.
Just to be clear, we want <unk> to be the easiest way to access everything unchanged. We think on changes in a very important part of where this industry is going.
And.
People are going to do that with coinbase. So those are not contradictory item now I think the heart of the question really asked about how we're going to monetize directly to indirectly base, which is our <unk> solution.
And just a quick background everybody is not fully aware.
Blockchain transactions are happening on what's called layer, one and they tend to be a little bit longer to confirm theres little bit of a higher transaction fee and so the industry has been working for a long time on how to make that more scalable how to make it lower cost how to make it easier for developers to build on on what's called layer to kind of like again, the internet moving from.
Dial up to broadband.
So corn basis.
Tried to help this happen as a company in the space driving innovation and on top of the optimism stack, which is one of the layer two protocols, we've launched our own layer two solution called base, which is being decentralized overtime.
A lot of developer interest has happened and there's a lot of activities, we're doing around that so.
Can we monetize it well the short answer is that basically monetize through what are called sequencer fees. These are sequencing fees can be earned when any transaction is executed on base and basically quantitation can run one of these sequences as others can over time now.
Indirectly it helps us monetize as well because it helps us grow the size of the pie it helps us grow the ecosystem.
Again it comes back to these internet analogies, but if we can make the utility that much better the payments faster and cheaper globally more and more people will use crypto everyday and.
That's how it indirectly it lets just help our business grow so I'll leave it there.
Thanks, Brian Okay, we'll take one more before jumping into live questions.
So a question from a shareholder based on some recent news have all find ways to generate revenue from its custody of the upcoming spot Etfs Emily.
Sure well, we're proud to be honest journey with some of the world's most trusted financial leaders. The primary way that will monetize in the near term as the AUC and then down the line, we think Theres a good deal of ancillary revenue that we can generate and things like settlement and other surfaces.
The reason we're excited is that this really should expand the pie and create positive impact for the space. It should broaden our reach and will bring new people and institutions into the crypto economy.
Should these applications get approved it should broaden the reach of the asset class at some of the biggest institutions in the world seek to gain exposure to bitcoin and eventually to other critical assets for the very first time, it will generally create more legitimacy of the asset class.
Etfs should also increase liquidity and market stability as we've seen with other asset classes and it increases revenue opportunity is for many industry participants ourselves included.
We're proud that corn basis at the center of applications and as you know these institutions have rigorous diligence processes. We've been selected by many of the high quality applicants because of their capabilities and frankly felt ETE.
Etfs Africans has selected <unk> due to our compliance had a great customer trust and scale.
So how does <unk> add economic value to these etfs in their issuers.
We offer our first and foremost to care crypto custody and over the longer term will explore ways to drive monetization via settlement advanced trading and API reporting. We're also entering into bilateral surveillance sharing agreements with major ETF listing exchanges, including the NASDAQ in vivo.
We're definitely in the early innings and it's important to note that these products are still going through with the registration and approval process. So I just want to emphasize that while the whole opportunity is exciting and has the potential to expand propel adoption. There's a lot of work to be done before the etfs or even approved and available but the future's very exciting.
Okay. Thanks, Emily to make it let's open it up and take questions from analysts.
As a reminder, if you'd like to ask a question press star one on your telephone keypad.
First question is from the line of Devin Ryan with JMP Securities.
Hey, good evening. Thanks, so much I guess first question on <unk>.
The market share backdrops to trading volumes, I think were down 37% quarter on quarter, but the global spot market was down 48% quarter over quarter, which you mentioned so that obviously indicates some market share gains and so I'd just love to talk about the competitive landscape, particularly as that's changing quite a bit here just speaking to the opportunity for the firm to capture additional mark.
Sure from here, just the things that youre doing to position to gain more market share. It seems like you did just this past.
Yes, I'll start off and then.
So feel free to jump in.
So I think in general we've seen a flight to quality and <unk>.
That's been really a validating of our long term strategy coinbase right.
We've tried to take this perspective of let's do the right thing, let's follow the rules.
Let's work with regulators around the world, Let's go out and advocate for regulation when it doesn't exist and if the rules arent clear, let's do the right thing kind of what we think it would be if and when they come around so that wasn't always the easiest approach to follow it caused us to have to move slower at times, but I think.
It's been the right approach. So for instance, we did see that gain in share with simple trading in the U S.
A variety of factors that could go into that.
But we did see <unk> exit the market, which could have been one of the factors.
We have seen other markets around the world for instance, in the U K, where <unk> exited and we saw our share gain.
No I think Brian .
<unk> offers lots of different products and services not all of those we are going to be able to offer frankly, we will not be allowed to offer so.
I want to make sure temper people's expectations, a little bit there but.
For instance, we launched our derivatives exchange internationally in the last quarter. We recognize that is a very important part of the market that historically, we havent really been playing in.
We think that's a good opportunity to go and invest in and we're going to continue to do that and more and more markets around the world.
As with everything we do we're going to do it in a compliant and trusted legal regulated way and so we may not be able to offer everything that.
Editors have offered in the past.
That being said I think it's the right long term solution and so hopefully we continue to gain share.
People start to value.
And compliance center, a flight to quality.
Okay terrific.
Tom appear on institutional adoption, obviously regulatory challenges continue to be an overhang, but the ripple summary judgment with seemingly something to help build some confidence here for a number of folks.
Maybe here about some of the green shoots that you're seeing your business or takeaways.
From the state of the Crypto summit.
Indicate that institutions are either beginning to reenter the market or.
Actually more active in the market or is this just really when you see comprehensive legislation for a step function improvement.
Hello, all questions comments there.
We're really excited to see the engagement at the state. The Crypto summit that you mentioned earlier, we brought together over 400 institutions that included hedge funds asset managers also included some global regulators and and others and the theory here is everybody is building as we also shared in my remarks. Please.
Growth in our prime platform quarter over quarter, so despite the market.
Volume being down that was an area, where we did see growth and we're seeing more and more institutions put money into the space I think if we can also see the spirit of international adoption of <unk> applications that Emily spoke about earlier as well. So we're seeing institutions continuing to build through the markets, whether it's ups and down and volatility or whether it's to regulus.
Alright headlines they recognize the long term value of this asset class and we're seeing momentum on that front.
Okay.
Okay. Thanks, so much.
Your next question is from the line of Lisa Ellis for monetization.
Hey, good afternoon. Thanks for taking my question and it bullet question, maybe Brian for you on that.
Priority raised around scalability.
And driving scalability and could go over the next in order to share.
Sure beyond trading and into other utility oriented use cases over these next several years.
Thinking the layer two solutions has been around now I think lightning was started back in 2015, what is it that has to happen to kind of break that free whats been holding back the usage of these layer two solutions to increase scalability.
In crypto and utility for things like payments or things like that and yet you said just faster transaction speeds lower cost transaction speed.
From you know from our perspective.
Observers maybe more in this space like what are the signposts that we should be watching for.
So to see that progress happening thanks.
Yes, yes.
Yes, it's a good question because if I go back to 2015.
I, probably would've thought it would've happened faster.
There was a couple we did a deep dive back then on lightning and it was very nascent it was frankly, a little bit complex.
Just the way the liquidity pools have to be spun up.
How transactions could be generally received and sent on a mobile device, where the app is not always in the foreground.
These were the types of kind of challenges that we saw early on and we can at that point back in 2015, we determined lightning wasn't ready.
We've been taking a fresh look at it and there's been a number of really great teams from different companies working on open source solutions and some.
Proprietary ones that are trying to help advance the state of technology there.
I think the layer <unk> solutions on a theory.
Like polygon optimism and arbitrage.
Basis built on one of those optimism.
Have.
They have actually gotten more adoption.
I'm not trying to make.
We're supportive of every innovation in the industry and Theres kind of everybody has their favorite one and so we always have to be a little bit neutral but.
The way that you can track the adoption of these things.
So actually a lot of the data is public and its online because these to the blockchain or public themselves. So for instance, you can go look at the daily number of transactions happening on the DRAM layer choose you can look at the <unk> metric, which total value locked.
Theres various sites out there like <unk> Lama and places like that you can track some of this publicly available data and we actually have seen a pretty nice.
Growth, we have seen pretty nice growth in if you are in later choose just in the last I would say like three to six months.
And so a lot of it comes down to usability challenges as well. So if you. If you are an average user.
They don't really need they don't really want to know where maybe they don't even care like about these technology. What is it doing underneath the average user doesn't want to have to learn how to bridge from layer <unk> to layer two to send their payment. They just wanted to pay for something and it just works. So I think what needs to happen and this is something that <unk> can really help on.
As we can make it seamless in the background. So if somebody goes to pay for something online or a friend or remittance payment or something like that it should really.
Negotiate kind of.
Almost to a handshake underneath that would say okay.
What types of crypto currencies on what changed.
This recipient.
Accepting and which one do I have an it would basically do the bridge or the conversion real time, where you underneath and so you would just see the amount of dollars or something like that going over the wire and it arrives in one second one.
That's kind of you don't have to worry about layer two and all these kind of things that's the ideal outcome, we need to get you in a lot of hard work in computer science that goes into making all of that seamless so.
And it's a coordination problem amongst the industry too because everybody has their own favorite solution and Thats a good thing and provide a lot of ideas are being tried but.
We can sort of help by enabling the best ones and sort of rallying people around good solutions, so that we get a little bit more consistency interoperability across the industry as well.
Your next question is from the line of John Colorado, When Needham <unk> Company.
Hey, great. Thanks for taking my question.
First I just wanted to drill into the take rate a little bit more because it looks like it expanded to the highest level since.
On a scale of public company.
So first off I guess, if the advanced rate mix goes down.
Is there a room for it to expand further from here and then as a follow up to that.
So kind of how confident are you that.
You can continue to increase retail spread before maybe you do start to lose some market share some migration away.
Thanks for the question Jon So in Q2. This was an acceptably Sharon. So if you just think about simple math and you.
We had zero advanced trading at the scenarios.
Blended average fee would then be higher for retail because it reflects the entire simple platform.
Oncentration of simple versus an advance in consumer will change the number meaningfully carried over a period.
We set out earlier on the prepared remarks, we did see a greater decline on advanced than we did on simple in the quarter, which is what is driving what you see is the performance of that blended fee, but that in Q2, it's just math.
Broadly on your question, we did raise sporadically shared in Q1 that was a Q1 event and we haven't seen any meaningful change in our consumer behavior from that event.
We monitor that very closely we expand with our fees on a regular basis and we think thats part of just building a healthy business to understand pricing with our customers.
Trust is our premium brand that we're selling product diversity of what we're selling the experienced app platform that Brian mentioned earlier, and we think we have a differentiated product in the market and so we are hoping to price that appropriately.
Your next question is from the line of.
For IP Pos Tiger Securities.
Hi, Thanks for taking the question.
So just wanted to dig a little bit deeper.
Victor.
Retail trading fee rate question. So what is the average.
Ray for banks trading in a band.
<unk>, respectively, and do you think the same dynamics.
We have sustained in Q and then my second question is.
Despite the recent wave of 50.
Clients while ETF.
Patients the USB C market has been declining.
On the other hand, you mentioned the growth of apply indications institutions ice do in lasting kryptos do you think on a net basis.
Institutions are losing inches and quite Paul and <unk>.
When can we see a turning point for our U S knee market. Thank you.
Let me start with the themes and then Brian or Emily if you want to talk about.
The FTC in the U S institutions. So honestly is we have multiple products within the retail and on the institutional side, so within retail or consumer we have simple training. We have advanced training, we have clean base, one and then underneath that we have Fiat the crypto and protect purpose I can't give you a specific blended average for each of these products.
There's also a tiered fees on the advanced products, but I can tell you is that our fees are transparent that theyre posted for our customers and so customers know what the fee is before they execute a trade on our platform.
So the blended average fee rate, which we report is just the mix shift it is math that results from the trading behavior of our clients on our platform. So I can't give you the what we expect in Q3.
There's nothing that we've seen rather than focus on driving engagement driving revenue that is our primary goal.
Shifting gears and talking about USD scene.
As Brian shared earlier, we did see a decline in U S. D C market cap as a result of the banking crisis in Q1. So I think we all know that when Silicon Valley Bank sale of new FCC had a deep peg that precipitated decline in electricity market cap.
We are working collaboratively with circle and to try and stabilize the FCC and to grow and we made our own numerous product initiatives in Q2 to try and engage further I think Brian maybe you want to sure again, what we think really the opportunity for stable claims broadly is around these layer two installations.
Yes sure.
Just one or two other quick comments on the OCC market cap I think.
Yes.
This is public as well by near its actually moved some of their funds from USB C into another standpoint.
But I think the data we have in the last six or seven weeks I believe that the U S.
Market cap is up.
Net of that and so.
That's an important data point I think there was also a perception that emerged just about U S regulatory risk and there is sort of this perception that <unk> had more of a U S. Nexus, then tether or something like that and to be honest I'm not sure. How will inform that is because of course, there is store in U S dollars as well as any bank, whether it's in the U S or not.
In U S dollars kind of have a corresponding banking relationship it within the.
Nexus or purview of the U S government, so I think I'm not sure how well informed that perception ones, but sometimes perception is reality.
Yes, I mean, so ambitious point.
I think that.
We're very bullish on stable coins I think that it's an important use case.
Important stepping stone to getting.
People will access a better financial services and then ultimately I think by the way long longer term I think we could see bitcoin and sort of these more deflationary assets start to be used more as.
Currencies in money as well, but today.
We will have such a higher expected upside on it that they're not willing to spend it in high enough quantity. So.
Hey, Mike.
Is there, but those are our high level thoughts on the market now.
Your next question is from the line of all allows the Oppenheimer.
Good afternoon, and thank you for taking my question.
Would you please give us more color on the traction on Coinbase International Exchange I think 50 institutions $5 $5 billion in contract volume. So what's the next step and when do you expect revenue to be more material. Thank you.
Yes.
It's definitely early days on <unk> derivative exchange, we really just launched it in Q2 with a small handful of clients as you said, the really kind of like a beta launch.
Only so.
Some of the next steps that will be working on are integrating it into our our retail app.
This advanced trading for retail customers is important.
We'll be launching it in our prime app for institutions.
We'll be expanding it to more geographies as well and there's various at various licensing requirements in the major markets around the world to get that working our customers are also asked for features around.
<unk> margin and additional kind of financing and leverage type features.
So those are some of the things on the horizon.
You can track the.
The data is public.
The volume of the books that we have their lives today.
On our side International Prime is dot com and.
You can will also be adding more books that the other thing I should mention today, we just have more books live two of them got out of just from last week or so we'll be adding more books as well. So those are all next things that we need to do a lot of work to do to get that to be where we want it to be and it's definitely very early days. So we're not really commenting on the revenue piece of it yet.
Our next question is from the line of Dan.
So Liz Lemon Soho.
Okay.
Hey, guys. Thanks for taking my question I really appreciate it we were talking about the you mentioned the share gains, but you know so I look at art data at least when you compare it to.
Some of your key competitors in the U S. Like Robinhood I mean, it seems like you are ceding some share.
The question is do you think that's true.
So like is it because the price hikes.
Youre seeing some pushback from the users or is there any sense of that thank you very much.
Thanks for the question Dan.
We experiment heavily with any fee change that we rollout is there. So we're not seeing any change in behavior based on fee changes that we made in Q1 on a platform we're really excited to see.
Robin Hood squarely in the <unk>.
We think it broadens.
Users who are interested in crypto as an asset class.
Heartened to see more and more companies at Crypto star portfolio as one of the ways that we differentiate ourselves is that we're a crypto native company and that we're looking to build more crypto native experiences for our users such as thinking is a big one but an increasingly the integration to our GAAP marketplace and the ability to use applications.
On <unk>. So we think that we offer a differentiated product suite.
Dan.
That over time, this will really attracting new users to our platform.
Yes.
I'll just add to that I think.
We generally has been partly just grow the size of the pie here.
Chris Crypto is still in its infancy right, we really we genuinely maintenance when we said we want <unk> to be integrated into every financial service business out there.
Fintech apps.
Neo banks traditional bank traditional financial service companies.
These etfs right like we don't view it as zero sum, we view it as positive some.
And.
The goal is really to help update the financial system globally, we need to do that we needed this to be integrated in all kinds of products and services out there.
So at least this point earlier, we didnt really see any material change in fees in Q2, so I.
I don't think Thats.
Something that would have driven that in this case.
Tim We can we've got time for one more question. Please.
Your final question comes from the line of Ben British with Barclays.
Okay.
Hi, good evening and thanks for taking the question I wanted to circle back to the question kind of around simple versus advanced trader I think.
Since like last December it seemed like the simple trader has been kind of remarkably consistent whereas the advance trader sort of comes and goes with market volatility I was wondering if you could talk a little bit more about the sort of different customer profiles you see.
How do they kind of compare is it sort of a demographic or an income or sort of interest subtle thing because I think we would sort of assume that maybe the advanced trader is more engaged but it seems like the simple traders theyre quite consistently so what are your kind of reads on the sort of characteristics of these customer types other than the choice, they're making with how to trade.
Yeah.
Yes.
It's tough to answer your question because it's a wide variety of different people who are accessing it.
I do think that so when we say CRO trader could meet a variety of things right. It could mean sort of like a approach pro sumer or semi pro they may actually be.
Trading through our interface, they're more sensitive on fees theyre more interested in short term trading, whereas the simple simple traders, maybe doing more buy and hold.
Setting up a weekly or monthly kind of recurring by the dollar cost averaging type stuff, which can be more consistent right.
No.
Greener could also mean.
Hedge funds in the largest market makers in the world.
No.
Pension funds endowments and sovereign wealth funds and so it really runs a wide gamut.
I think that we have more work to do to serve the.
The approach Raider segment of the market with some of those features that I mentioned around.
More order books derivatives trading ways for them to get leverage is a big one.
Unified margin.
So.
I think in those.
As we kind of mature our product offering around the pro traders, which we still have more work to do I think hopefully we will see that even in up and down markets, we'll see more activity be more sticky there because.
Traders in theory, I think youre right, they should be able to find opportunities to create whether the market is.
No matter what the market is doing so I think we need to mature our approach raider offering a bit that may emerge over time.
I appreciate it thanks for the color.
Okay, well that does it for today. Thank you all for joining us and we look forward to speaking to you again on our next call.
This concludes today's call. Thank you for joining you may now disconnect.
Okay.
Okay.
Okay.
Yeah.