Q2 2024 Coinbase Global Inc Earnings Call

Our discussions today will also include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in our shareholder letter on our Investor Relations website. non-GAAP financial measures should be considered in addition to, not as a substitute for, GAAP measures.

Operator: Legalizations to the most directly comparable GAP financial measures are provided in our shareholder letter on our Investor Relations website.

Anil Gupta: Investor Relations Links to the most directly comparable GAAP financial measures are provided in our shareholder letter on our Investor Relations website. Non-GAAP financial measures should be considered in addition to, not as a substitute for, GAAP measures.

Operator: Non-GAAP financial measures should be considered in addition to, not as the substitute for GAAP measures.

Operator: We are once again using the SAID Technologies platform to enable our shareholder staff's questions, and in addition, we will take some live questions from our research analysts.

Anil Gupta: We are once again using the Safe Technologies platform to enable our shareholders to ask questions, and in addition, we will take some live questions from our research analysts. And with that, I'll turn it over to Brian for opening comments.

Anil Gupta: And with that, I'll turn it over to Brian for opening comments.

Brian Armstrong: Thanks, Anil. I'm excited to share an update on our 2024 priorities. Let's start with driving regulatory clarity, given the significant progress here in Q2. First, advancing crypto legislation has emerged as a mainstream issue in Washington, D.C. StandWithCrypto.org has amassed over 1.3 million crypto advocates globally, many in swing states. And these advocates are making their voices heard as an important voting bloc. Politicians on both sides of the aisle have taken notice, and there is growing momentum to pass comprehensive crypto legislation, possibly even this year. Beyond legislation, we saw major wins both in the judicial and executive branches. For example, the Supreme Court overturned the Chevron deference precedent in a case argued by our newest board member, Paul Clements.

Brian Armstrong: Thanks, Anil.

Brian Armstrong: I'm excited to share an update on our 2024 priorities. Let's start with thriving regulatory clarity, given the significant progress here in Q2. First, advancing crypto legislation has emerged as a mainstream issue in Washington, D.C. Standwithcrypto.org has a mansion, has amassed over 1.3 million crypto advocates globally, many in swing states. And these advocates are making their voices heard as an important voting block. Politicians on both sides of the aisle have taken notice, and there is growing momentum to pass comprehensive crypto legislation, potentially even this year. Beyond legislation, we saw major wins, both in the judicial and executive branches.

Speaker Change: Bank. And these advocates are making their voices heard as an important voting bloc. Politicians on both sides of the aisle have taken notice, and there is growing momentum to pass comprehensive crypto legislation, potentially even this year.

Brian Armstrong: This case is significant for Coinbase as it removes a longstanding precedent that courts should defer to an agency's interpretation of ambiguous statutes. We see this case as a sign of Supreme Court skepticism about agency overreach, which we view as a positive overall for our industry. In the executive branch, the SEC dropped multiple investigations against the industry and also formally approved the Ethereum ETFs, which began trading last week. We are also increasingly optimistic that the next administration, whether Democratic or Republican, will be constructive on crypto. The rhetoric has shifted.

Brian Armstrong: The Supreme Court overturned the Chevron deference precedent in a case argued by our newest board member, Paul Clement. This case is significant for Coinbase as it removes a longstanding precedent that courts should defer to an agency's interpretation of ambiguous statutes. We see this case as a sign of Supreme Court skepticism to agency overreach, which we view as a positive overall for our industry. In the executive branch, the SEC dropped multiple investigations against the industry and also formally approved the Ethereum ETFs, which began trading last week. We are also increasingly optimistic that the next administration, whether Democrat or Republican, will be constructive on crypto.

Speaker Change: This case is significant for Coinbase as it removes a long-standing precedent that courts should defer to an agency's interpretation of ambiguous statutes.

Speaker Change: We see this case as a sign of Supreme Court skepticism to agency overreach, which we view as a positive overall for our industry. In the executive branch, the SEC dropped multiple investigations against the industry and also formally approved the Ethereum ETFs, which began trading last week.

Brian Armstrong: The rhetoric has shifted. To continue to advance progress on crypto policy and capitalize on this momentum, we contributed an additional $25 million to Fair Shake in Q2 to help elect pro crypto candidates. Since we went public, we have reiterated the need for regulatory clarity. Why does it matter? Well, clear rules would be a major unlock for innovation in our financial system, and it would ensure that this industry is built here in America. Many entrepreneurs and companies that want to build in the crypto space are sitting on the sidelines or going overseas until there is this clarity, given the regulation by enforcement environment.

Brian Armstrong: To continue to advance progress on crypto policy and capitalize on this momentum, we contributed an additional $25 million to Fairshake in Q2 to help elect pro-crypto candidates. Since we went public, we have reiterated the need for regulatory clarity. Why does it matter?

Since we went public, we have reiterated the need for regulatory clarity. Why does it matter? Well, clear rules would be a major unlock for innovation in our financial system and would ensure that this industry is built here in America.

Brian Armstrong: Well, clear rules would be a major unlock for innovation in our financial system, and it would ensure that this industry is built here in America. Many entrepreneurs and companies that want to build in the crypto space are sitting on the sidelines or going overseas until there is this clarity, given the regulatory-by-enforcement environment. 90% of institutional investors say regulatory clarity would boost their confidence in investing more in crypto. For these reasons, Coinbase will continue to push for clear rules in the courts, in Congress, and in the November election.

Brian Armstrong: 90 percent of institutional investors say regulatory clarity would boost their confidence in investing more in crypto. For these reasons, Coinbase will continue to push for clear rules in the courts, in Congress, and in the November elections. While we're heavily invested in driving clarity in the U.S.

Brian Armstrong: While we're heavily invested in driving clarity in the US and abroad, the vast majority of our resources, time, and attention as a company are focused on building great products. So let's talk about how we're driving utility.

Brian Armstrong: and abroad, the vast majority of our resources, time, and attention as a company, is focused on building great products.

Brian Armstrong: Let's talk about how we're driving utility. To bring a billion people on chain, crypto transactions need to be cheap and fast, and it needs to be so easy to use that people don't even know they're using crypto. We're investing on the front here to make crypto seamless for both consumers and developers. Most of the building blocks for utility like payments are now here. Layer 2s, like Base, enable one second, one cent global transactions, and it's here today. Stable coins, like USDC, enable global transfer and settlement in dollar terms today. And smart wallets offer seamless onboarding, so users no longer need to remember 12 word passes.

Brian Armstrong: To bring a billion people on chain, crypto transactions need to be cheap and fast, and it needs to be so easy to use that people don't even know they're using crypto. We're investing in the frontier to make crypto seamless for both consumers and developers. Most of the building blocks for utility payments are now here. Layer 2s like BASE enable 1 second, 1 cent global transactions, and it's here today. Stablecoins, like USDC, enable global transfer and settlement in dollars today.

Speaker Change: We're investing on the frontier to make crypto seamless for both consumers and developers. Most of the building blocks for utility, like payments, are now here.

Speaker Change: Stablecoins like USDC enable global transfer and settlement in dollar terms today, and smart wallets offer seamless onboarding so users no longer need to remember 12-word passphrases.

Brian Armstrong: And smart wallets offer seamless onboarding, so users no longer need to remember 12-word passwords. Building new versions of these applications on chain gives creators new ways to monetize and remix content while fully controlling their own data. Coinbase Developer Platform, or CDP for short, is our developer product, similar to what AWS did for the internet, which we believe will help more on-chain apps be created by offering developers best-in-class tools.

Brian Armstrong: Services. In short, the components are coming together for us to see more and more global transaction flow on crypto rails, and I'm excited to report that we're now seeing almost $20 billion per week in USDC transaction volume on Base. We're also seeing startups build on-chain versions of major Web2 apps like Spotify, Instagram, YouTube, and X. Building new versions of these applications on chain gives creators new ways to monetize and remix content while fully controlling their own data. This is the vision for the future of the internet, commonly called Web3. Coinbase Developer Platform, or CDP for short, is our developer product similar to what AWS did for the internet, which we believe will help more on-chain apps be created by offering developers best-in-class tools.

Brian Armstrong: Last but not least, let's move to how we're driving revenue. Q2 was another strong quarter, and it was our sixth consecutive quarter of a positive adjusted EBITDA. Subscription and services revenue reached an all-time high, with transaction revenue declining versus Q1. Coinbase is now an all-weather company with increasingly diversified revenue streams and a proud of our discipline managing expenses.

Brian Armstrong: Last but not least, let's move to how we're driving revenue. Q2 was another strong quarter, and it was our sixth consecutive quarter of positive adjusted EBITDA. Subscription and services revenue reached an all-time high, with transaction revenue declining versus Q1. Coinbase is now an all-weather company with increasingly diversified revenue streams. And I'm proud of our discipline in managing expenses. In closing, Q2 was another great quarter across the board. Whether the market is up or down, we're driving the industry forward, building more predictable revenue streams, and creating long-term shareholder value. Now, I'll pass it over to Alesia for a more detailed view of our Q2 financials.

Brian Armstrong: In closing, Q2 was another great quarter across the board. Whether the market is up or down, we're driving the industry forward, building more predictable revenue streams and creating long-term shareholder value.

Speaker Change: In closing, Q2 was another great quarter across the board. Whether the market is up or down, we're driving the industry forward, building more predictable revenue streams and creating long-term shareholder value. Now I'll pass it over to Alesia for a more detailed view of our Q2 financials.

Alesia Haas: Now we'll pass it over to Alicia for a more detailed view of our Q2 financials.

Alesia Haas: Thanks, Brian. Our Q2 results reflect our continued revenue diversification and execution on our goal to generate positive adjusted EBITDA in all market conditions. Total revenue was $1.4 billion; our expenses were within the outlook ranges we provided last quarter, and adjusted EBITDA was $596 million.

Alesia Haas: Brian, our Q2 results reflect our continued revenue diversification and execution on our goal to generate positive adjusted EBITDA in all market conditions. Total revenue was $1.4 billion. Our expenses were within the Outlook ranges we provided last quarter, and adjusted EBITDA was $596 million. Additionally, we strengthened our balance sheet to $7.8 billion in USD resources.

Alesia: Thanks, Brian . Our Q2 results reflect our continued revenue diversification and execution on our goal to generate positive adjusted EBITDA in all market conditions.

Alesia Haas: Further, we strengthened our balance sheet to $7.8 billion in USD resources. With that, let's dive into the Q2 details, starting with transaction revenue. Total spot trading volume declined 28% quarter of a quarter, driven primarily by lower crypto asset volatility. Our total transaction revenue was $781 million, down 27% quarter of a quarter. I want to note to you that our transaction revenue benefited from growth in derivatives and Coinbase Wallet trading fees, where we do not report trading volume associated with these two revenue streams. We were happy to turn on fees in Coinbase Wallet in Q2, following the favorable court ruling on wallet in our motion to dismiss.

Alesia Haas: With that, let's dive into the Q2 details, starting with transaction revenue. Total spot trading volume declined 28% quarter over quarter, driven primarily by lower crypto asset volatility. Our total transaction revenue was $781 million, down 27% quarter over quarter. I want to note to you that our transaction revenue benefited from growth in derivatives and Coinbase Wallet trading fees, although we do not report trading volume associated with these two revenues. We were happy to turn on fees in Coinbase Wallet in Q2 following the favorable court ruling on Wallet in our motion to dismiss.

Alesia: Our total transaction revenue was $781 million, down 27% quarter-over-quarter.

Alesia: I want to note to you that our transaction revenue benefited from growth in derivatives and Coinbase wallet trading fees, where we do not report trading volume associated with these two revenue streams.

Alesia Haas: Our other transaction revenue was down 6% quarter of a quarter. We were able to significantly reduce base fees in the quarter, which is Brian mentioned helped drive 300% quarter-over-quarter growth in the number of transactions on base.

Speaker Change: Our other transaction revenue was down 6% quarter-over-quarter. We were able to significantly reduce base fees in the quarter, which as Brian mentioned, helped drive 300% quarter-over-quarter growth in the number of transactions on base.

Alesia Haas: Turning to subscription and services revenue. As I mentioned in my opening, we were pleased to further diversify our revenue in Q2. Subscription and services revenue grew 17% quarter of a quarter to $599 million. We saw growth across the board, but it was primarily driven by stablecoin revenue and blockchain rewards revenue. We note in our letter that our blockchain rewards revenue benefited from a $1.8 million validator reward. We are also pleased to see continued growth up with Coinbase 1.

Alesia Haas: Our other transaction revenue was down 6% quarter over quarter. However, we were able to significantly reduce base fees in the quarter, which, as Brian mentioned, helped drive 300% quarter-over-quarter growth in the number of transactions on base. Turning to Subscription and Services Revenue. As I mentioned in my opening, we were pleased to further diversify our revenue in Q2, and subscription and services revenue grew 17% quarter over quarter to $599 million. We saw growth across the board, but it was primarily driven by stablecoin revenue and blockchain rewards revenue. We note in our letter that our blockchain rewards revenue benefited from a one-time $8 million validator reward. We're also pleased to see continued growth with Coinbase One. Moving on, expenses.

Speaker Change: Turning to subscription and services revenue.

Speaker Change: As I mentioned in my opening, we were pleased to further diversify our revenue in Q2, and subscription and services revenue grew 17% quarter-over-quarter to $599 million.

Speaker Change: We saw growth across the board, but it was primarily driven by stablecoin revenue and blockchain rewards revenue. We note in our letter that our blockchain rewards revenue benefited from a one-time $8 million validator reward.

Alesia Haas: Moving to expenses. Our total operating expenses were $1.1 million, which were up $229 million quarter-requiter. Redrivers contributed to this growth. First, a $117 million quarter-requiter change in our gain loss on operational crypto. We recorded a gain in Q1 and an expense in Q2, as crypto prices were lower in the second quarter as compared to the first. Second, we saw a $67 million quarter-requiter increase in our variable sales and marketing expenses, higher USTC reward payouts, driven by higher on-platform balances, and higher performance marketing spend driven by attractive marketing conditions. Beginning in late Q1, we've seen more marketing opportunities that meet our investment criteria.

Alesia: We're also pleased to see continued growth with Coinbase One.

Alesia Haas: Our total operating expenses were $1.1 billion, which was up $229 million quarter over quarter. Three drivers contributed to this growth. First, a $117 million quarterly-over-quarter change in our gain-loss-on-operational crypto. We recorded a gain in Q1 and an expense in Q2, as crypto prices were lower in the second quarter as compared to the first. Second, we saw a $67 million quarter-for-quarter increase in our variable sales and marketing expenses, higher USDC reward payouts, driven by higher on-platform balances, and higher performance marketing spend, driven by attractive marketing conditions.

Alesia: Moving to expenses. Our total operating expenses were $1.1 billion, which were up $229 million quarter over quarter.

Alesia: Three drivers contributed to this growth. First, a $117 million dollar quarter-over-quarter change in our gain loss on operational crypto.

Alesia: We recorded a gain in Q1 and an expense in Q2, as crypto prices were lower in the second quarter as compared to the first.

Alesia: Second, we saw a $67 million quarter-for-quarter increase in our variable sales and marketing expenses, higher USDC reward payouts driven by higher on-platform balances, and higher performance marketing spend driven by attractive marketing conditions.

Alesia Haas: Beginning in late Q1, we've seen more marketing opportunities that meet our investment criteria. We take a disciplined approach to balancing marketing investments with growth. We have clear guardrails in place that ensure the vast majority of our non-brand marketing spend pays back within one year.

Alesia: Beginning in late Q1, we've seen more marketing opportunities that meet our investment criteria. We take a disciplined approach to balancing marketing investments with growth. We have clear guardrails in place that ensure the vast majority of our non-brand marketing spend pays back within one year.

Alesia Haas: We take a disciplined approach to balancing marketing investments with growth. We have clear guardrails in place to ensure the vast majority of our non-brand marketing spend pays back within one year. The third driver of the expense increase was a $26 million quarter-requiter increase in policy spend in support of driving regulatory clarity. All policy spend is now recorded in general and administrative expenses as we view them ongoing, and we have updated prior periods accordingly. Despite our sequential decline in revenue, our profitability was solid in the second quarter. Net income was $36 million and was impacted by a $319 million in pre-tax crypto asset losses associated with our investment portfolio.

Alesia Haas: The third driver of the expense increase was a $26 million quarterly-per-quarter increase in policy spend in support of driving regulatory clarity. All policy spend is now recorded in general and administrative expenses as we view it ongoing, and we have updated prior periods accordingly. Despite our sequential decline in revenue, our profitability was solid in the second quarter. Net income was $36 million and was impacted by $319 million in pre-tax crypto asset losses associated with our investment portfolio. The vast majority of these were never realized.

Alesia: The third driver of the expense increase was a $26 million quarter-for-quarter increase in policy spend in support of driving regulatory clarity. All policy spend is now recorded in general and administrative expenses as we view them ongoing and we have updated prior periods accordingly.

Alesia: Despite our sequential decline in revenue, our profitability was solid in the second quarter. Net income was $36 million and was impacted by a $319 million in pre-tax crypto asset losses associated with our investment portfolio.

Alesia Haas: The vast majority of these were unrealized. These losses represented a $248 million after-tax expense. Our adjusted EBITDA was $596 million, and our balance sheet remained strong as we ended the second quarter with $7.8 million in USD resources, up $733 million quarter-requiter.

Alesia: The vast majority of these were unrealized. These losses represented a $248 million after-tax expense.

Alesia Haas: These losses represented a $248 million after-tax expense. Our adjusted EBITDA was $596 million, and our balance sheet remained strong as we ended the second quarter with $7.8 billion in USD resources, up $733 million quarter over quarter. Finally, a few call-outs on our outlook for the third quarter. First, our subscription and services outlook reflects some modest headwinds as we go into the third quarter. This is primarily due to the July Ethereum price declining about 3% as compared to the Q2 average. Our Expectations of a September Interest Rate. Cut.

Alesia: Our adjusted EBITDA was $596 million, and our balance sheet remained strong as we ended the second quarter with $7.8 billion in USD resources, up $733 million quarter over quarter.

Alesia Haas: Finally, a few call outs on our outlook for the third quarter. First, our subscription and services outlook reflect some modest headwinds if we go into the third quarter. This is primarily due to the July Ethereum price declining about 3% as compared to the Q2 average. Our expectations of expenses related to USDC as we work to drive global adoption of USDC as the most compliant stablecoin and the one-time $8 million blockchain reward benefit I mentioned earlier. We are going to work hard to grow native units to try and offset these headwinds. However, our range has been updated to capture this market environment.

Alesia: Finally, a few call-outs on our outlook for the third quarter. First, our subscription and services outlook reflects some modest headwinds as we go into the third quarter. This is primarily due to the July Ethereum price declining about 3% as compared to the Q2 average.

Anil Gupta: Some increases in expenses related to USDC as we work to drive global adoption of USDC as the most compliant stablecoin and the one-time $8 million blockchain reward benefit I mentioned earlier. We're going to work hard to grow native units to try and offset these headwinds. However, our range has been updated to capture this market environment. Additionally, we plan to further grow our variable marketing spend in Q3. Variable marketing expenses can fluctuate widely, quarter to quarter, depending on factors like the on-platform USDC balance, the overall market conditions, and the number of available marketing opportunities that meet our customer's cost of acquisition targets.

Alesia: our expectations of a September interest rate cut, some increases in expenses related to USDC as we work to drive global adoption of USDC as the most compliant stable coin, and the one-time $8 million blockchain reward benefit I mentioned earlier.

Alesia: We are going to work hard to grow native units to try and offset these headwinds, however our range has been updated to capture this market environment.

Alesia Haas: Second, we plan to further grow our variable marketing spending in Q3. Variable marketing expenses can fluctuate widely quarter to quarter depending on factors like the on-platform USDC balance, the overall market conditions, and the number of available marketing opportunities that meet our customer cost of acquisition targets. Our outlook range is wider than we provided historically, and it reflects the range of possibilities we see. Last, while we are expanding variable expenses to meet evolving market conditions, we also expect to prudently increase headcount throughout the rest of the year, primarily to support our product and international expansion efforts and to strengthen our product foundations and quality.

Alesia: Second, we plan to further grow our variable marketing spend in Q3.

Alesia: Variable marketing expenses can fluctuate widely quarter to quarter depending on factors like the on-platform USDC balance, the overall market conditions, and the number of available marketing opportunities that meet our customer cost of acquisition targets. Our outlook range is wider than we've provided historically and it reflects the range of possibilities we see.

Anil Gupta: Our outlook range is wider than we've provided historically, and it reflects the range of possibilities we've seen. While we are expanding variable expenses to meet evolving market conditions, we also expect to prudently increase headcount throughout the rest of the year, primarily to support our product and international expansion efforts and to strengthen our product foundations and quality. We remain focused on managing our fixed expenses closely and believe these investments will support continued revenue diversification and product quality. With that, let's go to questions.

Alesia: Last, while we are expanding variable expenses to meet evolving market conditions, we also expect to prudently increase headcount throughout the rest of the year, primarily to support our product and international expansion efforts, and to strengthen our product foundations and quality.

Alesia Haas: We remain focused on managing our fixed expenses closely and believe these investments will support continued revenue diversification and product quality.

Alesia: We remain focused on managing our fixed expenses closely and believe these investments will support continued revenue diversification and product quality. With that, let's go to questions.

Operator: With that, let's go to questions.

Anil Gupta: Thanks Alesia. So we'll take the first three questions that were the most voted upon from the FAY platform and then we'll take some live questions from the analysts. The first question is, how does Coinbase view the potential impact of its basic partnerships with companies such as Stripe and Shopify, as well as the impact of the newly launched smart wallet on increasing crypto adoption? Brian?

Operator: Thanks, Alicia. So, we'll take the first three questions that were the most voted upon from the Faith Platform, and then we'll take some live questions from the analysts.

Speaker Change: Thanks Alesia. So we'll take the first three questions that were the most voted upon from the SAVE platform and then we'll take some live questions from the analysts.

Brian Armstrong: The first question is, how does Coinbase view the potential impact of basis partnerships with companies such as Stripe and Shopify, as well as the impact of the newly launched Smart Wallet on increasing crypto adoption, Brian? Yeah, so our whole goal here is to try to shift crypto to power more and more utility, and not just be an asset class that people buy and trade, hoping it will go up in value. Although that's going to be a big business for us for a long time. But if we're ultimately going to achieve the potential of this, we need to get a billion people or more on chain, who can benefit from this update to the financial system to bring more economic freedom to the world.

Alesia: The first question is how does Coinbase view the potential impact of basis partnerships with companies such as Stripe and Shopify as well as the impact of the newly launched smart wallet on increasing crypto adoption? Brian ?

Brian Armstrong: Yeah, so our whole goal here is to try to shift crypto to power more and more utilities and not just be an asset class that people buy and trade, hoping it will go up in value, although that's going to be a big business for us for a long time. But if we're ultimately going to achieve the potential of this, we need to get a billion people or more on the chain who can benefit from this update to the financial system to bring more economic freedom to the world.

Brian: Yeah, so our whole goal here is to try to shift crypto to power more and more utility.

Speaker Change: and not just be an asset class that people buy and trade, hoping it will go up in value, although that's going to be a big business for us for a long time.

Speaker Change: But if we're ultimately going to achieve the potential of this, we need to get a billion people or more on chain who can benefit from this update to the financial system to bring more economic freedom to the world. So thank you.

Brian Armstrong: So, to do that, there's some foundational building blocks. We need to make all crypto transactions fast and cheap, ideally under one second and one cent to send transaction anywhere in the world, and we've now achieved that with Base. We also need to make crypto a lot easier to use, to get a billion or more people. Not everyone in the world knows the technical details, nor should they have to know the technical details of crypto. And so, we're making a lot of efforts in that direction to make it easier.

Brian Armstrong: So to do that, there are some foundational building blocks; we need to make all crypto transactions fast and cheap, ideally under one second and one cent to send a transaction anywhere in the world. And we've now achieved that with base.

Alesia: To do that, there's some foundational building blocks. We need to make all crypto transactions fast and cheap, ideally under one second and one cent to send a transaction anywhere in the world. And we've now achieved that with Base.

Brian Armstrong: We also need to make crypto a lot easier to use to get a billion or more people. Not everyone in the world knows the technical details, nor should they have to know the technical details of cryptography. And so we're making a lot of efforts in that direction to make it easier.

Alesia: We also need to make crypto a lot easier to use to get a billion or more people, not everyone in the world.

Alesia: knows the technical details, nor should they have to know the technical details of crypto.

Brian Armstrong: I mean, one example of this was mentioned in the question, our smart wallet launch. So this solves one of the biggest pain points in crypto previously, for getting on boarded to a self-custodial wallet required you to have a 12 word passphrase. People had to write this down or save it somewhere. Sometimes they would lose it or not store it securely.

Brian Armstrong: I mean, one example of this was mentioned in the question: our Smart Wallet launch. So, to get onboarded to a self-custodial wallet required you to have a 12-word passphrase. People had to write this down or save it somewhere; sometimes they would lose it or not store it securely. With Smart Wallet's, people can now onboard just using what are called passkeys; typically, it's a biometric, like a thumbprint on a mobile device. And this doesn't, there's nothing they have to remember; it's secure, it's fast, they're onboarded in a few seconds. So, it's a great example of getting an onboarding solve.

Alesia: And so we're making a lot of efforts in that direction to make it easier. I mean, one example of this is, was mentioned in the question, our smart wallet launch. So this is, it solves one of the biggest pain points in crypto. Previously,

Alesia: For to get onboarded to a self-custodial wallet required you to have a 12-word passphrase. People had to write this down or save it somewhere. Sometimes they would lose it or not store it securely.

Brian Armstrong: With smart wallets, people can now onboard just using what are called pass keys. And typically, it's a biometric, like a thumbprint on a mobile device. And this doesn't, there's nothing they have to remember, it's secure, it's fast, they're onboarded in a few seconds. So it's a great example of getting onboarding solved.

Alesia: With smart wallets, people can now onboard just using what are called pass keys, and typically it's a biometric like a like a thumbprint on a mobile device.

Alesia: And this doesn't, there's nothing they have to remember, it's secure, it's fast, they're onboarded in a few seconds.

Brian Armstrong: Now, if you take Base, Smart Wallets, USDC, which is a stable coin that meets with MECA compliance in Europe and is trusted, you start to see some of the building blocks coming together where we can really start to drive that utility. And, of course, partnering with some of the biggest companies out there to integrate crypto rails is a huge piece of that as well. So only two of them were mentioned in the question.

Brian Armstrong: Now, if you take base Smart Wallets, USDC, which is a stablecoin that meets with the Mika compliance in Europe and is trusted, you start to see some of the building blocks coming together where we can really start to drive that utility. And of course, partnering with some of the biggest companies out there to integrate crypto rails is a huge piece of that as well. So, two of them were mentioned in the question. We're going to continue to try to partner with every fintech, every bank, every neo-bank, even more traditional companies to try to integrate crypto into every part of the global financial system.

Alesia: So it's a great example of getting, you know, onboarding solved. Now, if you think if you take base smart wallets USDC, which is a stable coin that meets with the the MECA compliance in Europe and is trusted

Alesia: You start to see some of the building blocks coming together where...

Alesia: We can really start to drive that utility. And of course, partnering with...

Alesia: Some of the biggest companies out there to integrate crypto rails is a huge piece of that as well. So, you know, two of them were mentioned in the question. We're going to continue to try to partner with every fintech, every bank.

Brian Armstrong: We're gonna continue to try to partner with every fintech, every bank, every neo bank, and even more traditional companies to try to integrate crypto into every part of the global financial system. That's how we're really going to update the financial system, and we'll do more and more partnerships.

Alesia: every neobank, you know, even more traditional companies to try to integrate crypto into every part of the global financial system. That's how we're really going to update the financial system and we'll do more and more partnerships.

Brian Armstrong: That's how we're really going to update the financial system, and we'll do more and more partnerships.

Operator: All right, second question, which says, first of all, thank you for all the community support for things like Stand with Crypto. What else is being done to support better regulation in the industry, and how can we, as shareholders, help?

Anil Gupta: All right, second question, which says, First of all, thank you for all the community support for things like Stand with Crypto. What else is being done to support better regulation in the industry? And how can we as shareholders help?

Alesia: All right, second question, which says, first of all, thank you for all the community support for things like Stand with Crypto. What else is being done to support better regulation in the industry, and how can we as shareholders help?

Brian Armstrong: Brian?

Brian Armstrong: Brian?

Brian Armstrong: Yeah, well, first, thanks for the shout-out on standwithcrypto.org. If anybody hasn't signed up there, what I'd encourage you to do is invite your friends. It's an organization that we were proud to donate to that's helping educate voters. And there's 52 million Americans, you know, 400 million-ish people globally that have used crypto now. It's important that in democracies around the world, we help folks get educated on different candidates and give them the tools to help support.

Speaker Change: Yeah, well, first, thanks for the shout out on standwithcrypto.org. If anybody hasn't signed up there, I'd encourage you to do it. Invite your friends.

Alesia: It's an organization that we were proud to donate to that's helping educate voters.

Alesia: And there's 52 million Americans, you know, 400 million-ish people globally that have used crypto now.

Alesia: It's important that in democracies around the world that we help folks get educated on different candidates and give them the tools to help support. So you know on standwithcrypto.org and specifically you can

Brian Armstrong: So, you know, on standwithcrypto.org. And specifically, you can call and email your representatives, see what their position, their voting record is on different crypto bills that have come up. You can donate to pro crypto candidates. You can also, most importantly, probably just make sure you're registered to vote and get educated on those different candidates.

Brian Armstrong: Yeah, well, first, thanks for the shout out on standwithcrypto.org. If anybody hasn't signed up there, I'd encourage you to do it. Invite your friends.

Brian Armstrong: It's an organization that we were proud to donate to, that's helping educate voters. And there are 52 million Americans, you know, 400 million ish people globally that have used crypto now. It's important that in democracies around the world, we help folks get educated on different candidates and give them the tools to help support. So you know, on standwithcrypto.org, and specifically, you can call and email your representatives, see what their position, and their voting record is on different crypto bills that have come up. You can donate to pro-crypto candidates. You can also, most importantly, probably just make sure you're registered to vote and get educated on those different candidates.

Alesia: Call and email your representatives, see what their position, their voting record is on different crypto bills that have come up.

Alesia: You can donate to Pro Crypto Candidates. You can also...

Alesia: And most importantly, probably just make sure you're registered to vote and get educated on those different candidates. Now, staying with crypto is great, but it's just one pillar really of the different efforts going on in the industry. You know, of course, we're pursuing clarity on the rules in the courts.

Brian Armstrong: Now, standing with crypto is great, but it's just one pillar really of the different efforts going on in the industry. You know, of course, we're pursuing clarity on the rules in the courts, and we have our court case going on there, which we hope will create good case law. You know, there's lots of other pieces to that in terms of getting FOIA requests answered, shining a light on some of the activity that may have been happening there. Even, you know, we have oral arguments going forward in the Third Circuit to press the SEC on its undoing rulemaking following the Administrative Procedures Act.

Brian Armstrong: Now Stan with crypto is great, but it's just one pillar really of the different efforts going on in the industry. You know, of course, we're pursuing clarity on the rules in the courts, and we have our court case going on there, which we hope will create good case law. You know there's lots of other pieces to that in terms of getting FOIA requests answered. I'm shining a light on some of the activity that may have been happening there. Even, you know, we have oral arguments going forward in the Third Circuit to press the SEC on its on doing rulemaking following the Administrative Procedures Act.

Alesia: And we have our court case going on there, which we hope will create good case law. You know, there's lots of other pieces to that in terms of...

Alesia: Getting FOIA requests answered, shining a light on some of the activity that may have been happening there, even, you know, we have oral arguments going forward in the Third Circuit to press the SEC on its

Brian Armstrong: So there's a variety of things going on in the courts, which we think will help create good case law. In Congress, also we're seeing bipartisan legislation. We have a path forward; there's real energy now in the Senate taking up the big, the strong bipartisan majority that got passed in the House with the 51 bill. The Senate is now working on their own version of that, so we're optimistic to see more progress there. Yeah, so these are all, and of course you know Fair Shake is an organization that we were proud to donate to. This helping elect pro crypto candidates, so these are all things that can contribute to the cause here.

Brian Armstrong: So there's a variety of things going on in the courts, which we think will help create good case law in Congress. Also, we're seeing bipartisan legislation have a path forward. There's real energy now in the Senate taking up the strong bipartisan majority that got passed in the House with the 521 bill. The Senate is now working on its own version of that. So we're optimistic to see more progress there. Yeah, so these are all and, of course, you know, Fairshake is an organization that we were proud to donate to, that's helping elect pro-crypto candidates.

Alesia: on doing rulemaking following the Administrative Procedures Act.

Alesia: So there's a variety of things going on in the courts, which we think will help create good case law.

Alesia: In Congress, also, we're seeing bipartisan legislation.

Alesia: have a path forward. There's there's real energy now in the Senate, taking up the big the strong bipartisan majority that got passed in the House with the fit 21 bill. The Senate is now working on their own version of that. So we're optimistic to see more progress there.

Alesia: Yeah, so these are all, and of course, you know, Fairshake is an organization that we were proud to donate to.

Brian Armstrong: So these are all things that can contribute to the cause here. If any of you want to know what you can do more to help, I'd start with standwithcrypto.org and make sure you're signed up there, contact your representatives, and register to vote.

Alesia: It's helping elect pro-crypto candidates. So these are all things that can...

Brian Armstrong: If any of you want to know what you can do more to help, I'd start with Stan with crypto dot org and make sure you're signed up there, and contact your representatives and register to vote.

Alesia: contribute to the cause here. If any of you want to know what you can do more to help, I'd start with standwithcrypto.org and make sure you're signed up there and contact your representatives and register to vote.

Operator: All right, and our final question: from say what level of revenue are you projecting for custody and funds of the crypto ETFs? Can you break that down between ETH and Bitcoin?

Anil Gupta: All right, and our final question from Sae: what level of revenue are you projecting for custody in funds of the crypto ETFs? Can you break that down between ETH and Bitcoin? Additionally, what types of revenue are you projecting for the base chain, Alesia?

Speaker Change: All right, and our final question from Sae, what level of revenue are you projecting for custody and funds of the crypto ETFs? Can you break that down between ETH and Bitcoin?

Alesia Haas: Additionally, what types of revenue are you projecting for the base chain, Alicia? Thanks for that. So each has to been great for our industry; they have really generated a flywheel of activity across our product platform and deeper engagement across the ecosystem. It's unlocked new capital we're benefiting in three ways: we get trading, we get custody, and we get additional financing business and our prime financing product from our institutional clients with the ETFs.

Alesia Haas: Thanks for that. ETFs have been great for our industry. They have really generated a flywheel of activity across our product platform and deeper engagement across the ecosystem. It's unlocked new capital.

Alesia: Additionally, what types of revenue are you projecting for the base chain, Alesia?

Speaker Change: Thanks for that. So ETFs have been great for our industry.

Speaker Change: They have really generated a flywheel of activity across our product platform and deeper engagement across the ecosystem. It's unlocked new capital. We're benefiting in three ways. We get trading, we get custody, and we get additional financing business in our prime financing product from our institutional clients with the ETFs.

Alesia Haas: We're benefiting in three ways. We get trading, we get custody, and we get additional financing business in our prime financing product from our institutional clients with the ETFs. We're not breaking out the total ETF financial impact at this time.

Alesia Haas: We're not breaking out total ETF financial impact at this time. Our view is that this is just adding to existing products and revenue streams that we have, and we don't think about specific sub products or client activity on our platform. But we're really pleased to see the overall interest of the ETFs have brought to the crypto industry and to our product.

Alesia Haas: Our view is that this is just adding to existing products and revenue streams that we have, and we don't speak about specific subproducts or client activity on our platform. But we're really pleased to see the overall interest that ETFs have brought to the crypto industry and to our product. Additional types of revenue For the second part of the question that we're projecting for BASE, our focus, as I mentioned in my opening remarks, is driving developer activity.

Speaker Change: We're not breaking out total ETF financial impact at this time. Our view is that this is just adding to existing products and revenue streams that we have and we don't speak about specific subproducts or client activity on our platform. But we're really pleased to see the overall interest that the ETFs have brought to the crypto industry and to our product.

Alesia Haas: Additional types of revenue for the second part of the question that we're projecting for base our focus, as I mentioned in my opening remarks, is driving developer activity; we're driving those transaction volumes that we commented on. We're doing this by driving down fees, increasing the scalability, and creating a powerful developer platform that's enabling anybody to build these on-chain products. We believe that this growth will then add users to develop over products will add developers and apps on base and that in turn will drive transaction volume and will drive down sequencer fees and we will then see revenue as a result of that those efforts.

Alesia Haas: We're driving those transaction volumes that we commented on. We're doing this by driving down fees, increasing scalability, and creating a powerful developer platform that's enabling anybody to build these on-chain products. We believe that this growth will then add users to develop those products, and add developers and apps on BASE. And that, in turn, will drive transaction volume and will drive down sequencer fees, and we will then see revenue as a result of those efforts.

Speaker Change: Additional types of revenue for the second part of the question that we're projecting for base.

Speaker Change: Our focus, as I mentioned in my opening remarks, is driving developer activity, we're driving those transaction volumes that we commented on. We're doing this by driving down fees, increasing the scalability, and creating a powerful developer platform that's enabling anybody to build these on-chain products.

Speaker Change: We believe that this growth will then add users to develop the products, will add developers and apps on base, and that in turn will drive transaction volume and will drive down sequencer fees, and we will then see revenue as a result of that, those efforts.

Operator: Thank you, and so with that crystal, let's open up the line for our first question, please.

Anil Gupta: And so, with that, Krista, let's open up the line for our first question.

Speaker Change: Thank you. And so with that, Krista, let's open up the line for our first question, please.

Operator: Certainly. Before we begin, please limit yourselves to one question. Your first question comes from the line of Devin Ryan with Citizens JMP. Please go ahead.

Devon Ryan: Certainly, before we begin, please limit yourself to one question. Your first question comes from the line of Devon Ryan with Citizens JMP. Please go ahead. Great. Thank you.

Krista: Certainly. Before we begin, please limit yourselves to one question. Your first question comes from the line of Devin Ryan with Citizens JMP. Please go ahead.

Devin Ryan: Great. Thank you. Hi, Brian. Hi, Alesia.

Devon Ryan: Hi, Brian. Hi, Alicia. I just want to ask a question about the derivatives platform. And we're tracking just quarter-to-day continuation of building volumes there. And I know you're not breaking it out in revenues separately yet, but it sounded like it was a positive contributor in the second quarter. So I want to just get some perspective around how you think you're taking share in that market. I what are you seeing with customers coming on platform? And then, over time, are there opportunities to either take up the average spread per trade or drive other incremental revenues with the customers that are trading during this?

Devin Ryan: All right, great. Thank you. Hi, Brian. Hi, Alesia.

Devin Ryan: I just want to ask a question about the derivatives platform and

Speaker Change: You know, we're tracking just quarter to date, you know, a continuation of building volumes there, and I know you're not breaking it out.

Speaker Change: and Revenues separately yet, but it sounded like it was a positive contributor in the second quarter.

Speaker Change: So, I'd love to just get some perspective around...

Speaker Change: How do you think you're taking share in that market? I know it's coming off of a low base.

Speaker Change: What are you seeing with customers coming on platform? And then over time, are there opportunities to either take up the average spread per trade or drive other incremental revenues with the customers that are trading derivatives? You're trying to think about kind of the bigger picture of where this may be going since it's trending positively. Thank you.

Brian Armstrong: You're trying to think about kind of a bigger picture of where this may be going since it's trending positively. Thank you.

Brian Armstrong: Yeah, so I'll start off, and then maybe I'll hand over to you, Alicia, on some of the margin questions. So just zooming out, you know, derivatives is about 75% of all crypto trading activity by volume. And so it is the majority of trading volume now. The take rates are lower on it, but it is really a key part of the market overall. And so I'm really glad that we are now in market, both in the US with Coinbase financial markets and then internationally with our international exchange as well. So primary goal at this point, building liquidity, adding users, growing share. We had some really good wins in Q2.

Speaker Change: Yeah, so I'll start off and then maybe I'll hand over to you, Alesia, on some of the margin questions.

Devin Ryan: I just want to ask a question about the derivatives platform. And we're tracking just quarter to date, you know, a continuation of building volumes there. And I know you're not breaking it out in revenues separately yet, but it sounded like it was a positive contributor in the second quarter. So I'd love to just get some perspective on, you know, how you think you're taking share in that market. I know it's coming off of a low base.

Alesia: Just zooming out, you know, derivatives is about 75% of all crypto trading activity by volume, and so it is the majority of trading volume. Now, the take rates are lower on it, but it

Speaker Change: It's really a key part of the market overall, and so I'm really glad that we are now in market, both in the U.S. with Coinbase financial markets, and then internationally with our international exchange as well.

Devin Ryan: You know, what are you seeing with customers coming onto the platform? And then, over time, are there opportunities to either take up the average spread per trade or drive other incremental revenues with the customers that are trading derivatives? You're trying to think about kind of the bigger picture of where this may be going since it's trending positively. Thank you.

Brian Armstrong: Yeah, so I'll start off and then maybe I'll hand over to you, Alesia, on some of the margin questions. Just zooming out, you know, derivatives are about 75% of all crypto trading activity by volume. And so it accounts for the majority of trading volume. Now, the take rates are lower on it, but it is really a key part of the market overall. And so I'm really glad that we are now in the market, both in the US with Coinbase financial markets and then internationally, with our international exchange as well. So, our primary goal at this point is building liquidity, adding users, and growing share. We had some really good wins in Q2.

Speaker Change: So, primary goal at this point, building liquidity, adding users, growing share. We had some really good wins in Q2. You know, in the U.S., Coinbase advanced. We were able to expand to include more contracts there.

Brian Armstrong: You know, in the US, Coinbase advanced; we were able to expand to include more contracts there. We were the first platform to offer margin to crypto futures for a handful of different assets, for instance. We've also been adding, actually, for a Coinbase financial market. We've been adding some real-world assets as well, like gold and oil commodities futures, which was pretty cool. We were able to operate that all under the same license. For Coinbase International Exchange, we also expanded our asset coverage quite a lot in Q2. We added 25 additional petrol futures contracts. The volume has been really good today, actually, on Coinbase International Exchange.

Brian Armstrong: You know, in the US, Coinbase advanced. We were able to expand to include more contracts there. We were the first platform to offer margin on crypto futures for a handful of different assets, for instance.

Speaker Change: We were the first platform to offer margin to crypto futures for a handful of different assets, for instance. We've also been adding, actually for Coinbase financial market, we've been adding some real world assets as well, like gold and oil commodities futures, which was pretty cool. We were able to operate that all under the same license.

Brian Armstrong: We've also been adding, actually, for Coinbase Financial Market, we've been adding some real world assets as well, like gold and oil commodities futures, which was pretty cool. We were able to operate that all under the same license. For Coinbase International Exchange, we also expanded our asset coverage quite a lot in Q2. We added 25 additional perpetual futures contracts.

Speaker Change: For Coinbase International Exchange, we also expanded our asset coverage quite a lot in Q2. We added 25 additional perpetual futures contracts.

Brian Armstrong: The volume has been really good today, actually, on Coinbase International Exchange. So you can check that out at international.coinbase.com. So we're just building on this momentum, building the features that our customers want and need. And then there's the MIFID license that we acquired earlier this year, and we're expecting that to close in 2024. That will allow us to unlock derivatives in 20 or more EU markets. That's a pretty big deal.

Brian Armstrong: So you can check that out at international.coinbase.com. So we're just building on this momentum, building the futures that our customers want and need. And then there's a method license that we acquired earlier this year when we're expecting that to close in 2024. That will allow us to unlock derivatives in 20 or more EU markets. That's a pretty big deal.

Speaker Change: The volume has been really good today, actually, on Coinbase International Exchange.

Brian Armstrong: And so you can kind of just see Coinbase following this path. We're not always first to market, but we do it the right way. We do it the compliant way, the secure, trusted way. And so we're the trusted counterparty that many of these folks have been waiting for to enter the market. And I think that's going to pay off as a really good long-term strategy.

Brian Armstrong: And so you can kind of just see Coinbase following this path of, we're not always first to market, but we do it the right way, we do it the compliant way, the secure, trusted way. And so we're the trusted counterparty that many of these folks have been waiting for to enter the market. And I think that's going to pay off as a really good long-term strategy.

Alesia Haas: Alicia, anything you want to add? The only thing that I would add is Brian said it is early. And at this point in time, derivatives, while an important future growth driver, are not a material driver of our financial results.

Alesia Haas: The only thing that I would add is, as Brian said, it is early, and at this point in time, derivatives, while an important future growth driver, are not a material driver of our financial results. What I wanted to comment on in Q2, though, is because we do report revenue associated with derivatives but not volume, what you can see is that there is a beginning disconnect between the revenue and the volume that we report, which is spot.

Alesia Haas: What I wanted to comment on in Q2, though, is because we do report revenue associated with derivatives, but not volume. What you can see is that at the beginning, disconnect between the revenue and the volume that we report, which is spot. And so the growth rates of those two are the change. You need to understand that there's a disconnect between numerator and denominator when you may calculate blended average fees for our platform. So that was the important message that I wanted to communicate in the quarter.

Alesia Haas: And so the growth rates of those two are the change. You need to understand that there is a disconnect between numerator and denominator when you calculate blended average fees for our plot of performance. That was the important message that I wanted to communicate in the quarter. As we grow, as we really close these product gaps and expand to these countries where we can market, as Brian said, we're optimistic that this will become a bigger component of our revenue, where we would break out more details and give you more transparency on the results in our future financial filings.

Speaker Change: The revenue and the volume that we report, which is spot, and so the growth rates of those two are the change you need to understand that there's a disconnect between numerator and denominator when you make, calculate blended average fees for our platform. That was the important message that I wanted to communicate in the quarter.

Alesia Haas: As we grow, as we really close these product gaps and expand to these countries where we can market, as Brian said, we're optimistic that this becomes a bigger component of our revenue, in which we would break out more details and give you more transparency on the results in our future financial filings.

Brian: As we grow, as we really close these product gaps and expand to these countries where we can market, as Brian said, we're optimistic that this becomes a bigger component of our revenue in which we would break out more details and give you more transparency on the results in our future financial filings.

Ken Worthington: Your next question comes from the line of Ken Worthington with JP Morgan. Please go ahead. Hi, good afternoon. Thanks for taking my question. So Coinbase continues to promote USDC.

Operator: Your next question comes from the line of Ken Worthington with J.P. Morgan. Please go ahead. Hi, good afternoon.

Kenneth Worthington: Hi, good afternoon. Thanks for taking my question. So Coinbase continues to promote USDC. But to what extent is MECA really a game-changer in Europe for USDC? And to what extent would you expect to see a migration now out of, say, Tether into USDC, not just inside Europe but maybe globally, given the credibility USDC gets from this framework? And then, if we think about the use cases for DC being sort of threefold, building digital asset trading, DeFi, and dollarization, where does Coinbase see the biggest potential to drive USDC adoption, both near term and over time?

Speaker Change: Hi, good afternoon. Thanks for taking my question.

Ken Worthington: To what extent is Mika really a game changer in Europe for USDC? And to what extent would you expect to see a migration now out of, say, Tether into USDC? Not just inside Europe, but maybe globally? Given the credibility USDC gets from this framework?

Speaker Change: So Coinbase continues to promote USDC.

Speaker Change: And to what extent would you expect to see a migration now out of, say, Tether into USDC?

Ken Worthington: And then if we think about the use cases for DC being sort of threefold: building digital asset trading, DeFi, and dollarization, where does Coinbase see the biggest potential to drive USDC adoption, both near term and over time?

Speaker Change: And then, if we think about the use cases for DC being sort of three-fold, building digital asset trading, DeFi and dollarization, where does Coinbase see the biggest potential to drive USDC adoption, both near-term and over time?

Brian Armstrong: Yeah, well, I'll start off, and then I'll pass it to Alicia here. So the, yeah, the Mika legislation is a really big deal in Europe. As far as we know, USDC is the first MiCA compliant stablecoin. And so the exact implications of that and how the regulators will view other stablecoins in Europe, we don't know, but it's the first compliant one. And that's an important step. So we're bullish on this. I think that having just a trusted stablecoin is a huge deal.

Brian Armstrong: Yeah, well, I'll start off, and then I'll pass it to Alesia here. The MECA legislation is a really big deal in Europe. As far as we know, USDC is the first MECA compliant stablecoin. And so the exact implications of that, and how the regulators will view other stablecoins in Europe, we don't know, but it's the first compliant one. And that's a very important step. So we're bullish on this. I think that having just a trusted stablecoin is a huge deal.

Speaker Change: Yeah, well, I'll start off and then I'll pass it to Alesia here.

Speaker Change: The MECA legislation is a really big deal in Europe .

Alesia: As far as we know, USDC is the first MECA-compliant stablecoin. And so the exact implications of that, and how the regulators will view other stablecoins in Europe , we don't know, but it's the first compliant one, and that's a very important step.

Brian Armstrong: It's allowing people to actually, you know, use crypto rails for ordinary transactions, earning a living, paying for food, transportation, housing, and engaging in these new kinds of Web3 and DeFi applications. Having something that is not just a store of value, but it's actually a medium of exchange is really powerful. So I think it's a big deal.

Speaker Change: So, we're bullish on this. I think that...

Alesia Haas: It's allowing people to actually use crypto rails for ordinary transactions, earning a living, paying for food, transportation, housing, and engaging in these new kinds of Web 3 and DeFi applications. Having something that is not just a store of value, but it's actually a medium of exchange is really powerful. So I think it's a big deal.

Speaker Change: Having just a trusted stablecoin is a huge deal. It's allowing people to actually

Brian Armstrong: use crypto rails for ordinary transactions, earning a living, paying for food, transportation, housing.

Alesia: and engaging in these new kinds of Web3 and DeFi applications. Having something that is not just a store value, but it's actually a medium of exchange is really powerful. So I think it's a big deal. Alesia, anything you want to add?

Alesia Haas: Alesia, anything you want to add?

Alesia Haas: Alicia, anything you want to add? I would just come back to like the building blocks that we're putting in place is setting a strong foundation for future growth and adoption. So, as Brian said, we're getting the regulatory licenses that will enable us to scale globally. We now have a very transparent stablecoin. We have base, which is offering fast, cheap transactions. We have smart walls. And so all of these building blocks together really set a stage where we can grow off of a very important foundation. And we're seeing this impact on our financials already, where USDC has become the fastest growing stablecoin, faster than other major competitors, with market cap is up 30% year to date.

Alesia Haas: I would just come back to, like, the building blocks that we're putting in place are setting a strong foundation for future growth and adoption. So, as Brian said, we're getting the regulatory licenses that will enable us to scale globally. We now have a very transparent stablecoin. We have BASE, which is offering fast, cheap transactions. We have Smart Wallets.

Alesia: I would just come back to, like, the building blocks that we're putting in place is setting a strong foundation for future growth and adoption. So, as Brian said, we're getting the regulatory licenses that will enable us to scale globally. We now have a very transparent stablecoin. We have BASE, which is offering fast, cheap transactions. We have Smart Wallets. And so all of these building blocks together really set a stage where we can grow off of a very

Alesia Haas: And so all of these building blocks together really set a stage where we can grow off of a very important foundation. And we're seeing this impact on our financials already, where USCC has become the fastest growing stablecoin faster than other major competitors, with its market cap up 30% year to date. Our average on-platform balances increased 50% quarter over quarter, and we're starting to see, as Brian mentioned in his opening comments, $20 billion of transaction volume on USCC on base.

Speaker Change: important foundation and we're seeing this

Brian: impact on our financials already, where USDC has become the fastest growing stablecoin faster than other major competitors with market cap is up 30% year to date. Our average on platform balances increased 50% quarter over quarter. And we're starting to see, as Brian mentioned in his opening comments,

Alesia Haas: Our average on-platform balances increased 50% quarter over quarter. And we're starting to see, as Brian mentioned in his opening comments, over the recent weeks, 20 billion of transaction volume on USDC on Base. So the foundation of set, we're excited to where this can go, but Mika has been a critical unlock because as we think about growing USDC to be a global compliance stablecoin, we have a really strong foundation that we're not able to build from.

Speaker Change: Over the recent weeks, 20 billion of transaction volume on USCC on base. So, the foundation is set, we're excited where this can go, but MECA has been a critical unlock because as we think about growing USCC to be a global compliant stablecoin, we have a really strong foundation that we're now able to build from.

Alesia Haas: So the foundation is set. We're excited about where this can go. But MICA has been a critical unlock because as we think about growing USCC to be a global compliant stablecoin, we have a really strong foundation that we're now able to build from.

Benjamin Budish: Your next question comes from the line of Benjamin Buddhist with Barclays. Please go ahead. Hi, good evening, and thanks for taking the question.

Operator: Your next question comes from the line of Benjamin Budish with Barclays. Please go ahead.

Alesia: Your next question comes from the line of Benjamin Budish with Barclays.

Benjamin Budish: Hi, good evening, and thanks for taking the question. I was wondering if you could give us an update on your balance sheet strategy. We noticed the cash build continues to really grow, and it seems like with the business generating cash and the spending really kind of ramped down from a few years ago, there may not be as much of a need for it. So any update there? And then kind of along the same lines, you've been generating a lot of your gross profit from interest income. And I was just curious if there are any thoughts around the hedging strategy should rates start to come down? What's your kind of philosophy there? Thank you.

Benjamin Budish: I was wondering if you could give us an update on your balance sheet strategy. We noticed the cash build continues to really grow. And it seems like with the business generating cash and the spending really kind of ramped down from a few years ago. There may not be as much of a need for it. So, any update there.

Benjamin Budish: And then, kind of along the same lines, you know, you've been generating now a lot of your growth profit from interest income. And just curious if there's any thoughts around, you know, the hedging strategy should rates start to come down. What's your kind of philosophy there? Thank you.

Alesia Haas: Thanks for those questions. Yes, we're really pleased with the balance sheet strength. We are using cash, as we've mentioned, in our prime financing business. A large amount of that cash was used to support the ETF launches in Q1 and Q2 with the Bitcoin ETF and now, hopefully, the Ethereum ETF, where you can see a lot of day to day or week to week volatility of those loan balances.

Alesia Haas: Thanks for those questions. Yes, we're really pleased with the balance sheet strength. We are using cash as we've mentioned in our prime financing business.

Speaker Change: Thanks for those questions. Yes, we're really pleased with the balance sheet strength. We are using cash, as we've mentioned, in our prime financing business.

Alesia Haas: A large amount of that cash was used to support the ETF launches in Q1 and Q2 with the Bitcoin ETF and now hopefully the Ethereum ETF, where you can see a lot of day-to-day or week-to-week volatility of those loan balances. We did grow prime financing fees within the quarter, and so you can see, while the balance at the end of the quarter was down versus end of Q2, we saw growth into a quarter. We also shared when we did the convert raise in Q1 that we would be paying off to 2026 convert, and so some of that cash is already plagued for a future payment of the 2026 convert on the balance sheet, which will bring down the cash balance at that time.

Alesia Haas: We did grow prime financing fees within the quarter, and so you can see while the balance at the end of the quarter was down versus the end of Q2, we saw growth intra-quarter for those balances. So using our cash to support our products is a primary use case for us. We also, as we shared when we did the conversion raise in Q1, that we would be paying off the 2026 conversion. And so some of that cash is already pegged for a future payment of the 2026 convertibility on the balance sheet, which will bring down the cash balance at that time.

Speaker Change: A large amount of that cash was used to support the ETF launches in Q1 and Q2 with the Bitcoin ETF and now hopefully the Ethereum ETF.

Alesia: where you can see a lot of day-to-day or week-to-week volatility of those loan balances. We did grow prime financing fees within the quarter. And so you can see while the balance at the end of the quarter was down versus end of Q2, we saw growth intra-quarter for those balances. So using our cash to support our products is a primary use case for us.

Alesia: We also, as we shared when we did the convert raise in Q1, that we would be paying off the 2026 convert. And so some of that cash is already pegged for a future payment of the 2026 convert on the balance sheet, which will bring down the cash balance at that time.

Alesia Haas: We also maintain a strong balance sheet so we can be opportunistic as we look for other investment opportunities, both organic and inorganic across the world. And that is something that has been quarter our strategy. To do tuck-in acquisitions or growth acquisitions when those opportunities present themselves to us. And so we think of it as just building opportunistic capital for us to enable that we can be ready for all markets and opportunities that present themselves.

Alesia Haas: We also maintain a strong balance sheet so we can be opportunistic as we look for other investment opportunities, both organic and inorganic, across the world. And that is something that has been core to our strategy to do tuck-in acquisitions or growth acquisitions when those opportunities present themselves to us. And so we think of it as just building opportunistic capital for us so that we can be ready for all markets and opportunities that present themselves.

Alesia: We also maintain a strong balance sheet so we can be opportunistic as we look for other investment opportunities, both organic and inorganic across the world, and that is something that has been core to our strategy.

Alesia: to do tuck-in acquisitions or growth acquisitions when those opportunities present themselves to us.

Alesia: And so we think of it as just building opportunistic capital for us to enable that we can be ready for all markets and opportunities that present themselves.

Alesia Haas: And secondly, on the comment around interest income, we obviously did benefit from the interest rates with USDC over the past year. We are prepared, as I mentioned in my remarks, for rate declines. Our goal is to continue to grow native units around USDC and use cases to offset that, and we've also explored various hedging. We are not the issue of USDC in managing the reserves on that balance.

Alesia Haas: And secondly, on the comment around interest income, we obviously did benefit from the interest rates on USDC over the past year. But we are prepared, as I mentioned in my remarks, for rate declines. Our goal is to continue to grow native units around USDC and use cases to offset that. And we've also explored various hedging strategies. We are not the issuer of USDC in managing the reserves on that balance, and so I can't speak to that strategy specifically.

Speaker Change: And secondly, on the comment around interest income,

Speaker Change: We obviously did benefit from the interest rates with USDC.

Speaker Change: Over the past year, we are prepared, as I mentioned in my remarks, for rate declines. Our goal is to continue to grow native units around USDC and use cases to offset that, and we've also explored various hedging. We are not the issuer of USDC in managing the reserves on that balance, and so I can't speak to that strategy specifically.

Alesia Haas: And so I can't speak to that strategy specifically.

Owen Lau: Your next question comes from the line of Owen Lau with Oppenheimer. Please go ahead. Good afternoon, and thank you for taking my question. Could you please talk about the recent retail engagement and how it compares to earlier this year and the last bull run back in 2021? How much of them have come back, and also a mine box has started the repayments in July. You see some of these creditors are coming back, and we enter the space. Thanks.

Operator: Your next question comes from the line of Owen Lau with Oppenheimer. Please go ahead. Good afternoon, and thank you for taking my question.

Speaker Change: Your next question comes from the line of Owen Lau with Oppenheimer. Please go ahead.

Owen Lau: Could you please talk about the recent retail engagement and how it compares to earlier this year and the last bull run back in 2021? How much of them have come back? And also, Mt. Gox started the repayment in July. Do you see some of these creditors coming back and re-entering this space?

Owen Lau: Good afternoon and thank you for taking my question.

Owen Lau: Could you please talk about the recent retail engagement?

Alesia Haas: Thanks.

Owen Lau: And how does it compare to earlier this year and the last bull run back in 2021? How much of them have come back? And also, Mt. Gox has started the repayment in July . Do you see some of these creditors coming back and re-enter this space? Thanks.

Brian Armstrong: Owen, I'll start with that. So our retail engagement is different from the last bull run because the last bull run we really only had a trading product platform available to our retail customers. Today we offer staking for customers. We have USDC rewards. We have more products within wallet and our smart wallet that we just launched to engage users in a breadth of DeFi applications as well. And so we are seeing our retail engagement now expanded many different ways where we have different customers behaving in different ways in the platform than we saw in prior cycles.

Operator: Oh, and I'll start with that. So our retail engagement is different from the last bull run because in the last bull run, we really only had a trading product platform available to our retail customers. Today, we offer staking for customers, we have USDC rewards, we have more products within Wallet and our Smart Wallet that we just launched to engage users in a breadth of DeFi applications as well. And so we are seeing our retail engagement now expand in many different ways, where we have different customers behaving in different ways on the platform than we saw in prior cycles.

Speaker Change: Oh, and I'll start with that.

Operator: So our retail engagement is different from the last bull run, because in the last bull run, we really only had a trading product platform available to our retail customers.

Speaker Change: Today, we offer staking,

Alesia: For customers, we have USGC Rewards, we have

Owen Lau: more products within Wallet and our Smart Wallet that we just launched to engage users in a breadth of DeFi applications as well. And so we are seeing our retail engagement now expand in many different ways where we have different customers behaving in different ways on the platform than we saw in prior cycles.

Brian Armstrong: What we see as consistent is that retail traders specifically who are coming on the platform to buy or sell crypto behave very in line with prior volatility and so volatility patterns near this cycle compared to prior cycles, but the deeper engagement is with the breadth of the portfolio that we now have.

Operator: What we see as consistent is that retail behavior, traders specifically who are coming on the platform to buy or sell crypto, behaves very in line with prior volatility. And so volatility patterns mirror this cycle compared to prior cycles. But the deeper engagement is with the breadth of the portfolio that we now have.

Alesia: What we see as consistent is that retail traders, specifically, who are coming on the platform to buy or sell crypto behave very in line with prior volatility. And so volatility patterns mirror this cycle compared to prior cycles. But the deeper engagement is with the breadth of the portfolio that we now have.

Mike Colonnese: Your next question comes from the line of Mike Colonies with HC Wayne Wright. Please go ahead. Hi, good afternoon. Thank you for taking a question.

Operator: Your next question comes from the line of Mike Colonnese with H.C. Wainwright. Please go ahead.

Operator: Your next question comes from the line of Mike Colonnese with H.C. Wainwright. Please go ahead. Hi, good afternoon.

Speaker Change: Your next question comes from the line of Mike Colonnese with H.C. Wainwright. Please go ahead.

Mike Colonnese: Can you provide an update on your strategy and potential product roadmap for a clean base asset management and really how you guys are thinking about that in the context of an improving political environment in the upcoming elections and how that can really influence both the timing and types of products you decide to roll out here. Thank you.

Mike Colonnese: Hi, good afternoon. Thank you for taking my question. Can you provide an update on your strategy and potential product roadmap for Coinbase asset management, and really how you guys are thinking about that in the context of an improving political environment in the upcoming elections, and how that can really influence both the timing and types of products you decide to roll out here? Thank you.

Brian Armstrong: Yeah, I can start on that, and if anybody wants to jump in, feel free. So, currently, Coinbase Asset Management has been a really good offering for our institutional customers who want to have different ways to, different strategies, really, to access the crypto markets and package those up into really easy-to-use products. I think your question kind of alluded to the policy environment and, you know, we don't know exactly what will happen over that, over the next year on that. But I do think we'd ultimately like to see a path where we could start to, you know, get index funds, retail products in the crypto space.

Brian Armstrong: Yeah, I can start on that. And if anybody wants to jump in, feel free.

Speaker Change: Yeah, I can start on that. And if anybody wants to jump in, feel free.

Brian Armstrong: So currently, Coinbase Asset Management has been a really good offering for our institutional customers who want to have different ways to access the crypto markets and package those up into really easy to use products. I think your question kind of alluded to the policy environment. And, you know, we don't know exactly what will happen over the next year on that.

Brian Armstrong: Currently Coinbase asset management has been a really good offering for our institutional customers who want to have different ways to different strategies really to access the crypto markets and package those up into really easy to use products.

Brian Armstrong: I think your question kind of alluded to the policy environment and you know we don't know exactly what will happen over that over the over the next year on that but I do think

Brian Armstrong: But I do think we'd ultimately like to see a path where we could start to, you know, get index funds and retail products in the crypto space. That would require some, a different policy environment where we could get some of those things approved. But, you know, personally, I'd love to see, like a Coinbase 500. So, similar to the S&P 500, a market cap weighted index that retail could participate in. I think these things could be really beneficial. But it's, it's too early at this moment; I don't see any path to do it in the near term. And so we're going to keep pushing on that one over time with our policy efforts.

Owen Lau: We'd ultimately like to see a path where we could start to, you know, get index funds, retail products in the crypto space.

Brian Armstrong: That was going to require some, a different policy environment, where we can get some of those things approved. But, you know, personally, I'd love to see, like a Coinbase 500, so similar to the S&P 500, a market cap weighted index that retail could participate in. I think these things could be really beneficial, but it's too early at this moment. I don't see any path to do it in the near term. And so, we're going to keep pushing on that one over time with our policy efforts.

Alesia: That was going to require a different policy environment where we

Alesia: can get some of those things approved, but, you know.

Alesia: Personally, I'd love to see like a Coinbase 500, similar to the S&P 500, a market cap weighted index that retail.

Speaker Change: I think these things could be really beneficial, but it's too early at this moment. I don't see any path to do it in the near term, and so we're going to keep pushing on that one over time with our policy efforts.

Joseph Vafi: Here next question comes from the line of Joseph Van with Canacorn Genuity. Please go ahead. Hey, everyone. Thanks for taking my question this afternoon. Maybe this one's for Brian. If we do get some crypto legislation, you know, clearly a positive for the industry and might be a green light for, you know, big, trad-fi players to enter the space in a bigger way, how do you see that, you know, relative to Coinbase's position? Would you see big, trad-fi guys as competitors or partners or maybe it's co-optition? Just, you know, it might be a little early here, but it'd be interesting to get those views.

Operator: Your next question comes from the line of Joseph Vann with Canaccord Genuity; please go ahead.

Speaker Change: Your next question comes from the line of Joseph Vann with Canaccord Genuity. Please go ahead.

Joseph Vafi: Everyone, thanks for taking my question this afternoon. Maybe this one's for Brian.

Joseph Vann: Hey everyone, thanks for taking my question this afternoon. Maybe this one's for Brian. If we do get some crypto legislation, clearly a positive for the industry and might be a green light for big trad5 players to enter the space in a bigger way.

Brian Armstrong: If we do get some crypto legislation, you know, clearly a positive for the industry and might be a green light for, you know, the big traditional five players to enter the space in a bigger way. How do you see that, you know, relative to Coinbase's position? Would you see the big traditional five guys as competitors or partners, or maybe it's cooperation? Just, you know, it might be a little early here, but it'd be interesting to get those views.

Brian Armstrong: How do you see that, you know, relative to Coinbase's position? Would you see Big TradFi guys as competitors or partners or...

Speaker Change: Maybe it's coopetition just you know, it might be a little early here, but it'd be interesting to get those views. Thanks a lot

Brian Armstrong: Thanks a lot.

Brian Armstrong: Yeah, well, I think you're right that the lack of regulatory clarity is probably the biggest blocker for institutions to put more and more funds in the crypto. We have a huge number of them as clients in Coinbase Prime, our institutional product. And when I meet with them, I know they'll often say, oh, we've got, you know, one or two or three percent of their funds in some portfolio and they're holding in crypto, and I ask them, what would it take for it to be 10, 20, 30? And they all say regulatory clarity. So I think getting these new pools of capital unlocked, it would be certainly a huge step in that direction.

Brian: Yeah, well, I think you're right that the lack of regulatory clarity is probably the biggest blocker for institutions to put more and more funds into crypto. We have a huge number of them as clients in Coinbase Prime, our institutional product.

Speaker Change: And when I meet with them, you know, they'll often say, oh, we've got, you know, one or two or 3% of their funds in some portfolio, and they're holding in crypto, and I asked them, well, what would it take for it to be 10, 20, 30?

Brian: And they all say regulatory clarity. So I think getting these new pools of capital unlocked, it would be certainly a huge step in that direction. And by the way, the ETFs have been a

Brian Armstrong: And by the way, the ETFs have been a proportion of that unlock already, right? You know, the Bitcoin ETFs and the Ethereum ETFs did get approved. We saw new pools of capital open up from that. But the regulatory clarity goes way beyond just new pools of capital coming in. That's great.

Alesia: a portion of that unlock already, right? You know, the Bitcoin ETFs and Ethereum ETFs did get approved. We saw new pools of capital open up from that. But the regulatory clarity goes way beyond just new pools of capital coming in. That's great, but...

Brian Armstrong: But perhaps, like the more even exciting part of it is that today, you'd have to be pretty resilient to be a crypto entrepreneur. I mean, most of these folks, they're, you know, if you're in your early 20s and got a couple of folks right out of college with a laptop and a dream, and they want to build a crypto company, you have to be pretty intense to go into this market, and, you know, you might get a weld notice in the first few weeks, and you have to call your parents and tell them that, you know, you're being sued.

Alesia: Perhaps like the more even exciting part of it is that

Speaker Change: Today you'd have to be pretty resilient to be a crypto entrepreneur. I mean most of these folks

Speaker Change: there, you know, if you're in your early 20s, and got a couple of folks right out of college with a laptop and a dream, and they want to build a crypto company,

Speaker Change: You have to be pretty intense to go into this market and, you know, you might get a wells notice in the first few weeks and you have to call your parents and tell them that, you know, you're being sued. So that's that's not most entrepreneurs idea of the first company they want to start.

Brian Armstrong: So that's not most entrepreneurs' idea of the first company they want to start. Now, many of them are still doing it anyway, or they're just going overseas. But...

Alesia: Now, some, many of them are still doing it anyway, or they're just going overseas, but

Brian Armstrong: It's really hard to put a dollar figure on this, but if we actually have a welcoming environment where the rules are clear and everybody can just follow them, we could see a huge surge of innovation with all kinds of new applications being built. By the way, the biggest partners that we talk to, some of the biggest tech companies in the world, when we talk to them about integrating crypto, they often will say the same thing: they'll say, "Well, let's try to wait for regulatory clarity." So, for instance, with the mecha regulation that passed the comprehensive crypto legislation in Europe, that actually did open up a bunch of conversations in Europe, and they're all hoping that it happens in the US as well.

Speaker Change: It's really hard to put a dollar figure on this, but if we actually have a welcoming environment where the rules are clear, and everybody can just follow them.

Alesia: We could see a huge surge of innovation with all kinds of new applications being built.

Alesia: By the way, you know, the biggest partners that we talk to, you know, some of the biggest tech companies in the world, when we talk to them about integrating crypto, they often will say the same thing. They'll say, well,

Alesia: Let's try to wait for regulatory clarity. So, for instance, with the MECA regulation that passed the comprehensive crypto legislation in Europe .

Speaker Change: That actually did open up a bunch of conversations in Europe .

Brian Armstrong: So, anyway, you can look backwards and say, man, where would we be if this clarity had been there five or six years ago? But I'm an optimist; I try not to look at the past, try to look at the future. So, where will we be in five or six years if we get something passed in the US as well, and clear rules are good for everyone.

Alesia: And they're all hoping that it happens in the U.S. as well.

Alesia: So, anyway, you can look backwards and say, man, where would we be if this clarity had been there five or six years ago? And but I'm an optimist, I try not to look at the past, I try to look at the future. So where will we be in five or six years if we get something passed in the US as well? And clear rules are good for everyone.

Pete Christensen: Your next question comes from the line of Pete Christensen. What city group, please go ahead. Good evening. Thanks for the question here. Brian, I'm very intrigued by the comment on the increase in the on-chain initiative Fortune 500 or so forth. Super interesting. I was just wondering if you can call it some discernible trends here. I know you mentioned Spotify, many to many, many kind of market. That's interesting. What about like B2B or B2C?

Speaker Change: Your next question comes from the line of Pete Christiansen with Citigroup. Please go ahead.

Speaker Change: Good evening. Thanks for the question here. Brian , I'm very intrigued by the comment on the increase in the on-chain initiatives, Fortune 500, and so forth.

Speaker Change: Super interesting.

Speaker Change: I was just wondering if you can call out some discernible trends here. I know you mentioned Spotify, many-to-many kind of market.

Speaker Change: That's interesting. What about like B2B or B2C?

Brian Armstrong: And then with some of these early adopters experimenting with web three development, are you seeing these players experimenting at their core level, or really at the application level? And finally, what's going this as well? Well, simply in the development process of on-chain initiatives. If you could just help us crystalize that, I think it would be really helpful. Thank you. Yeah, sure. So, a lot of the core pieces I think are there now with these later two solutions. And smart wallets like we talked about, you know, Coinbase Wallet as a self-custodial wallet can be an easy platform for these folks to interface with USDC, etc.

Speaker Change: And then, with some of these early adopters experimenting with Web3 development, are you seeing these players experimenting at their core level, or is it really at the application level?

Speaker Change: And finally, what's Coinbase's role in the development process of volunteering initiatives? If you could just help us crystallize that, I think it would be really helpful. Thank you.

Speaker Change: Yeah, sure. So

Speaker Change: A lot of the core pieces, I think, are there now with these Layer 2 solutions and smart wallets, like we talked about, you know, Coinbase Wallet as a self-custodial wallet can be an easy platform.

Brian Armstrong: So a lot of the core pieces I think are now there. EMS is another one, by the way, having the Ethereum Name System. So having sort of these identities online that can accumulate reputation, and these are all kind of core building blocks.

Speaker Change: for these folks to interface with, USDC, etc. So a lot of the core pieces I think are now there. ENS is another one, by the way, having the Ethereum name system. So having sort of these identities online that can accumulate reputation and

Brian Armstrong: So I think a lot of the innovators are now coming in at the application layer. And we're actually hosting a hackathon called Base Camp today in California. And we have hundreds of builders there learning about how to build on chain, launching new applications. It's a really cool event. I was just dialed in earlier this morning. These kinds of things are happening more and more frequently now.

Speaker Change: These are all kind of core building blocks. So I think a lot of the innovators are now coming in at the application layer.

Speaker Change: And we're actually hosting a hackathon called Basecamp today in California, and we have hundreds of builders there learning about how to build on-chain, launching new applications. It's a really cool event. I was just dialed in earlier this morning.

Brian Armstrong: And you can think about a lot of the big applications and web too. You know, think about what would Airbnb or Uber or Wikipedia or some of the social apps like X or Instagram or music apps, right, like Spotify, like what would these look like in a web three world. And, you know, I think the people creating the content, whether you're the biggest artist in the world, or you're kind of an average person getting into it, they can actually own their own content. They can't have a direct relationship with their fans; directly monetize their fan base.

Speaker Change: These kinds of things are happening more and more frequently now, and you can think about a lot of the big applications in Web 2.0.

Brian Armstrong: People can remix content. There's an attribution chain as people remix this whether it's text, audio, video. There's an attribution of provenance that's formed on chain and to prove where these things came from and what were the derivatives of which can the monetization can flow through all of that. And then also it kind of really rewards the early people who come into build these networks, right, like an Airbnb or an Uber on chain. So it's great. We're seeing a lot of innovators come in, and the way Coinbase can contribute to this.

Speaker Change: that's formed on chain to prove where these things came from and what were the derivatives of, which the monetization can flow through all of that.

Speaker Change: And then also, it kind of really rewards the early people who come in to build these networks, right, like an Airbnb or an Uber on-chain.

Brian Armstrong: So...

Brian Armstrong: I mean, one of the main ways is we're building a developer platform, right, called CDP Coinbase Developer Platform, kind of like our version of AWS. We had a we had a bunch of these tools internally. We were using to build our own apps, and we said, hey, we might as well expose them to third parties, allowed third parties to build on top of them. Some of those are going to be Web three startups building on chain. Some of them might be thin tech companies or banks or financial service companies that want to integrate crypto into their products.

Speaker Change: It's great. We're seeing a lot of innovators come in. And the way Coinbase can contribute to this, I mean, one of the main ways is we're building a developer platform, right, called CDP, Coinbase Developer Platform. It's kind of like our our version of AWS.

Brian Armstrong: Some of them might be shopping like kind of e-commerce checkout solutions that want to have crypto as an easy way to pay globally that has lower fees than paying to 200 basis points for credit cards or having high decline rates, high charge back rates. So we're seeing interest from merchants in those regards. So the answer to question is we don't really see it as competitive with these other firms. We see it as we want crypto to be integrated into every part of the global economy. You know, every commerce solution, every payroll solution, every bank, every fintech, every neo bank in every emerging market around the world, every cash pickup location.

Speaker Change: Some of them might be shopping like kind of e-commerce checkout solutions that want to have crypto as an easy way to pay globally.

Brian Armstrong: that has lower fees than paying 200 basis points for credit cards.

Speaker Change: every commerce solution, every payroll solution, every bank, every fintech.

Speaker Change: Every neobank in every emerging market around the world every cash pickup location We want really crypto to be the rails that power

Brian Armstrong: We want really crypto to be the rails that power the future of the global economy, and because they're better rails, they're faster, they're cheaper, they're more permissionless. And that's what's going to increase global economic freedom if we can update the global financial. System.

Speaker Change: The future of the global economy and because they're better rails. They're faster. They're cheaper. They're more permissionless and That's what's going to increase global economic freedom if we can update the global financial system

Alesia Haas: I couldn't answer that question any better, but I just want to say, Brian, like, this is our belief, and what we are now focused on is building a user experience. We are focused on fixing cost, fixing speed, security, and user experience. And that is what you see: our building blocks coming together to enable the future that Brian has just painted for us.

Brian Armstrong: I couldn't have said it any better, but I just want to say, Brian , like, this is our belief, and what we are now focused on is building the user experience. We are focused on fixing cost, fixing speed, security, and user experience, and that is what you see our building blocks coming together to enable this future that Brian has just painted for us.

Dan Dolev: Your next question comes from the line of Dan Dolev with Mizzouho. Please go ahead.

Brian Armstrong: Your next question comes from the line of Dan Dolev with Mizuho. Please go ahead.

Dan Dolev: Hey guys, Dave Ryan, hey Alesia. Thanks for taking my question. So really good results. I wanted to know something about pricing. So it looks like consumer transaction take rate, take top 13 basis points. Maybe you can talk a little bit about the pricing environment and drivers of the optic and sustainable events. Thank you very much. Thanks for the question. So, as I noted in my opening comments, we have two revenue streams: derivatives and wallet fees. Those are revenues for us that hit consumer transaction revenue, but there's no associated spot trading volume in our reported spot trading volume metric.

Dan Dolev: Hey guys, hey Brian , hey Alesia, thanks for taking my question.

Speaker Change: So really good results. Wanted to know something about pricing. So it looks like consumer transaction take rates picked up.

Speaker Change: 13 basis points. Maybe you can talk a little bit about the pricing environment and drivers of the uptick and sustainability of that. Thank you very much.

Brian Armstrong: Thanks a lot.

Speaker Change: Thanks for the question. So as I noted in my opening comments, we have two revenue streams.

Speaker Change: derivatives, and wallet fees. Those are revenues for us that hit consumer transaction revenue, but there's no associated spot trading volume in our reported spot trading volume metric. And so if you take the revenue divided by

Alesia Haas: And so if you take the revenue divided by the trading volume, it's a little bit of apples and oranges. Spot trading is the vast majority of our revenue, but now we have new growing revenue streams that are not yet material, but are now starting to influence that blended average fee rate if you do a divided by b. And so that's why we really wanted to call out that difference between change in revenue versus the change in trading volume this quarter in my opening comments. So we saw the same mix between simple and advanced trading this quarter that we did in Q1, and we didn't have any material change into our fees this quarter as well.

Speaker Change: The trading volume, it's a little bit of apples and oranges.

Speaker Change: Spot trading is the vast majority of our revenue, but now we have new growing revenue streams that are not yet material, but are now starting to influence that blended average fee rate if you do A divided by B. And so that's why we really wanted to call out that difference between the change in revenue versus the change in trading volume this quarter in my opening comments.

Speaker Change: So, we saw the same mix between simple and advanced trading this quarter that we did in Q1, and we didn't have any material change into our fees this quarter as well. We continue to experiment. Experimenting with our consumer fees is one of our key strategies to make sure that we continually understand the market and our customer behavior, but this quarter it was really due to growth in new revenue streams that aren't reflected in the trading volume.

Alesia Haas: We continue to experiment; experimenting with our consumer fees is one of our key strategies to make sure that we continually understand the market and our customer behavior, but this quarter was really due to growth in new revenue streams that aren't reflected in the trading volume.

John Todaro: Your next question comes up from the line of John Tordero with Needham. Please go ahead. Thanks for taking my question. I mean, a lot of my peers are down at Bitcoin Nashville this week or so. And Trump spoke; he spoke very positively on crypto. Given you guys have been close to kind of the political landscape this year. Is there more high person support for crypto behind the scenes than what we're seeing? Or would you know, for four more years of the Democrat? Would there continue to be kind of similar to the regulatory stance feeling similar difficulty in the crypto environment?

Brian Armstrong: Your next question comes from the line of John Tordaro with Needham. Please go ahead.

Speaker Change: Hey guys, thanks for taking my question. Me and a lot of my peers were down at Bitcoin Nashville last week or so, and Trump spoke, he spoke very positively on crypto. Given you guys have been close to kind of the political landscape this year, is there more bipartisan support for crypto behind the scenes than what we're seeing?

Speaker Change: or four more years as a Democrat, would there continue to be kind of similar to the regulatory standstill and some of the difficulty in the crypto environment?

Brian Armstrong: Yeah, I can jump in.

Brian Armstrong: Yeah, well, I think you're right that the lack of regulatory clarity is probably the biggest blocker for institutions to put more and more funds into crypto. We have a huge number of them as clients in Coinbase Prime, our institutional product. And when I meet with them, you know, they'll often say, oh, we've got, you know, one or two or 3% of their funds in some portfolio, and they're holding in crypto. And I asked them, well, what would it take for it to be 10, 20, 30?

Brian Armstrong: So the first thing I'd say is crypto is really nonpartisan. There are really strong champions on both sides of the aisle at this point. And a few skeptics, by the way, on both sides of the aisle, but it's predominantly at, say, supporters at this point. And, as you noted, there's been a big rhetoric shift. Really from both sides, but you mentioned one that you know certainly got a lot of attention in the last week. I mean, we just feel we feel like there's been a monumental shift. We feel very lucky that this political constituency is now being taken seriously in DC.

Speaker Change: Yeah, I can jump in. So

Brian Armstrong: The first thing I'd say is crypto is really non-partisan. There are really strong champions on both sides of the aisle at this point, and a few skeptics, by the way, on both sides of the aisle, but it's predominantly, I'd say, supporters at this point.

Speaker Change: And, as you noted, there's been a big rhetoric shift, really from both sides, but you mentioned one that, you know, certainly got a lot of attention last week.

Speaker Change: I mean we just feel we feel like there's been a monumental shift we feel very lucky that this

Speaker Change: Political constituency is now being taken seriously in D.C.

Brian Armstrong: You know, it's a massive voting block. I think it was a group of people that felt underserved in the past. And they felt like they're in the industry, and they were being attacked. And that's we've seen a shift from both sides now. Every voter has to, of course, make up their own mind. We want to make it easy for people to do that. There's various orgs we've contributed to, which try to make that easy, like Stand With Crypto, that org. And it's not just about at the top of the ticket, by the way; it's every congressional seat and local election as well.

Speaker Change: You know, it's a massive voting bloc. I think it was a group of people that felt underserved in the past, and it felt like their, you know, the industry and they were being attacked. And that's, we've seen a shift from both sides. Now,

Speaker Change: Every voter has to, of course, make up their own mind. We want to make it easy for people to do that. There's various orgs we've contributed to, which try to make that easy, like standwithcrypto.org. And it's not just about at the top of the ticket, by the way. It's every...

Brian Armstrong: So at 1.3 million people have raised their hand and said they want to elect pro crypto candidates on Stand with Crypto. Almost all of those are, many of those are in the US. But we'd like, I think it could be much bigger than that. You know, 52 million have used crypto, and so if 1.3 million of them are active, or a little bit less than that, that's great. So I don't know what else to say besides that I think we're feeling like there's a lot of momentum.

Speaker Change: You know, congressional seat and local election as well. So 1.3 million people have raised their hand and said they want to elect pro crypto candidates on stand with crypto. Almost all of those are many of those are in the US. But

Speaker Change: I think it could be much bigger than that. 52 million have used crypto. And so if 1.3 million of them are active or a little bit less than that, that's great. So I don't know what else to say besides that. I think.

Brian Armstrong: Let's just leave it at that.

Operator: All right, I think we have one more question in the queue.

Speaker Change: We're feeling like there's a lot of momentum. Let's just leave it at that.

Patrick Moley: Your final question comes from the line of Patrick Moley with Piper Sandler. Please go ahead. Yeah, good evening. Thanks for being in the question. Brian, in your prepared remarks, you said that you expected a little bit of a head count increase in the back half of this year. I was hoping to just elaborate on those comments and maybe help us understand how you're thinking about an appropriate head count, and maybe just comment a little bit more on where you expect that growth to come from. Thanks. Yeah.

Speaker Change: All right, I think we have one more question in the queue.

Speaker Change: Your final question comes from the line of Patrick Moley with Piper Sandler. Please go ahead.

Speaker Change: Yeah, good evening. Thanks for taking the question.

Brian Armstrong: Brian in your prepared remarks you said that you expected a little bit of a headcount increase in the back half of this year. I was hoping you could just elaborate on on those comments and maybe help us understand how you're thinking about an appropriate headcount and maybe just comment a little bit more on where you expect that growth to come from. Thanks.

Brian Armstrong: And they all say regulatory clarity. So I think getting these new pools of capital unlocked would be certainly a huge step in that direction. And by the way, the ETFs have been a portion of that unlock, right? You know, the Bitcoin ETFs and Ethereum ETFs did get approved, and we saw new pools of capital open up from that. But regulatory clarity goes way beyond just new pools of capital coming in that's, that's great.

Alesia Haas: I'll take this one to start, and Brian, maybe you could add on. So I did mention in my opening comments that we do plan to increase hiring through the back half of 2024. This growth is going to predominantly go to our consumer and our international platforms, as well as assuring up our product foundations to enable us to scale with the growth that we anticipate in the long-term business. So we are being prudent in managing these six costs. We haven't given a specific number, but we are going to be very thoughtful about investing in carries of growth that we continue to see and make sure that we can meet the moment of the market.

Brian Armstrong: But perhaps the more exciting part of it is that today, you'd have to be pretty resilient to be a crypto entrepreneur. I mean, most of these folks, they're, you know, if you're in your early 20s and you got a couple of guys right out of college with a laptop and a dream, and they want to build a crypto company, you have to be pretty intense to go into this market. And, you know, you might get a wealth notice in the first few weeks, and you have to call your parents and tell them that, you know, you're being sued.

Brian Armstrong: So that's not most entrepreneurs' idea of the first company they want to start. Now, some, and many of them are still doing it anyway, or they're just going overseas. It's really hard to put a dollar figure on this, but if we actually have a welcoming environment where the rules are clear, and everybody can just follow them, we could see a huge surge of innovation with all kinds of new applications being built. By the way, the partners that we talked to, some of the biggest tech companies in the world, when we talk to them about integrating crypto, they often say the same thing.

Brian Armstrong: They'll say, well..., let's try to wait for regulatory clarity. So, for instance, with the MECA regulation that passed comprehensive crypto legislation in Europe, that actually did open up a bunch of conversations in Europe. And they're all hoping that it happens in the US as well. So anyway, you can look back and say, man, where would we be if this clarity had been there five or six years ago? And I'm an optimist; I try not to look at the past and try to look at the future. So where will we be in five or six years if we get something passed in the US as well? And clear rules are good for everyone.

Operator: Your next question comes from the line of Pete.

Operator: Your next question comes from the line of Dan Dolev with Mizuho, please go ahead.

Speaker Change: I'll take this one to start, and Brian , maybe you could add on. So I did mention in my opening comments that we do plan to increase hiring through the back half of 2024.

Operator: Good evening. Thanks for the question here. Brian, I'm very intrigued by the comment on the increase in on-chain initiatives, Fortune 500, and so forth. Super interesting. I was just wondering if you could call out some discernible trends here. I know you mentioned Spotify, a many-to-many kind of market. That's interesting.

Brian Armstrong: What about B2B or B2C? And then, with some of these early adopters experimenting with Web3 development, are you seeing these players experimenting at their core level, or is it really at the application level? And finally, what's Coinbase's role typically in the development process of on-chain initiatives? If you could just help us crystallize that, I think it would be really helpful. Thank you.

Brian Armstrong: A lot of the core pieces, I think, are now there with these Layer 2 solutions and smart wallets, like we talked about, Coinbase Wallet as a self-custodial wallet can be an easy platform for these folks to interface with, USDC, etc. So a lot of the core pieces, I think, are now there. EMS is another one, by the way, using the Ethereum name system.

Brian Armstrong: So having sort of these identities online that can accumulate a reputation, and these are all kind of core building blocks. So I think a lot of the innovators are now coming in at the application layer. And we're actually hosting a hackathon called Basecamp today in California, and we have hundreds of builders there learning about how to build on chain and launch new applications. It's a really cool event. I was just dialed in early this morning.

Dan Dolev: Hey guys, I'm Brian Haley. Thanks for taking my question. Really good results. Wanted to know something about pricing. So it looks like consumer transaction take rates picked up by 13 basis points. Maybe you can talk a little bit about the pricing environment and drivers of the uptick and sustainability of that. Thank you very much.

Brian Armstrong: These kinds of things are happening more and more frequently now, and you can think about a lot of the big applications in Web 2.0. Think, you know, think about what Airbnb or Uber or Wikipedia or some of the social apps like X or Instagram or music apps like Spotify, like what these would look like in a Web3 world? You know, I think the people creating the content, whether you're the biggest artist in the world, or you're kind of an average person getting into it, they can actually own their own content, have a direct relationship with their fans, and directly monetize their fan base.

Alesia Haas: question. As I noted in my opening comment, we have two revenue streams. Derivatives and Wallet. Those are revenues for us that hit consumer transaction revenue, but there's no associated spot trading volume in our reported spot trading volume metric. And so if you take the revenue divided by, Experimenting with our consumer fees is one of our key strategies to make sure that we continually understand the market and our customer behavior. But this quarter, it was really due to growth in new revenue streams that aren't reflected in the trading volume.

Brian Armstrong: People can remix content; there's an attribution chain; as people remix this, whether it's text, audio, or video, there's an attribution of provenance that's formed on the chain to prove where these things came from and what were the derivatives of, which can, the monetization can flow through all of that. And also, it kind of really rewards the early people who come in to build these networks, right, like an Airbnb or an Uber on chain. So it's great.

Brian Armstrong: We're seeing a lot of innovators come in. And the way Coinbase can contribute to this, I mean, one of the main ways is we're building a developer platform, right, called CDP, Coinbase Developer Platform. It's kind of like our version of AWS. We really want crypto to be the rails that power the future of the global economy because they're better rails. They're faster, they're cheaper, and they're more permissionless. And that's what's going to increase global economic freedom if we can update the global financial system.

Alesia Haas: I couldn't have said it any better. But I just want to say, Brian, this is our belief. And what we are now focused on is building the user experience. We are focused on fixing cost, fixing speed, security, and user experience. And that is where you see our building blocks coming together to enable this future that Brian has just painted for us.

Operator: Your next question comes from the line of John Todaro with Needham. Please go ahead.

Speaker Change: This growth is going to predominantly go to our consumer and our international platforms, as well as assuring up our product foundations to enable us to scale with the growth that we anticipate in the long term business.

John Todaro: Hey guys, thanks for taking my question. Me and a lot of my peers were down at Bitcoin Nashville last week or so, and Trump spoke. He spoke very positively about crypto. Given you guys have been close to the political landscape this year, is there more bipartisan support for crypto behind the scenes than what we're seeing? Or would, you know, four more years as a Democrat, would there continue to be kind of similar regulatory standstill and some of the difficulty in the crypto environment?

Brian Armstrong: Yeah, I can jump in. So the first thing I'd say is crypto is really nonpartisan. There are really strong champions on both sides of the aisle at this point. And a few skeptics, by the way, on both sides of the aisle, but it's predominantly, I'd say, supporters at this point. And as you noted, there's been a big rhetorical shift, really from both sides. But you mentioned one that, you know, certainly got a lot of attention last week.

Brian Armstrong: I mean, we just feel like there's been a monumental shift. We feel very lucky that this political constituency is now being taken seriously in DC. You know, it's a massive voting block. I think it was a group of people that felt underserved in the past, and they felt like they were in the industry, and they were being attacked.

Brian Armstrong: And that's why we've seen a shift from both sides. Now, every voter has to, of course, make up their own mind. We wanna make it easy for people to do that. There are various orgs we've contributed to which try to make that easy, like standwithcrypto.org. And it's not just about at the top of the ticket, by the way; it's every congressional seat and local election as well. So 1.3 million people have raised their hands and said they wanna elect pro-crypto candidates on Stand With Crypto.

Brian Armstrong: Almost all of those are, many of those are in the US. But we'd like it to be, it could be much bigger than that. We have 52 million people who have used crypto. And so if 1.3 million of them are active or a little bit less than that, that's great. So I don't know what else to say besides that I think we're feeling like there's a lot of momentum. Let's just leave it at that.

Operator: Alright, I think we have one more question in the queue. Your final question comes from the line of Patrick Moley with Piper Sandler. Please go ahead. Yeah, good evening. Thanks for taking the question. Brian, in your

Operator: Your final question comes from the line of Patrick Moley with Piper Sandler. Please go ahead.

Alesia Haas: I'll take this one to start, and Brian, maybe you could add on. So I did mention in my opening comments that we do plan to increase hiring through the back half of 2024. This growth is going to predominantly go to our consumer and our international platforms, as well as securing our product foundations to enable us to scale with the growth that we anticipate in the long term business. So we are being prudent in managing these six costs.

Alesia Haas: We haven't given a specific number, but we are going to be very thoughtful about investing in key areas of growth that we continue to see and make sure that we can meet the needs of the market.

Brian Armstrong: So, we are being prudent in managing these fixed costs. We haven't given a specific number, but we are going to be very thoughtful about investing in key areas of growth that we continue to see and make sure that we can meet the moment of the market.

Operator: All right.

Anil Gupta: Alright, well, that does it for today. Thank you all for your questions, and we look forward to talking to you again next quarter. This concludes today's conference call. Thank you.

Operator: Well, that does it for today.

Operator: Thank you all for your questions, and we look forward to talking to you again next quarter.

Anil Gupta: All right, well that does it for today. Thank you all for your questions and we look forward to talking to you again next quarter.

Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect. We're offline. Thank you. You're welcome. I'll see you on your next call.

Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Operator: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Operator: We're offline. Thank you. You're welcome.

Operator: We're offline.

Operator: I'll see you on your.

Operator: Thank you.