Q1 2025 Coinbase Global Inc Earnings Call - Q&A

Hua Chenyu Richard Holm Allen McKenna Rong Xia Ignis Krom William Batt Jennifer Moore Samuel T. Daniel Mon sought ASS ChinaZ Yatsuko Kujo

8. Sirius XM

The Travellingaaaars

[inaudible]

Eric: Good afternoon, my name is Eric, and I will be a conference operator today. At this time, I would like to welcome everyone to the Coinbase first quarter, 2025 earnings call. All lines have been placed on mute to prevent any background noise.

Eric: After the speakers remarks, there will be a question in the answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again.

Speaker Change: Anil Gupta, Vice President, Investor Relations, you may begin your conference.

Speaker Change: Good afternoon and welcome to the Coinbase First Quarter 2025 earnings call. Joining me on today's call are Brian Armstrong, co-founder and CEO , Emily Choi, president and CEO , Alesia Haas, CFO , and Paul Grewal, Chief Legal Officer.

Speaker Change: I hope you all have the opportunity to read our Shareholder Letter, which was published on our Investor Relations website earlier today.

Speaker Change: Before we get started, I'd like to remind you that during today's call we may make forward-looking statements which may vary materially from actual results.

Speaker Change: Information concerning risks, uncertainties, and other factors that could cause these results to differ is included in our SEC filings.

Artiscussion today will also include certain non-GAAP financial measures.

Speaker Change: Reconciliation to the most directly comparable GAAP financial measures are provided in our shareholder letter on our Invest relations website.

Speaker Change: non-GAAP financial measures should be considered in addition to, not as a substitute for, GAAP measures .

Speaker Change: We'll start today's call with opening comments from Brian and Alicia, and then take questions from retail shareholders and our research analysts. With that, I'll turn it over to Brian for opening comments.

Brian Armstrong: Thank you, Neil. Coinbase delivered across the board in Q1. We posted strong financials, rolled out product innovations at a rapid pace, and continued to grow global market share.

Brian Armstrong: Financial, we're better positioned than ever, the capitalized on the opportunities ahead of us in 2025. It's just one example, our Q1 revenue was $2 billion, with $930 million in adjusted EBITDA, demonstrating how resilient our business is even in an uncertain macro environment.

Brian Armstrong: Before I dive into the product updates, I want to remind everybody about why Coinbase exists.

Brian Armstrong: Coinbase was founded to increase economic freedom in the world. We think cryptocurrency is the most important technology to update the financial system and create that economic freedom for people all over the world. Many people today don't have access to good financial services and it's holding back progress.

Brian Armstrong: Everyone deserves access to basic financial infrastructure, good proper sound money.

Brian Armstrong: Free from high inflation, the ability to get alone, make payments without high fees and delays and to choose what to do with their own money. Greater economic freedom is correlated with all sorts of outcomes we want in society, like higher GDP per capita, self-reported happiness, and income for the bottom 10%. It's foundational to all progress. [inaudible]

Brian Armstrong: Now, this ties into all the projects we build across multiple customer groups, including regional businesses, institutions and developers, and serving these multiple customer groups has the potential to create synergies in our business over time.

Brian Armstrong: For instance, our emerging payments business drives volume on our exchange

Brian Armstrong: or by serving retail, pro and institutional traders all on one platform, we get more liquidity and order flow on our exchange.

Brian Armstrong: We have retail customers who want to spend crypto. We also have businesses who want to accept crypto. That's sparking economic activity. So our goal is to be the number one financial services platform in the world across each of the customer groups we serve with crypto rails, eventually powering the majority of global GDP. . .

Brian Armstrong: Now let's take a minute to go through some of our product updates in Q1 in service of this broader mission.

Brian Armstrong: I'll talk about it in three parts. The first one's going to be about driving revenue in our core businesses. The second is going to be creating or driving utility for the next wave of crypto adoption some of our emerging products. [inaudible]

Brian Armstrong: and third is going to be scaling our foundations, primarily around policy and legal outcomes.

Brian Armstrong: So for this first one, we're driving more revenue in our core businesses. Let's start with trading.

Brian Armstrong: We're continuing to gain share in Q1 and spot and derivatives. We drove over 800 billion dollars in global derivatives trading volume. While still early, this is a significant market share increase driven by our international exchange where we saw our perps market share increased by over 60%.

Brian Armstrong: This morning, we announced the acquisition of Derivate, the world's leading crypto options exchange with over $30 billion of open interest and $1 trillion in trading volume outside the US last year.

Brian Armstrong: This makes Coinbase the number one crypto-derivatives platform globally by open interest.

Brian Armstrong: and it's our biggest move yet to accelerate our international road map and build out this comprehensive trading plan.

Brian Armstrong: Traitor benefit from having spot futures and how options together under one roof. So Deribit is a very important piece of the puzzle for us to bring this together all at Coinbase.

Brian Armstrong: We also launched Portfolio Margin 2.0, expanding access to long short capabilities and increasing leverage for our institutional traders.

Brian Armstrong: and we made great strides across our stretch goal to make USDC the number one dollar stable coin as well. In fact, USDC hit a market cap all time high of $60 billion in Q1 and the average USDC held in Coinbase products increased 49% quarter to 12 billion.

Brian Armstrong: and given our partnership with Circle, which is indefinitely renewable, increased USEC balances on our platform, result in durable revenue for Coinbase.

Brian Armstrong: Base, stablecoin balances reached $4 billion in Q1, up 12% quarter over quarter. This was also largely driven by USDC.

Brian Armstrong: Next up, we accelerated our international expansion for our core businesses. We continued to repeat our successful international playbook driven by obtaining new licenses. So we secured a vast registration in Argentina. We also registered with India's Financial Intelligence Unit, FIU, unlocking access to one of the fastest growing crypto markets. We also registered with India's Financial Intelligence Unit, FIU,

Brian Armstrong: That's really great to see this product execution at a rapid pace in our core businesses.

Brian Armstrong: A second, as I mentioned, we're also focused on driving utility for the next wave of crypto adoption and some more emerging products.

Brian Armstrong: So first under this section, stablecoin payments have seen enormous growth lately and we've started to build a business account for Coinbase which includes B2B payment features for startups and SMDs.

Brian Armstrong: In Q2, we'll be onboarding the first businesses to our pilot, enabling them to make stablecoin pay-ins and pay-outs, giving Coinbase's long history building crypto infrastructure, custody trading and our network of bank partners around the world. We think we're well positioned to power stablecoin payments for many businesses.

Brian Armstrong: Disquarter, we also expanded our on-chain lending products powered by bass [inaudible]

Brian Armstrong: We launched Bitcoin back, the U.S.C. borrowing. This is giving users instant liquidity without having to sell their Bitcoin.

Brian Armstrong: In the first 100 days, we saw over $100 million in loans. It's now up to $160 million in loans. Since January , it's growing at a really incredible pace. So, we found a lot of success with that product.

Brian Armstrong: We're also continuing to focus on empowering builders on base. We think this is a big opportunity for the next wave of adoption. So

Brian Armstrong: We made two acquisitions that completed in Q1 to enhance the utility of base. The first one spindle is an on-chain ad platform. This helps apps get distribution could be a big business over time and we also acquired a company called Ironfish.

Brian Armstrong: which is helping create private transactions on base. We think this is a big missing feature for people to send private transactions.

Brian Armstrong: So finally, we are scaling our foundations and our world-class policy and legal teams had big wins in Q1.

Both in DC and in courts.

Brian Armstrong: So we saw a new executive order come out that directed the establishment of a strategic Bitcoin reserve and digital assets stockpile This is a huge step with the United States of America now officially recognizing Bitcoin as a strategic asset I believe other countries will follow that lead

Brian Armstrong: We also saw bipartisan legislation advance in Congress, building clearer frameworks for both stablecoins and crypto market structure.

Brian Armstrong: We've been meeting regularly with members on both sides of the aisle in the House and the Senate to help progress stablecoin market structure legislation and even the vote that happened earlier today we think is good progress. It's all part of the negotiation. We think there'll be another vote next week on stablecoin, so we're very excited about that progress.

Brian Armstrong: The dismissal of the SEC lawsuit against Coinbase also marked a major judicial win for the balanced innovation-friendly regulation that we've been advocating for. It was a really important milestone not just for us, but for the entire industry in protecting our customers' rights.

Brian Armstrong: So, in closing, it's important to realize that crypto is eating financial services and Coinbase is 100% focused on crypto.

Brian Armstrong: We're building better financial infrastructure for the world, which will enable more economic freedom.

Brian Armstrong: We've been focused on crypto since the beginning, 12 years ago, and we continue to be focused there, executing at a rapid pace. With growing regulatory clarity, we believe crypto rails are poised to power an increasing share of global GDP and update every aspect of the financial system over time.

Now let's turn it over to Alesia.

Thanks, Brian , and good afternoon, everyone!

Alesia Haas: As typical, all comparisons I share are on a quarter over quarter basis unless I know otherwise.

Alesia Haas: We made progress in a variety of initiatives in Q1 as Brian articulated, and these contributed to over two billion in total revenue.

Alesia Haas: I want to start with our transaction revenue, which was $1.3 billion down 19% quarter to quarter. However, we grew our trading market share across both spot and derivatives trading.

Alesia Haas: Total Global Spot Trading was down 13% with Coinbase outperforming at down 10%.

Alesia Haas: Our consumer trading volume was $78 billion down 17%, consumer transaction revenue declined 19%, and our volume mix was similar in Q1 as compared to Q4.

Institutional trading volume was $315 billion, down 9%

Alesia Haas: Institutional Transaction Revenue was down 30%. There are two factors which drove the discrepancy between the revenue decline and the volume decline. The first is the growth in our derivatives trading business.

Alesia Haas: As we build this business, we are offering trading rebates and incentives to build liquidity and employer customers.

Alesia Haas: Our focus on growth is causing a decline in the transaction revenue that we get from derivative trading as these are contra revenue and recorded in the institutional transaction revenue line item.

Alesia Haas: Second, we saw a spot volume mixed shift which was more concentrated on market makers and liquidity providers which tend to have lower fee rates

Alesia Haas: Our subscription and services revenue grew 9%, and we saw an all-time high of $698 million, nearly $700 million in revenue. Two drivers of this growth, first, stablecoin revenue grew 32% quarter-over-quarter to $298 million.

Alesia Haas: Over the last two years, we have seen M2Us holding USDC double, and the average balance of USDC per quarterfolder has tripled.

Alesia Haas: Coinbase One also continued to add new subscribers as we extended new benefits.

Alesia Haas: Now turning to our expenses. Our total operating expenses were $1.3 billion, up to 7%. Primarily driven by higher variable expenses resulting from elevated market maker activity earlier in the quarter.

as well as losses on crypto assets for operations.

Alesia Haas: I just see Badaw was 930 million, and net income was $66 million.

Alesia Haas: Beginning this quarter, we are introducing a new profitability metric, adjusted net income.

Alesia Haas: Adjust the net income is our gap net income, excluding the tax-adjusted impact of crypto investment portfolio gains or losses.

Alesia Haas: In Q1, our adjusted net income was $527 million. We provided a reconciliation in our shareholder letter.

Blast our Q2 Outlook.

Alesia Haas: Background certainty, including around global trade policy, may contribute to softer crypto trading markets and lower asset prices as we enter the second quarter.

Alesia Haas: We have navigated shopping markets before and we are confident in our ability to maintain our long-term product roadmap and remain financially disciplined.

In April , we generated approximately $240 million of transaction revenue.

Alesia Haas: Our spot transaction volume declined approximately 12% month over month in April , and this was similar to global spot volume which was down approximately 13% over that same time period.

Alesia Haas: With regards to our institutional transaction revenue, as I mentioned before, we are focused on growing derivatives trading market share, and we plan to continue our investment in trading incentives.

Alesia Haas: We anticipate a $30 to $40 million quarter-require impact in Q2. We anticipate a $30 million quarter-require impact in Q2.

Alesia Haas: I share all this but I also need to remind you that creating markets can evolve quickly and we do cost an extrapolating monthly results.

Alesia Haas: We expect subscription and services revenue to be between $600 and $680 million.

Alesia Haas: We expect to see stable coin revenue growth. However, the main driver of the expected sequential decline is due to the Ethereum and Solana prices, which are down approximately 36 and 25% respectively, so far in Q2 compared to their Q1 averages.

Alesia Haas: Beat price declines, impact our blockchain rewards, and other subscription and services revenue lines.

Alesia Haas: We expect technology and development and general and administrative expenses to be in the range of $700 to $750 million.

Alesia Haas: The quarter of a quarter decline is mostly driven from lower variable expenses like infrastructure, customer support, and seasonally lower payroll taxes.

Alesia Haas: Lastly, we expect sales and marketing to be in the range of $215 to $315 million. Where we follow in this range will depend on whether we continue to see attractive performance marketing opportunities and on the total USDC balances and Coinbase products, which drives the USDC rewards.

Speaker Change: I'd like to close by touching on this morning's milestone acquisition of the Arabic.

Speaker Change: We are acquiring Garibit for approximately $2.9 billion. This is comprised of $700 million of cash from our balance sheet and 11 million shares of our class a common stock that we will issue. This is subject to customary purchase adjustments.

Thank you for watching!

Speaker Change: Derabit has a consistent track record of generating positive adjustability of Adam, which we believe will grow as a combined entity.

Speaker Change: They're a leader in options with 75% global market share and they've consistently been in a strong position across market cycles with 30 billion of open interest and they saw one trillion of volume in 2024.

Speaker Change: We expect the deal to close by the end of the year. And upon closing, we expect there a bit to immediately enhance our profitability and add diversity and durability to our trading revenues.

With that, Anil, why don't we go to questions? [inaudible]

Anil Gupta: All right, take you both. So we'll take the top three retail questions and then open up to the analysts. So the first one is any plans on share buybacks, Alesia.

Thanks for that.

Alesia Haas: So, last year, our board did authorize a $1 billion share of purchase program with no expiration date As we shared on the last call, this is an opportunistic way for us to deploy capital to reduce the overall number of shares that we see.

Alesia Haas: However, we opportunistically look at M&A and we opportunistically look at many things with our cash and so the acquisition that we announce this morning for example is using 700 million dollars of cash from our balance sheet and that will have the effect of that we will not issue those as shares.

Alesia Haas: Another thing that we did in the first quarter is we used about 100 million dollars from our balance sheet to withhold approximately 390 million RSUs from being issued to our employees as part of their compensation and paying the taxes on those shares.

So that also had the effect of reducing over all delusion.

Alesia Haas: So the Sherry Purchase Program is an opportunistic lever for us to manage the overall number of shares, but we balance that with other uses of cash and other ways we can reduce the number of shares we issue into the market through other business activities.

Speaker Change: All right, question number two. What are Coinbase's future plans similar to strategy regarding deluding or levering to accrue hard crypto reserve assets for its equity? Alesia?

Speaker Change: So we absolutely do invest in crypto and have a long-term investment portfolio. We have done this for many many years and the way that we approach it is that we allocate a percent of our net income to strategic investments specifically to crypto assets.

Speaker Change: Disquarter, we bought about $150 million of new crypto investments, predominantly Bitcoin. The fair market value of this investment portfolio as of the end of March was about $1.3 billion or 25% of our net cash, our total cash less the debt that we hold on our balance sheet.

Speaker Change: So, to be clear, we're an operating company, but we do invest alongside this space and we do think that we will continue to do this and look for additional opportunities to do so.

Thank you. Thank you. Thank you.

Speaker Change: Okay, and final retail question. You've said that you welcome new entrance into the crypto space and that you view it as a positive for Coinbase. At times it sounded complacent. Can you elaborate on what opportunities you see from a growing TAM perspective and why you have confidence it will offset pressure from competition? Brian ? Brian ?

Yeah, sure. Let me clarify. So

Speaker Change: The lack of regulatory clarity that we had in the past, this was not a moat for Coinbase, it was a barrier to the entire industry growing [inaudible]

Speaker Change: So I'd much rather be in the situation we're in today with regulatory clarity emerging and more companies coming into crypto but make no mistake about it we're playing to win here and there's a number of advantages that we have so I'll just try to go through them first I'll just try to go through them first.

Speaker Change: We're 100% focused on crypto. I've seen enough cycles now where companies get interested in crypto.

Speaker Change: Then they get less interested, or maybe when their core business comes under threat, they defund their crypto efforts. For us crypto is our core business. It's 100% of what we do, which means we do it better than anyone else.

Speaker Change: Now, second, we've had to solve a lot of hard problems along the way to build crypto infrastructure, which is pretty difficult to replicate. So, everything from how do you custody crypto securely with data centers around the world, how do you integrate all the different blockchains and handle their upgrades and air drops, how do you build an exchange around this and have derivatives and...

Speaker Change: Have a network of banks around the world for on and off ramps that are comfortable with crypto or getting licenses all over the world with people, you know, these regulators allowing crypto as permitted activity.

Speaker Change: Even just the transaction processing and handling the scale of it.

Speaker Change: Making that timely, staking rewards, et cetera, et cetera. So these are all hard problems to solve across.

Speaker Change: Engineering, Security, Compliance, and has taken us a long time to build that. We're adding more to very rapid pace. I don't see others catching up. Now third, this is maybe the most important point is that for many of these new interns to crypto, we will power. [inaudible]

Speaker Change: Some were all of their infrastructure for them, so whether it's trading, custody, payments, wallet infrastructure,

Speaker Change: We've signed a number of large deals here to run on our infrastructure and we're going to capture part of the value chain for every new entrance and comes into the space.

Speaker Change: Which is why I say it's a Tam expansion. So a great example of that by the way is when the ETFs got approved, we powered custody and trading for the majority of them, while it also grew our trading business in our retail app. So it was it was additive and we got to participate in this new value chain. [inaudible]

Speaker Change: So the other part of your question was asking about new opportunities that exist with this increased regulatory clarity and there's a bunch that are emerging now, you know perpetual futures coming to the US is a big opportunity having millions of assets available for trading on our platform via decentralized exchanges. .

Speaker Change: tokenizing securities and other asset classes that should probably happen over time. How do you just rethink capital formation entirely on chain? These are all emerging opportunities and so with increased regulatory clarity, it's going to be a huge win for Coinbase. We want every business to come into the space so we can partner with them and sell them our products.

Speaker Change: All right, thanks, Brian . So with that, Eric, let's open it up and take the first question from

Speaker Change: If you'd like to ask a question during this time, press star followed by the number one on your telephone keypad. Each participant will be limited to one question. Please return to the queue for a follow-up.

Ken Worthington: Your first question comes from the line of Ken Worthington with JP Morgan.

Ken Worthington: Hi, good afternoon, thanks for taking the question. I wanted to just start with the Durban acquisition. Can you talk about the cross-o-opportunity and how the transaction strengthens Coinbase's existing franchise? In Alicia, you said it immediately enhances profitability. I take that to mean it's immediately accretive by thinking about that correctly.

Speaker Change: Thanks, Kenneth. I'll start and then I'll hand it over to the police.

Ken Worthington: Agency, Accretion. So, the opportunity is offering options alongside our existing spot and perps business.

Ken Worthington: We believe that this allows us to one command greater share of trading volume from shared institutional customers.

Ken Worthington: to provide greater capital efficiency to clients, which is differentiated from competitive platforms, i.e. attract new customers, and three offer traders more options to play the market in either rising or falling conditions.

Ken Worthington: Deribit operates XUS and is adapted by competing with the XUS derivatives markets, and this is very complimentary to our US futures business and supercharges or international derivatives franchise.

Alesia Haas: The International Exchange. And from a traction standpoint, Deribit is the global leader in options with more than 75% market share. It's been consistently profitable. It strengthens our business by giving us market leadership within options, which we expect to grow and enhances the profitability. And Alicia, do you want to take the accretion question? Thank you very much.

Derbott has a history of positive adjustity, but don't [inaudible]

Alesia Haas: and we believe it will be a subsidy that is not positive on an accretion-based basis. However, I caution this is before we complete our personal accounting adjustments.

Alesia Haas: Can actually go in and hedge futures position with options without having to switch platforms. So that's why we think that there's a cross-selling opportunity and this is improved the efficiency but also improves trading volume if they can do that all in one platform.

Thank you for watching!

James Yarrow: The next question comes from the line of James Yarrow with Goldman Sachs.

James Yarrow: Good afternoon and thanks for taking the question. So USCC comprises an increasing percentage of overall stablecoin market cap

James Yarrow: Perhaps you could just speak to some of the logic behind Binance being added into the U.S. D.C. partnership along with Circle and what this means for the U.S. D.C. Tam and then perhaps could you also update us on the economics.

James Yarrow: and how that split has changed as a percentage of U.S. CDC interest revenue now that finance is part of the partnership.

James Yarrow: Great, great questions. So let me start with the latter and then we'll talk about the growth. So the commercial arrangement that we have with Circle, has been filed.

James Yarrow: as an agenda to our 10K. You can see the collaboration agreement. You can see the collaboration agreement.

James Yarrow: In short, what it does is it provides 100% of the underlying reserve income to Coinbase for all of the USTC that we hold in our eligible products.

James Yarrow: and we have a new disclosure in our shareholder letter where you can see that split.

We also then receive a percentage of the off-plot force.

James Yarrow: Economics. So the waterfall is Circle receives some basis points for their issuer fees for just being the issuer of UFDC.

Maintenance No Reserves, and for administrative tasks. [inaudible]

James Yarrow: We then get 100% on our platform. We then agree with Circle if we are going to share economics with other distribution partners, and in the case of Finance, we did agree, because we think that it grows the overall USCC market cap. We think this is beneficial to bring more distribution partners to the ecosystem. [inaudible]

James Yarrow: We then get 50% of the off-platformer. What is remaining on UISDC and you can see that again in the table that we share in our shareholder letter. So that is the economic arrangement.

James Yarrow: The rationale for adding distribution partners is we believe that we need it drives liquidity, it drives global adoption. There are more and more places for customers to onboard and offer to UFDC and to engage in products and services.

James Yarrow: These network effects, larger market cap, deeper liquidity, more places for customer restrictions. We think it's going to drive overall growth and opportunity for USDC.

Thank you. Bye.

Speaker Change: Yeah, maybe I'll just add in here for a minute, so. Thank you.

Speaker Change: The strategy for USDC to grow is really two things. It is one sharing economics with strong partners.

Speaker Change: and number two, it's following a compliance approach, right? So USDC is currently the only major stablecoin in Europe , for instance, that complies with Mika legislation. So...

Speaker Change: If they can share economics, and they can follow a compliant approach, we feel that they're going to continue to grow. And it's worth noting that USDC is the fastest growing major U.S. backstablet coin right now. So we think they're on a great path.

Thank you for watching!

Speaker Change: The next question comes from the line of Devin Ryan with citizens.

Devin Ryan: Thanks so much, Hi, Brian , Hi, Alesia. Question just around momentum in allowing kind of traditional banks to enter...

Speaker Change: The industry in different capacities obviously kind of moving towards that and you know on one hand some could be competitors in certain places and that gets you a fair amount of a press but on the other side you know it seemed like there's still fair amount that Coinbase can do with this. [inaudible]

Speaker Change: potential customer cohort or partner with and even potentially even through the partnership with Circle. So I'm curious if you're having conversations directly with this part of the market and just more broadly the view around kind of the opening up of traditional financial institutions into this space, how that could be a positive catalyst for Coinbase. Thanks.

Speaker Change: Yeah, so I'll start off and then, yeah, Emily Alicia, others feel free to jump in, so...

Speaker Change: Yeah, we think that every major bank is going to be integrating crypto. At some point, like I said, we think it's technology to update the financial system. And we've had conversations with a number of them.

Speaker Change: We've signed some deals, actually, and we can power a variety of things for them. So,

Some of them it is. [inaudible]

A custodial solution, right? Good.

Speaker Change: Others are interested in having a stablecoin solution. Now, there is, we've seen some interest where banks and other companies will want to create their own stablecoin. Our view is that that's not necessarily the best path because we think stablecoins have network effects you want interoperability. Thank you.

with other financial institutions to be able to...

Set old payments and do all kinds of things. [inaudible]

Speaker Change: So, especially if you can get shared economics, I don't see why we wouldn't see more of these banks partnering with USDC.

Speaker Change: But regardless, we at Coinbase I think can help power infrastructure for all these folks that are coming into the industry and that's a big part of our plan. We call it crypto as a service, right? Is a service that we sell to these institutional clients and we can power custody trading, stable coin infrastructure, etc. For them. We are going to have a lot of money. We are going to have a lot of money. We are going to have a lot of money.

Speaker Change: And it's important to note that we have over 200 institutions, BlackRock, Stripe, PayPal, others that already are relying on our rails for custody, liquidity.

Speaker Change: And Prime is the standard for institutional access. We've shared with you before that we won a number of the ETS mandates, and it shows the strength of our platform, our controls, and the operational rigor that we have built out to support large major institutions as they transact and crypto. So as tried five moves on chain, we think we're the backbone beneath it. [inaudible]

Owen Lau: Your next question comes from the line of Owen Lau. What is Oppenheimer?

Owen Lau: Good afternoon and thank you for taking my question. So first of all congrats on a deal. I have a high level question. Could you please give us an update on what Coinbase aspires to be in 5 to 10 years?

Speaker Change: I realize that a lot of things have changed over the past few years and great companies evolved with opportunities.

Speaker Change: and you just announced that there are a bit of a deal you're also considering, I think getting a federal bank charter, what will Coinbase look like longer term?

Speaker Change: You think Coinbase will be more like a tech provider, a full-surface on-chain bank or a super app like WeChat. Also, are you interested to get into a tri-fly space such as equities in bond trading, given that you mentioned that you're 100% focused on crypto. Thanks a lot.

Yeah.

Great question, so... [inaudible]

Today we're primarily focused on trading and payments. [inaudible]

Speaker Change: We're doing that across our major customer groups, retail, small, medium-sized businesses, institutions, and developers.

Speaker Change: That I think in five to ten years our goal is to be the number one financial services app in the world across those customer segments.

Speaker Change: because we believe that crypto is eating financial services and we are the number one crypto company, right? And so that's where we think things are going.

Speaker Change: Potentially integrating traditional financial services or track five services. I mean, we really want to skate to where the puck is going here and be the best company at building on chain. And so we think all these asset classes, money market funds, real estate, securities.

Speaker Change: Dad, these are all coming on chain and you heard you heard about some of those in our product updates. [inaudible]

Speaker Change: So, we don't necessarily want to look backwards, we want to look forwards and get to where this opportunity is going.

Speaker Change: In that question comes from the line of Brett Nolbach with Cantor Fitzgerald.

Brett Knobloch: Hi guys, thanks for taking my question. Maybe just on the recent rumor that there could be a change of control with circle.

Brett Knobloch: Is there any change of control clause with circle where that provides, whoever would acquire a circle and out, or what would happen in a scenario where a circle would those get acquired?

Brett Knobloch: Our contract would persist through an acquisition of there would be no change to our commercial arrangement.

NASA Jet Propulsion Laboratory, California Institute of Technology

But good evening. Thanks for the question.

Congratulations on the derivative acquisition.

Owen Lau: I want to expand a little bit on Owen's question actually. We hear it a lot from our clients.

Owen Lau: and Brian , he touched upon all the things that Coinbase is doing currently in this virus to do, and...

Owen Lau: and some press article last month that Coinbase is potentially seeking, a banking license. I'm just, I'm just curious, how do you juxtapose doing all these different services, services single? [inaudible]

Owen Lau: Different sorts of customers against potential legislation down the line where you may be limited in certain functions, just curious on how you're thinking about

Owen Lau: How potential legislation could perhaps limit some of the functions that Coinbase aspires to do.

Owen Lau: Yeah, well, in the legislation draft that we've seen so far, we're not seeing anything that would necessitate us having a banking license and we don't have any current plans to do that.

Owen Lau: Obviously, if something were to change there, that's an option, but I don't see that as being very likely at this point. And...

Owen Lau: The main thing you would need a banking license for is if you wanted to do for action or reserve and really lend out the customer's funds.

Owen Lau: We think that a fully reserved model is actually better. It seems to be what our customers want. And then

Owen Lau: If they actually want to opt-in and choose to put their money into some investment vehicle, they can do that. But the model where the bank lends it out kind of without you knowing about it, that creates risk in the system. There's many good books on this. So...

Owen Lau: I actually kind of like the idea of not having the bank chart over time and it actually limits your product velocity as well right like if you even if you have a sub that is a bank and the bank holding company. [inaudible]

Owen Lau: Act kind of requires supervision of not just the sub, but also the parent and down into other sub. And I think it can really slow down the product velocity. So yeah, no current plans to pursue a bank charter at this time.

Benjamin Budis: The next question comes from the line of Benjamin Budish with Barclays Capital.

Hi, good evening and thanks for taking a question.

Um

Benjamin Budis: I'm curious if you could talk about options in crypto more broadly. It almost in a way looks like the futures market in trad buy where there's sort of incumbents, although obviously quite a bit different as most the products traded there are different from the products in which options are written. So any kind of curious about the history, like, why is that?

Speaker Change: There's really only one crypto exchange that has such a meaningful market share, is it a lack of a

Speaker Change: Petitors. Is it, you know, this crypto volatility make options more challenging to trade? And, you know, what does that sort of say about the user base of garbage? Is it institutional customers who are similar to those trading on other international futures exchanges? Is it retail? Is it retail? But just kind of

All start here, and others can weigh in.

Speaker Change: What I would say is that these are relatively nascent products within crypto and that we've seen

Speaker Change: Growth because people focused and built product expertise and really became the best player and that is who there it is. They created unique and differentiated products and we're able to win the majority of the market share in crypto options. Thank you very much.

Speaker Change: I think that it looks very similar, that these options are used to hedge future positions, these are used similarly to traditional financial options and other products.

Speaker Change: and so I wouldn't say there's a difference in how these exist in the broader financial ecosystem and the users of these are pros to immerse their more advanced traders, but they do have a diverse institutional and retail base of customers on their platform. All X, B, S, I would note.

Speaker Change: Yeah, one other thing I'll add is that it's really a credit to the Derbett team of how well he executed to get to that market share. Thank you very much.

Speaker Change: The only thing I'll add is that when we talk to pro traders and institutional traders, they often say they just really want to trust a counter party and

Speaker Change: If Coinbase had x or y trading feature, they would love to do that with us instead, right? And so they see us as the trusted counterparty by adding more. Thank you for your time, Peter.

Speaker Change: Products to trade in the store, they'll move more and more of the trading volume to us.

Speaker Change: The next question comes from the line of Patrick Moley with Piper Sandler.

Patrick Moley: Good evening, thanks for hearing the question. So mine kind of relates to Ben's question, but in light of the Derribid Act with the Shows, hoping you can update us.

Patrick Moley: on the go-to-market strategy for crypto-derivatives broadly in the U.S. and then once you close the pyramid acquisition, how quickly do you think you'll be able to offer those?

Patrick Moley: Products, U.S. customers. If you're on their website today, the U.S. is listed as a restricted jurisdiction. So what are some of the regulatory considerations or hurdles that need to be crossed before you are able to do so? Thanks.

Subs by www.zeoranger.co.uk

Patrick Moley: Yeah, I can share a little bit about some of the approvals that are coming up. We've been working very closely with the CFTC to try and get perpetual futures live in the US.

Patrick Moley: A lot of the go-to-market piece of this is really about going and talking to the top large volume traders.

Patrick Moley: and they trust Coinbase, but we don't, his work, we haven't had the exact products that they've wanted to trade for various, you know, we've taken a compliance approach, compliance focus approach, and so it's taken a little bit longer. Thank you, Peter.

Patrick Moley: But I think if we can do that, we'll have a good chance to grow share. Thank you, Peter.

Alesia Haas: with them. In a short term, like Alicia mentioned, we are offering rebates and incentives to get people to come in and try it, and that's why we've seen our share grow in this last quarter.

Alesia Haas: There's lots of new contracts we need to add. We added I think 39 new perpetual futures books on our international exchange in Q1, four new books in the US. There's some features around improved capital efficiency, like getting higher leverage, spending the list of collateral that they can use.

Alesia Haas: I think so far it's working really well. As I mentioned, we've traded over $800 billion in derivatives volume in Q1. So those are just a few thoughts on that.

Speaker Change: Yeah, and to the question to to reiterate Brian with saying, we're excited about the new CFTC chair and new chapter in the US. We have to work with them on a past for the US options, but for now we're really excited about the opportunity internationally for Derivate. [inaudible]

Joseph Vafi: Next question, from some line of Joseph Vafi with Kenneth Corden.

Joseph Vafi: Good afternoon, thanks for the question. I just wanted to circle back on USDC. I know I think

Speaker Change: maybe Alesia or Brian mentioned the amount of USTC per monthly active that's kind of doubled.

Speaker Change: Over the last year, just wondering what that means from a P&L perspective. I know there's incentives out there. I know that there's a rev share, but just kind of trying to get to what the bottom line on that means and, you know, if it's an investment, you know, what the implications are there thanks.

Speaker Change: Thanks for the question. So in our share of the letter that is on our IR site, we gave a new table that breaks down the USDC and products where we get 100% of the underlying reserve income. We also shared the market cap and the revenue that we get from the off-platform USDC.

Speaker Change: So we generated $298 million of USDC revenue in the first quarter. Again, that we paid out roughly $100 million.

in USDC Rewards.

Speaker Change: It's important to note that we only pay rewards on the USDC in Coinbase products, and so we have about 26 million and net margin in USDC revenue on products in our platform and then full margin, 171 million that has no associated rewards that puts the bottom line in terms of margin.

Speaker Change: And you can see all of that within our disclosures that we've made this quarter.

Speaker Change: The next question comes from the line of Dan Dolev with Ms. Mizzouho.

Dan Dolev: Thanks guys, really nice results and nice quarter. I just wanted to ask on the USDC rewards specifically in terms of the opportunity there what you're seeing seems like a big opportunity for the long term so any color that would be great. Thank you.

Speaker Change: Well, what we see is that when we pay rewards, customers are more engaged with products and services on our platform.

Speaker Change: So we grew balances nearly 50% this quarter. So we now have about 12 billion in on average, USDC within our products, that's up 49% quarter of a quarter.

Speaker Change: We're seeing, as I mentioned on my comments, over the last two years, the number of M2s that hold USCC as double, their balance is triple, and what we're seeing then is those customers trade more often, they engage with other products and services.

Speaker Change: We've more deeply integrated USDC on our platform, so it is being matched pair, for example, in our international derivatives exchange.

Speaker Change: This is driving USDC in that platform with institutional customers, base head for a billion of USDC so as we deeply integrate this we are generating the flywheel of distribution of USDC and building those balances on our platform and driving growth of the overall ecosystem.

Speaker Change: The next question comes from the line of Alex Markgraff with Keybank Capital Markets.

Alex Markgraf: Hey everyone, thanks for taking my question. Maybe one for Emily or Brian , am an age. Are there any sort of other large deals that we should think about Coinbase pursuing in an effort to?

Speaker Change: Global Leadership, maybe just categorically speaking, and then, you know, I think it could be helpful to get thoughts there on the heels of the Derribon announcement, and then I do have a quick follow up on payments for Brian if there's time. Thanks.

Speaker Change: Sure, so obviously today we announced the largest crypto acquisition of all time.

Speaker Change: and I believe we've been the most active player in crypto-MNA historically period. So, dare a bit to me at the great point of how we use MNA to add to our market, leading institutional platform. Still recall we did ZAPO in 2019 for custody to go me in 2020 for prime.

Speaker Change: Fair X in 2022 for the derivatives exchange, one river in 2023 for asset management, and now we've got derivative. So we think this is going to dramatically accelerate the growth of our international footprint and our derivatives business.

Speaker Change: Looking ahead, I mean, I think we are in the best position we've ever been in to take advantage of additional opportunities and we think the market is right for some great M&A. We have an incredibly strong balance sheet. As Alicia mentioned before, we've made a strategic decision to hold more cash because it enables us to make bigger bets.

Speaker Change: We know every player in the space due to the fact that we've been in the space for so long and we also have ventures, so we have plays in a bunch of the different startups from the space, know all the teams. So we're always looking at great businesses of scale to accelerate our growth in key areas and we're ready to take advantage of those in the coming years. You can expect a lot more from us.

Thank you for watching!

Eric Wave Time for one more.

Speaker Change: Your final question comes from the line of Bo Pei with U.S. Tiger Securities.

Bo Pei: Thank you for taking my question. So have a high level question. So given the current macroeconomics uncertainty and volatility, the crypto enterprise. . . . .

Speaker Change: How flexible is Coinbase strategy across different marking linements? Are there specific strategy areas you plan to emphasize more in a parish versus a bonus market? Thank you.

Speaker Change: We've never been good at predicting where crypto markets are going and now with the influence of broader macro trends it becomes even more difficult to predict the impact on crypto markets.

Speaker Change: and so our strategy long has been to run scenarios and to be thoughtful about what is the worst that can happen, what is the best that can happen,

Speaker Change: and Fitforth every year with a wide range of potential outcomes. [inaudible]

Speaker Change: We plan to the worst. We plan our expense growth against what if we go into a bear market.

Speaker Change: So we're really confident that we can invest in our strategy, invest in growing our employee base, products and services and navigate through a bear market. So the answer is if we emerge into a bear market, it doesn't materially change our strategy. It would have to be

Speaker Change: Two things added together, a bear market and then something else really bad happening for us to kind of pull back and say, okay, maybe we need to revisit our outlook on expenses, but we feel really good about what we've seen so far this year. We're well within our scenarios and feel confident in our Go Forward plan.

Speaker Change: Okay, thank you all for joining us. We look forward to speaking to you again on our next call.

Speaker Change: Peter Christiansen, Paul Grewal, Paul Grewal, Paul Grewal

Thank you for watching!