All right, we'll get started. Good afternoon. Thanks for joining. My name is Peter Christiansen. I'm on Citi's equity research team, covering a bunch of areas, including fintech and crypto. Thanks for joining us today. I'm thrilled to have Alesia Haas, Chief Financial Officer of Coinbase, here to discuss what's going on with the company of recently. Coinbase has asked me to read a quick safe harbor before we get started. During today's discussion, Coinbase may make forward-looking statements.
Actual results may vary materially from today's statements. Information concerning risks, uncertainties, and other factors that could cause these results to differ is included in Coinbase's SEC filings. The discussion today will also include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measure are provided in the shareholder letter on the company's investor relations website. Non-GAAP financial measures should be considered in addition to, but not a substitute for, GAAP measures. I think it's the first time I've done that.
Thank you.
It's pretty good.
Thank you. Yeah.
All right. Thanks. I do want to start off with, I think, understanding your role, because I think your role is incredibly unique from that of other CFOs, I think anywhere, and to be honest, it's difficult for us to think of a more dynamic CFO role than that required of Coinbase, balancing and managing the business through inherent volatility of the crypto market and its cycles, capitalizing on unique opportunities and advocating for this technology with regulators and policymakers,
meeting transparency demands of shareholders and stakeholders alike. You have a lot of tasks and a lot of things that you need to juggle. I think it would be really interesting for investors to maybe get a sense of, from a day-in-the-life perspective, can you walk us through where you're spending most of your time these days? And maybe if you can talk about how Coinbase goes about its financial planning process.
Okay.
It's a lot.
It's a lot. It's a lot of fun. It is dynamic. So it's funny, so Emily, our president and COO, and I talk often about how Coinbase requires the most context-switching. The most, you start the morning thinking you're going to do one thing, and then you learn five new things, and you move in three different directions. You might talk about, like, "Oh my goodness, how's Canada expansion going? And now how's derivatives going? Now how's the policy effort? How do we need to, like, shape user experience?" Like, you can just jump all day. And so it's the most context switching that any of, either of us have had in any role that we've like, been at before. And that makes it incredibly fun because you can feel your brain stretching and growing. But also, there's a lot there.
So, I do spend the majority of my time helping either with my exec team or my leadership team within finance, just navigate through new information. Our collective role, my role, the exec team's role, Emily and me working together, is how do we take new, like, and sometimes brand-new, like, how does this crypto-driven policy? Brand new. Or how do we make something more efficient? Just new information. How do we turn new information, challenges into opportunities? How do we identify the key talent that we need to execute through something? How do we make something more operationally efficient? How do we identify risk and then build in the mitigation so that we don't have any foot faults?
How do we understand the financial impact, whether that's going to be a new cost that we need to absorb within our guardrails, whether that needs to be like framing the revenue opportunity? How do we build out new? And so it's just translating information into opportunity, and that is what I spend the bulk of my time helping navigate. On a more granular basis, like my day job, I would say like, I'm every day there's time dedicated to looking at like, what are our data? What are our metrics? We're an incredibly data-rich, metric-driven company, and looking at anomalies in data and following up on, "Hmm, that looks off. What are we learning here?" But then one day a week, I'm doing deep dives with the exec team and going into various business issues. One day a week, I'm going through, you know, roadmaps with my team.
What projects are we working on? How do we get more operationally efficient? How do we do more with less? How do we become scrappy? Half a day a week, I'm working on global governance. We have about 20 regulated subsidiaries around the world that require different boards, different approvals, and just participating in global governance. Then the rest of the time really depends on where we are in the quarter. Obviously, we're a public company, and so part of the quarter is going through earnings cycles, part of the quarter is dealing and the opportunity to work with our regulators or our bank partners or other key constituents. Then the rest of it's balancing out product opportunities. How do we identify risks and financial opportunities within the various products that we have, and how do we, how do we dig through them in finance?
Because one of the things I tell my team, and I think is most important about sitting in the finance seat in a crypto company, is we should be the users of all, everything we use. Like our institutional platform, if it doesn't work for my needs, how is it going to work for any other client's needs? How do we make payments in USDC? How do I make FX and crypto work for our own business operations before we go to clients? And so we spend a lot of time using it within our own personal portfolios. I was really proud we just came out of crypto, Onchain Summer, and we give out awards to employees about who was the most on-chain. Finance was almost 50% of the award winners.
Wow.
I was like, "Go, finance team!
Yeah.
So we dig deep. So we spend a lot of time then understanding our products with our product leads, and participating that way.
So you're R&D as well. Sounds like.
No, we're just the first users.
Okay.
We ask the naive questions, like, "It didn't feel so great.
Right.
Like, "This is clunky. Like, I need this." We're just feedback loops.
That's, that's amazing. And I'd imagine you'd have an expansive encyclopedia of playbooks and scenarios and things that you've went through.
We want to move to financial forecasting.
Yeah.
All right, so let's go to financial forecast.
Okay.
That was the second part. That was just my day in my life. Financial forecasting. We're hard to forecast. I don't think this is a surprise to anyone in this room. And so the way that I think about it, I think it's important to say that my job immediately prior to this was at a hedge fund. So pretty hard to forecast. So I came into this with awareness of how to forecast difficult businesses. But we start with the following. We start with, like, what are our big picture objectives? And we discuss this at the exec level. We discuss this at the board level. So for example, this is the objective of we've told you all, and we're holding ourselves to it, that we wanna be Adjusted EBITDA positive in all market conditions. So that's like a big picture goal.
We look at a lot of scenarios to then understand what our revenue could be. We are really good at what we consider scenario planning around macro drivers, black swan events, like, and we spend a lot of time mostly focused on the downside, I would say to you. I would focus mostly on what are the headwinds, what are the risks we could see? Because we can see that when we see strong volatility, we have upside, and that upside translates really nicely to the bottom line. We don't see our expenses really flex that upside, but we do need to prepare for the downside. We've seen so many cycles in crypto. What we wanna be able to do is really manage to the risk scenarios prudently and continue to generate positive Adjusted EBITDA.
And so we look at a wide range of revenue scenarios and seeing different drivers. Then against those, here's our big picture objectives, here's the range of revenue that we could see as possible. Not all those are probable, but they could all be possible. What do we feel good about taking as a fixed expense base to carry through those scenarios? And then what are the conditions in which we would open up increased variable spend? What are the conditions in which we could see opening up additional fixed spend? And we kind of set forth those guardrails.
We update those scenarios quarterly. We update our big picture goals, sometimes annually, sometimes we have a persistent goal. And then those quarterly updates is what feeds through into our outlook and what we provide to you all as the Street. So that's how we update. Obviously, if there's events in crypto, I mean, the good news is it's been relatively calm for the last year. No more banks failing, no more FTXs in the last year, knock on wood, we would update more regularly in those events.
Right. Legal, public policy spend, how much is that? And this is... You're through a unique time, so I'm sure it's a big portion of your spending base right now. Let's say that goes away to some degree, in the near future. Like, what's the next phase of fixed cost expansion for Coinbase? Is it more people, more developers, and that kind of thing? And maybe I just wanna add on to that, what were some of the lessons we learned from the last cycle? I know-
There's a lot to unpack here.
I know, I know. We could talk all day.
Okay, fine. Okay.
Mm-hmm.
Let me talk about legal and policy spend first, so first of all, we definitely have just a fixed investment in legal and policy that will persist in all market environments. We are seeing elevated policy spend as we go into the market right now because we're in a unique election year, and we're at a unique precipice where we might get regulatory clarity in the U.S., and so we are spending into that tailwind and that opportunity. You know, crypto is so nascent, and we think this product set will expand, so that may be the case that when we see that in India next year, maybe we see it in Argentina the next year.
So I'm not yet at the point where I can say with clarity how that spend will evolve, because we could see an opportunity to drive rules around the world that would then meet our product expansion opportunities. What I can say is it's going to be opportunistic spend, it will be seasonal and specific goal purpose spend. It's not just we're gonna spend it to spend it, it will be around a mission and a goal that we think will then lead to product expansion and opportunity for us.
And that's what we see here in the U.S. in this election cycle, which is what's leading to the elevated spend that you saw in Q2 and persisting into Q3 as we go into the November elections. Again, legal spend, we can have heightened spend when it comes to around the SEC case we're in. But as we push the envelope and we drive new products around the world, I could see us needing to have elevated spend in these areas for some time.
Right
Until we become a more mature industry. We'll try and be as transparent as we can around that. Obviously, all of that spend is captured in our Q3 outlook, and we will give you what those outlooks look like at any time, and they'll be coupled with our broader goals around profitability and the direction we are managing the business to. All right, moving away from the policy, and like what we learned and all of that. Look, we went public in 2021, and I think what's important to share at that time is the company was about eight years old, and at that time we had seen three crypto winters. We had seen price cycles in troughs in 2013, 2015, and then 2019.
And in every time, what we had seen at that point is each trough was higher than the past trough, each peak was higher than the last peak, and we had seen ebbs and flows of the business. And especially in 2019, what we regretted the most as a company was that we did not invest ahead. And so when we got to 2021, we're like: "Oh, shoot, we are catching up. We wish we made this investment in 2019, but we were too conservative." And so then, as we went into 2021, 2022, we said, "Well, we gotta keep investing. We know where we want this product roadmap to go. We wanna keep investing." And we told the market, "We're gonna invest through a cycle." We told you we'd break even through a cycle.
The feedback we heard from the market in 2022, when we started losing Adjusted EBITDA, was like, "Whoa, we don't believe you, Coinbase. Ooh, that does not feel comfortable. You're burning a lot of cash." And people didn't have trust in our management team that we were gonna execute through a cycle. They didn't have trust that it would come back in the way that we had watched the prior cycles and experience. And so we pivoted meaningfully, as we went into 2023, and we said to the market, "Okay, loud and clear, we've heard you. We will be more cost conscious. We will generate positive Adjusted EBITDA in any market conditions." So as crypto cycles move up and down, we will continue to at least hit that bottom line of positive Adjusted EBITDA. And we've done that now six quarters in a row.
Like, we had positive Adjusted EBITDA through 2023, and I think what you can see now in 2024 is as the market comes back and we start going into higher market cap, higher volatility, a lot of that increased revenue just trickles then straight down to the bottom line. So the lesson learned is, one, we need to listen to the market, and we need to then execute and do what we commit to, which I think that we have executed on nicely.
But the true lesson learned, Pete, the true lesson learned that I think that we as a management team took away is we grew too quickly, and we followed a playbook of big tech in build ahead, build ahead. And that what we recognize is we as a company and a culture is we value scrappiness, we value individual contributors, we value people doing more with less, and we actually think we move faster.
Mm.
in that market. We moved actually. We moved more slowly when we were hiring so much because we had new manager upon new manager upon new employee, and we did not have the culture pushed through. We did not have the knowledge of our operating practices pushed through. So now we're executing the best we have done in years, and we're really proud of our execution speed. Now we've also learned very carefully about how quickly we can grow, in what areas, how we grow thoughtfully, how we then put the dollars against what we think is more solid revenue-generating opportunities, and how we scale up and down with more variable costs so we can meet the market but also not get too ahead of ourselves.
I also like how Brian used to talk about there's a point where there's a lot of mercenaries in this industry now focusing on missionaries.
Missionaries, yep.
Maybe it was something that was kinda required of a washout that needed to happen.
We have a lot of resilience now in our employee base.
Mm-hmm.
Lots of grit here.
But absolutely, at the same token, now investors now know that you could put up a 60% margin in a particular quarter and generate so much free cash flow in a healthier cycle.
Yep.
Maybe we all learned something along the way. I do want to talk about the political environment a bit here, to the extent that you can. You know, certainly looking-
It's my favorite topic.
I know it is. I know it.
Yes.
It's all of ours. I've become an armchair attorney, a legal expert as well in the last year. But looking past, you know, the president. Oh, actually, let's skip that one. Let's talk about bipartisanship.
Okay.
All right. Examples come to mind. Congressional repeal of SAB 121 passage of FIT 21. A letter from prominent Democrats to the Harris campaign and such. Can you discuss the significance of these, and do you see any meaningful examples of bipartisanship coming together to further crypto regulation in the United States?
So crypto is bipartisan. When we look across our customer base, when we look at the 52 million Americans that own crypto or have transacted in crypto in the last few years, it is a young group, it is diverse group, it is urban, it is rural, it is really a cross-section of America. When we look at the participants in Stand with Crypto, which is one of the advocacy efforts that the industry has put together, and we have events, when you look across those events, you go, "Wow, this is, this is the voting bloc. This is who both Republicans and Democrats are trying to get to the polls." And so it's an incredibly important moment in time for those voters to make their voices heard and to share why we want crypto legislation here in the U.S. It is to create consumer protection.
It is to create clarity so we can bring jobs to America, so we can bring this innovation to America, and we can ensure that those customers can operate here in the U.S. in transparent and trusted ways, so we're not at all surprised, and we are so pleased to see the bipartisan efforts, as you point out, and we think that we see that through Congress, through the Senate, that people have the goals. The key here is education. The key here is the more people understand, the more they realize this is technology, and technology should not be partisan. It, I mean, we should allow clear rules to bring forth all new industries, all technology in the U.S., and it doesn't need to be a political event. I do fear, and this is p eople wanna politicize everything, and so we're working very hard as an in-
Dispel those
industry and as a company to dispel those myths, and we will work with any administration or with any participant who wants to bring forth clarity to these regulations and rules here.
If I think about, like, Fairshake, Stand with Crypto, actually, I think it's the largest single-issue super PAC right now which is pretty impressive. Maybe you can point to some examples of how politicians, particularly those who are going through their own election season, how are they perceiving the impact from those platforms, and do you think it is a difference maker?
Absolutely. This is part of the most interesting part of my job, is just learning how this process works and learning about the impact on how you can drive clarity. We made our first political contribution to Fairshake in December of twenty twenty-three. It's when it got started. So this is a less than 12-month journey for us as a company and for the industry in bringing forth the resources and the industry putting this PAC together. We saw a lot of impact in the primaries, and so in races that Fairshake participated in, in the primaries, we saw the crypto-first candidates winning those primaries. That impact, the result of those dollars in action, led us to the incremental investments that we made in Q2 and our furthering support of just general policy efforts into Q3.
You saw others stand up besides us and add resources here. So yes, we are seeing those dollars have impact in those elections. If we can get senators, congressmen who understand crypto and are committed to driving regulatory clarity, that's what the voters want. Now, the sister companion, besides Fairshake, is the grassroots efforts with Stand with Crypto. So Fairshake is super PAC. It's spending dollars in elections to try to get focus on the pro-crypto candidates. Stand with Crypto then is the get out the vote. It's the grassroots effort, and we have 1.3 million Americans signed up with Stand with Crypto. But you know, it is growing at a regular clip. We just kicked off a bus tour. Sorry, Stand with Crypto. I shouldn't say we. The industry is the global we when we say we.
These are separate entities from Coinbase. These are just entities that we are contributing and making donations to. So Stand with Crypto is on a bus tour right now. When you look at Stand with Crypto, and you look at the members of Stand with Crypto that live in swing states, so people in Pennsylvania, people in Florida, people in Michigan, people in swing states, the number of Stand with Crypto advocates exceed the delta between who won and lost those states. So these are motivated, these are active voters, and I just sit there and I say, "Being anti-crypto is not winning you any votes. Being pro-crypto is winning you votes." And so this is an opportunity for both candidates. This is, like, nonpartisan. Everyone should be going after these votes and trying to say, "Driving policy is good. Voters want this. Let's move forward with this.
I hate to ask this question, but just would love to hear your view on how a potential Harris administration might fare for the industry. Anything that you've gleaned from... I mean, I think, you know, the party hasn't rolled out all of their policy agenda yet, but any sense you're hearing on the hill?
We have a huge opportunity, as we just talked about.
Absolutely.
We have a huge opportunity. Look, we're cautiously optimistic. She has not rolled out the details yet, but she has made overtures that she would like to drive crypto legislation.
Mm-hmm.
She is accepting crypto donations, so she's using Coinbase Commerce now to accept crypto for her own campaign. But this is what we're advocating for, so we will continue to push because we think this is, we will work with either administration, but we think that it's good for America if we can get crypto policy, and so we were going to continue our advocacy to hopefully bring forth the crypto policy effort under her administration.
Right.
Or Trump's. We're agnostic. We just want policy.
It's gonna be a very interesting couple of weeks here.
It will be.
It'll be fun.
Mm-hmm. Mm-hmm.
What really needs to be regulated?
Mm, so much. So the challenge with many of these assets is there's decentralized developers contributing code. It is not like there's a company out there who is saying, "Here's my roadmap. Here's my commitment to you, dear investor." And so you just have these assets, and even if all the people quit, the code still exists, and that asset still exists, and it's still tradable. It doesn't meet the spirit of something that can register with the SEC. It can produce quarterly financial statements. It doesn't know its customer. It doesn't have any of the bearings of an investment contract or stock at this, from the majority of these assets. We are full believers that there will be crypto securities that will then be existing stocks on blockchain technology in a tokenized form. We would have loved to be a stock.
We would love to put coin on the blockchain, and for how all of you trade coin as a blockchain security. Those challenges are, it settles instantly. This is interesting. Like, do I need to register it with a transfer agent when you have instant settlement between parties? Do the custodian and exchange need to be separate? Do the market structure rules that exist for securities match the risk on blockchain? So there's all sorts of registration differences, disclosure differences, transaction differences, and market structure rules that we think need to be revisited to fit the technology in securities, in commodities, in treasuries, when you think about stable coins, but the entire regulatory landscape needs to address the new technology and opportunities here, much like MiCA has in the EU. Sorry to go off.
No, that was great. I thought that was super helpful. I do, I do wanna talk about some products and services here. There's been a lot of focus on Base, and the success there has been really impressive. For those of you in the audience who are unfamiliar, Ethereum is the dominant smart contract platform with substantial network effect, and Base is an Ethereum Layer 2, designed to improve the UX for Ethereum users by substantially lowering fees and improving scalability. So I think the initial goal with Base was to bring more users on chain, to bolster the crypto ecosystem as a whole. Can you just talk about some of the successes there and how some of the trends? What are some of the trends that you're seeing? And a big part of that was lowering the costs here, though. So maybe, if we could weave that in.
Okay.
I know I'm throwing a lot at you, but,
So our big belief is that you've started off with crypto as an asset, and the initial use cases were trading, sometimes mostly speculative trading around store value, Bitcoin, or just trading these assets. But we really think is the promise of crypto is crypto as a utility, crypto to update the financial system to bring faster, cheaper, more transparent settlements. So Base is a technology that enables faster, cheaper transactions on a global protocol. So think about today, we're sending money via wires, via SWIFT, via ACH, via SEPA in Europe. Like, every single country has its own payment network.
It's closed loop. It is geographically distinct. Blockchains now are global protocols that enable you to send a transaction, me to you, me to someone in Australia, me to, like, someone in Argentina, to somebody in Netherlands, instantly and cheaply. And so our goal with Base was to bring things down to one penny, one second. We thought if we could bring speed and cost on a global transparent payment rail, that would then open up use cases and utility for more daily use cases.
Mm-hmm.
Payments, people storing their assets in USDC versus their local currencies around the world, and technically, we are just now at that point, so the technology now exists that we've been able to prove with Base over the last six months. We've brought down the cost in Q2. We've brought down the cost meaningfully, and we saw 300% transaction growth, so it's proving that cost comes down, speed goes down, transactions go up, and those micro use payments will then.
But these are the early days, Pete, so it's like the technology is there. We call these the Lego blocks. We now have the Lego blocks of, okay, we have Base with a layer two. We now have USDC as a stablecoin. We now need to put the user interface on top, and really, that's where the next kind of phase of investment is going, to make this easy to use, push this technology below the surface so it's just wonderful user journeys.
Maybe we could talk about some of those breakthrough applications. I mean, and Farcaster comes up often.
Mm, uh-huh.
You know, what are some of the use cases and applications you think are gonna get the most traction, or do you see chance of a killer app?
There's always the chance.
Yes.
I think it's important for Coinbase to think about Base as more of a developer tool. It's a platform that we have launched. What's happening now is that developers are building applications on top of Base, and I think I'm gonna put these in three buckets for the purpose of this conversation. The biggest bucket today is around stablecoins. We talked about USDC, which is a US dollar stablecoin. There's also Euro Coin, which is a euro-based stablecoin. You can do FX now, USDC to Euro Coin, instant 24/7 settlement in FX on chain. That transaction activity is on Base, on USDC, on Euro Coin, so that is starting to grow, and you see a lot of transaction activity in that area.
On our earnings call we shared over the prior two weeks, we had seen, like, $20 billion of transaction volume in this area, so starting to see meaningful USDC, EURC transaction volume on Base. The next bucket I would put is broadly social. So you mentioned Farcaster. I'd mentioned Zora. I'd mentioned Rodeo. These are applications that are building Web3 versions of existing Web2 use cases. So Farcaster is like a crypto or a DeFi, X. It's like a social networking platform, but in, on the blockchain. Zora is for creators and NFT, so a bunch of those applications are growing. Now, these are all great examples. Coinbase is supporting all of them. We wanna support all developers who are trying to build new use cases on chain.
Much like the early days of the internet, much like venture startups, these are ventures, so there's gonna be a lot of things that are tried. We're ready and prepared as an industry for a lot of potential failures here. I don't want them to fail, but statistically, there's gonna be failures. But statistically, when you get all this developer excitement and activity, some of these will break through.
Right.
We're just... Our goal is to support developers, make Base the chain that developers choose to work on, continue to build the network effects of having the chain, having USDC, the liquidity, the distribution of our own platform, and our customers come together to build this ecosystem, and our goal is to bring a billion people on chain and to make those transactions bloom and blossom on chain, and that's what we're trying to do. Speaking of any one of these, it is so early days. We're in venture startup land, and we're here to cheer them on and support them with great tooling, and see what comes.
That's exciting. There's so many more products to talk about, so, hopefully we can get through a lot of these. But, and-
The third one that we're
Oh, sorry.
All right, let me go back.
Oh, no, please.
The other themes, so we talked about social, we talked about stablecoins. The third one that's starting to gain some traction is corporates looking for loyalty programs and looking for ways to integrate crypto, integrate tokens within their existing business model, so interesting examples here in New York City, you have Blackbird restaurants that are using crypto to, like, build into a loyalty and a customer acquisition and ongoing retention program. That's the third area that those are being built on Base as other developers, but that's really bringing worlds together. And that's the other area we start to see some people dabbling with these activities, and so you saw that early with NFTs. Some of the big brands were using them as branding moments. Now people are creating more integrated experiences. Those are the other early test cases and experiments that people are running.
There's a lot of on-chain kind of activities, but when you think about off-chain applications, can Coinbase play a part in that, in that movement? You know, you hear about an airline, a travel management company that's trying to pass on sustainability credits to an end user-
Mm-hmm
... through, you know, making sure-
Yeah
a plane's fueled with sustainable fuel, something like that. Now, those are, these are a lot of-
Yeah
private, like one-off kind of-
Totally
off-chain things.
I mean, our view is that all of that will move on-chain-
Right
because the cost is lower to distribute. It's immutable. You can see exactly where it's going.
Right.
When you just saw, like, and these are anecdotal examples that we're gonna get into, but in the early days of the Ukraine war, the money that was initially raised in crypto, 'cause it could move faster than other payment channels, like, distribution, quick spinning up money moving across the world is more native to go on blockchains than it is through the traditional rails. So the answer is yes. I believe when we get regulatory clarity to make sure that people are like, "Okay, those aren't, these aren't securities anymore," yes, let's tokenize airline miles. Let's tokenize distribution credits.
Let's figure out ways. This is fascinating. People are having early conversations around 0nchain Summer, which is what we're promoting with Base for developers to build on chain. One of the things we did with coffee stores is work with coffee stores to pay in USDC, show it as a payment option, but you can also tip back to the grower, and you can see these transactions really merge. Like, you make a payment, this scoops off, and you can see it land in their account. The idea to move money without middleman, to get it-
Right
to the end wallet that you want, not going through nonprofits where there could be lots of hands touching things, lots of middleman. Has a real interesting appeal and use cases that I think we're just starting to see and, and talk about.
I think that's fair. Absolutely. Well, let's chat a little bit about derivatives. It's been-
Mm-hmm
a growing topic on calls. How should shareholders think about the opportunity there for Coinbase? Also, the challenges to scale this business and particularly bringing these transactions on chain, but how should we think about the opportunities and the challenges to scale Coinbase into being a global derivatives service provider?
Sure. So just to, like, set the table here, derivatives roughly comprise 75% of global crypto trading volume. So spot being 25%, so it's about 3x happening in the derivatives market versus spot market. Largely, as with speculative assets, when you can put less capital up and trade meaningful positions, there's a real opportunity for the trading of that speculative tail of crypto in the derivatives markets. The majority of this is offshore. It's mostly international volume as opposed to U.S. volume, and so that kind of sets the stage. There's a large market opportunity for us to enter this space. The difference for Coinbase is we've always approached everything as wanting to go in in a trusted and compliant way. Derivatives, in most major markets, as you can imagine, are regulated financial products. So this is not a native new crypto product.
This is a, it's a contract on an asset. Those are regulated in the majority of large financial markets around the world, and so for us, what that looks like is we got a license through the NFA CFTC in the U.S. We are launched internationally through INTX, but we've just acquired a MiFID license in Europe, and so now, in the coming quarters, we'll be able to launch derivatives to European customers in a compliant storefront, open, onboard marketing type of way. So we're gonna go in through the requisite licensure. That is gonna take us a little bit more time than just opening up and marketing to everybody. The next piece of this, then, is just matching our product roadmap to the existing landscape. So globally, the most common product is the perpetual future, and we need to match the leverage in the market.
We need to have the depth of order books with the right liquidity. We need to be able to offer all of the trading pairs to excite the market makers to then really concentrate activity on our platform. So offering trading pairs, increasing leverage, ensuring that we're getting the product to meet the global liquidity providers' needs is what we're then closing up on the product side. But we're excited about the opportunity with Europe to start launching that out of... and they will trade through INTX, our international exchange.
Is there a natural reason as you get these licenses and build up these storefronts internationally, is there something that attracts that user who's, you know, conducting their business on another platform to come to Coinbase? Is there a natural tie-in there or a differentiator per se?
Like everything, our differentiator now is trust.
Right.
Derivatives are. You need to know who your counterparty is. There's more risk than other products, and so we are the only, I dare say, public, global, well-capitalized platform where counterparties can clearly underwrite the risk by trading on our platform. Assuming that we meet their product needs, I believe that that is our largest competitive differentiation, is pure trust and user experience on our platform.
I'd imagine balance sheet as well.
Trust-
Right
... I put broadly into the balance sheet.
Right.
Like, we're a strong counterparty, transparent operating controls.
Yeah
... risk controls. They know what they're getting when they trade with us.
That's interesting. I do wanna talk about tokenization, and we've seen increasing activity there, certainly, but the tokenization of what they call real-world assets. I know you guys don't like that term, but if you could share your perspective on tokenization and what's the next leg of that, and how does Coinbase capture that opportunity?
So it's early. The view and the opportunity with just tokenizing assets is obviously they become 24/7 assets. They're instant settlement. You can do fractionalized trading. It's lower cost, and so we just like the efficiency and cost. So thematically, I just think faster, cheaper is what we're gonna get with crypto compared to a lot of the legacy technology and systems that we have. But going back to a prior comment, we don't have the regulatory clarity. We do not have the rules of the road. We don't understand how to register certain assets, whether they be security tokens or frankly, even like currency tokens. I mean, we don't-
Or deposits.
Or deposits.
Right.
Tokenized deposits.
Yeah.
So we've started to see some movement with tokenized money market accounts. That's the first tokenized security that I think has gained meaningful market share, and there's been growth. We're not yet using that in... People can't self-custody that yet, can't use that for transactions yet, and so it's just sort of a store of value. So I think we're starting to get there, but the key here will be getting to how do we think about those benefiting from the blockchain technology versus just we can put it on a blockchain?
Right. So is that your customers using a tokenized product or Coinbase being an exchange mechanism for these products? Like w-
Yeah
what is Coinbase's hand in, in-
Sure
let's say we get to the point where this is regulated and, legitimate.
We would love to do security tokens.
Right.
We would love it. As I mentioned earlier, we'd have loved to go public with our own security token versus a traditional security. What that means for us is we know how to custody bearer instruments. We've done it for twelve years. We know how to do transaction monitoring on-chain. We know how to think about putting all of the different protocols onto our system. So Bitcoin versus Ethereum versus Solana, these are all different protocols where you have to manage a node, and then it's not just a security. So we think we have a lot of tools that we will bring to bear to be able to offer these side by side with our other trading products.
We think that getting to a 24/7 liquid market provides a lot of interesting opportunities for global trade and to reduce counterparty and settlement risk to the system. But we can't get there to regulatory clarity. So we've pushed on this for many years, but now we're just gonna wait for clarity to come before we build. Our focus is going to be on the green field, not the brick wall, so we can continue to run into.
That's fair. Fair comment. Stablecoins. Supply it continues to grow globally. Surely indicative of increasing awareness and the use cases that go along with that. Maybe you can walk through some of the differences that you're seeing in major stablecoins today: compliance, transparency, use case perspective. Why does Coinbase use USDC?
Hmm.
Mm-hmm.
Stablecoins is like the umbrella word that got used for a lot of things that shouldn't have. Algorithmic stablecoins, where we saw Terra Luna blow up. We've seen lots of liquidity issues with algorithmic stablecoins, or for US dollar coins that are backed by a whole basket of goods versus a US dollar. We need regulatory clarity so we can properly define these things and understand what is backing the asset and what is the value proposition, what is the redemption value?
The reason we support USDC and offer it in a differentiated way on our platform and integrated in our products is because USDC does have transparency of reserves. They are all short-duration US dollar Treasury bills. You can see the BlackRock Money Market Fund every day post the total value of USDC collateral. And so that trust, that disclosure, that reserve requirements, is really why we're backing USDC, and we think that is a U.S. dollar-backed stablecoin, unlike some others in the market.
Right.
The value proposition, then, is the twenty-four seven global trading. It matches crypto trading. It offers the ability on Base to send money instantly, nearly instantly, within seconds, and at a very low cost to anyone in the world, as we talked about earlier. It gives people in countries where they have rampant inflation, the ability to hold a U.S. dollar asset. It helps just drive global trade in the FX market. So I think that that is why we are partnering with USDC and thinks it have a lot of potential. So important, though, that USDC, we're also seeing some great recent milestones, which is the first stablecoin to be MiCA compliant in Europe. That'll be a competitive differentiation for the European market, as there's no other stablecoin yet that cannot be offered in that market post-
Mm-hmm.
post-MiCA. We are seeing nice market cap growth now. We reached recent all-time highs this quarter. It kind of is teetering around $34-35 billion, so continues to grow. That's when overall crypto markets were down 11% in Q2 versus Q1. So we're getting it into daily use cases, and that's the real opportunity for that asset.
It surely is exciting. I mean, the use cases are very attractive. Certainly an area that we're spending a lot of time looking at. We're running up on time here, so I do wanna thank you again for coming. It's just a fascinating conversation. But I do wanna wrap up... Obviously, we have a lot of politics going on in the next couple of weeks, but maybe you could discuss what are you most excited about, maybe the next two, three quarters, maybe the next year to one, three years? Those two things. What do you think, how do you think people's investors' perceptions of Coinbase could change?
I think we're gonna continue with the execution that I think we've done over the last year. We're focused on driving revenue, we're focused on driving utility, we're focused on driving regulatory clarity, and we're proud of the progress we've made against those three goals this year. We didn't talk about this, but over the long term, I'm excited about the intersection of crypto and AI. I think those two technologies are very complementary and will reinforce one another in many ways. I'm excited about the utility that we're seeing, and I think just building those more utility daily use cases is what we're really all excited about, and embedding crypto in more day-to-day transactions and bringing a billion people on chain.
Right. That's
Lots to come.
You're absolutely right, and the AI thing is something super interesting, not perhaps what AI can do for crypto, but what crypto or blockchain can do for AI-
Exactly
is very interesting. Alesia, thank you so much. I wish we had more time, but thank you again for coming.
Thank you.
Great discussion.