Okay, everyone, thank you. Thank you for joining us. We're going to get started. I'm Michael Infante. I'm an equity analyst covering fintech here at Morgan Stanley. I'm very pleased to be joined by Alesia Haas of Coinbase, their Chief Financial Officer. Before we get started, I just have a quick safe harbor statement to read. 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 measures 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 as a substitute for GAAP financial measures. So, Alesia.
Thank you for doing that.
Thank you again for joining us. I just wanted to start on the policy and the regulatory front, just given how topical it is. The new administration seems to be pro-crypto, of course, and embracing the sector, and we now have the most pro-crypto Congress in history. What does this mean for Coinbase, and how should we be thinking about some of the short-term impacts associated with the new administration in the U.S., and when are you expecting new legislation?
A lot to unpack there. Well, before I get started, I just wanted to thank you for having me here today. This is our first conference in London. And the U.K. and the E.U. are our second largest markets. We are seeing amazing growth here. And so it's an area I'd love to spend a lot more time in with all of you. So thank you for coming to this discussion. U.S. regulatory clarity. All right, so those who follow us, we had three goals this year: driving revenue, driving utility, and driving regulatory clarity. And we've had a really productive election season. What's so important to know is that there were 52 million Americans who own or transact in crypto.
That through efforts with our PAC, as well as grassroots voters, we were able to have elections that drove a number of new congressmen and senators that have a very pro-crypto stance. That leaves us very optimistic that we're going to be able to get the regulatory clarity and comprehensive crypto legislation that we have long sought in the U.S. and that we think will broadly benefit our customers and all participants in the crypto ecosystem. Important to know that Europe is ahead of us. Europe has MiCA. We think that that's a really wonderful blueprint. We also have seen really thoughtful bills that were drafted in the prior administration, FIT 21, that passed the House that does provide for comprehensive crypto legislation. That is what we're hopeful to see. It will have to start again in the next administration.
But we think that that is the first building block. In addition, we think we'll get stablecoin legislation in the U.S., which is critical just given the recent stablecoin growth and broad adoption that we're seeing in that space. That is different than, I think, what we think of as legislation for the crypto commodities, Bitcoin, Ethereum, and the long tail of crypto assets. Stablecoins are sort of an umbrella category in and of themselves. And so we think we're just going to see that momentum. And I think we'll get into more discussions about what that momentum means to our products, to our customers. Maybe we'll follow up with more discussion on that.
Oh, that's great. I guess when I think about regulatory clarity, it can obviously mean several things, right? What do you think from an operational perspective that that regulatory clarity will unlock and enable for Coinbase?
Okay. We have seen a chilling effect on innovation and participation in the U.S. with the stance of how the SEC was regulating by enforcement. One of the analogies that Brian, our CEO, likes to give is, let's pretend you're a young developer. You just graduated college. You've started your first crypto startup. And you call home and say, oh, mom and dad, I got a Wells notice from the SEC. I'm getting sued by the largest U.S. regulator. How do you feel if you're a venture investor and your seed round or your Series A went to funding all legal expenses and there's no product and development because all you're doing is spending money with law firms? It is not the right allocation of capital of where the interest needs to be. And so we have seen a chilling effect on developer participation.
And when you look at the map of where developers are going, they have been leaving the U.S. in great numbers. And so we think this will bring back venture checks, developers into the U.S. ecosystem and the focus on product development versus on fighting legal battles. That's the first thing that we think it will unlock: innovation and development. Second is, we think this will unlock banking relationships. So there's also been a chilling effect on banking relationships. And banking relationships are key because we need the ability to then come in and out of crypto. So fiat on-ramps and off-ramps, having multiple currencies around the world enable you to get in and out of crypto will create more penetration, more access, more availability in lots of markets. So banking rails gets unlocked.
Third, just the reduction of enforcement actions is going to enable clear rules, regulations that we all understand. What is a commodity? What is a security? What is a currency? This is technology that underpins all sorts of assets, and we do think there's going to be security tokens, commodity tokens, currency tokens, NFTs, art tokens. I mean, we're going to see just a preponderance of new assets put on crypto rails. And each of those should fall under different jurisdictional frameworks, different regulatory frameworks, but we need that taxonomy. We need to be able to talk about first principles, how these things can and should be regulated. And we do believe those doors will open in this new administration to have those productive conversations. With that clarity, then, we think we see broad new capital come into the space.
We do know that institutions have been sitting on the sidelines waiting for clarity. We can see that with the ETF approval. When ETFs were first approved in January and then July of this year, what you saw is just broad new capital coming into the space. These have been the fastest growing ETF categories of any ETF in time. Billions and billions and billions of dollars of net new inflows. What that had to Coinbase is then we also saw increase in trading volume on our platform. We grew the concentration of Bitcoin and Ethereum trading on our own platform. It just brought in more activity, more capital to the space. We think that regulatory capital, I'm sorry, regulatory clarity continues to unlock that participation.
And what we then see when price goes up, when volume goes up, institutions come in and then retail comes in. And so it's just a flywheel of activity that we think we'll be able to generate. So new products, new developers, new capital, banking partners. We just think that regulatory clarity will kind of unlock the entire ecosystem.
Very helpful. With that regulatory clarity, of course, many companies are increasingly eager to get into crypto. Some recent examples include Stripe's acquisition of Bridge and Charles Schwab CEO's saying that they will get into spot crypto trading once they do have that regulatory clarity. So how do you think about the competitive landscape for Coinbase and how are you preparing for more competition?
We are welcoming it with open arms, and that sounds trite. I recognize that, but we do believe, and we can go back to the ETF example, new market entrance. There was a lot of concern that that would cannibalize our revenue, that we would just see retail trading shift from our own platform into the ETFs, and we did not see that at all. We just saw growth. This is a new technology, a new industry, and we do believe that the influx of competition will bring in a growing market, bring in new capital, bring in new investors, and so just like the early days of the internet, where you saw dot-com startups, for those of you who are old enough to remember the dot-com days, and you just had these little internet native companies.
And then you saw traditional companies say, oh, I need an internet strategy. I will create an online presence. And they started to invest in their brick and mortar and their internet presence. The online companies who were devoting all their resources, a lot failed. But then you got the behemoths that we have today building on this new technology and this new stack. So we think that we're going to see growth of the entire industry. And we think that us being a crypto native company who has spent the last decade plus really understanding how to operate on crypto rails, this is new innovation at the rails. This is not fintech innovating at the UI layer. Like we're deep in the tech stack understanding this new payment rail. We know how to validate transactions on chain. And every chain is different. Bitcoin is different than Ethereum.
It's different than Solana. It's different than XRP. These are different chains and how they have executing transactions, how you safely custody those transactions. And so competitors will come in, but it will be gradual. You've seen new entrants start with Bitcoin as an example. That's the first one. It's the biggest market cap. I'm going to start there. And then their first step is that you can access that asset for investment, passive investment. You can't send it and receive it on chain. You can't wrap it and then lend it out in a DeFi protocol. You can't do anything with that Bitcoin, but you can get the passive returns on it. That is a first step. Our product suite is much deeper than that. We are integrated into on-chain protocols.
We enable you to transact in all of the ways that these assets were designed to transact in crypto. That is our platform's advantage. And that is what attracts customers to work with us: our history of security, our trust, our regulatory compliance when the rules are clear, and the breadth and depth of our product offering and our deep liquidity pools and our deep access where we have trading platforms. So competitors will come in. It will grow the market. We will see competition in spot areas. We already have competition in certain of our products. We think that we offer the depth and breadth that is going to be hard to catch up with.
And then the last thing I would say here is we have a developer product platform where we offer many of the things we built for ourselves as APIs and tools to enable others to build in this space. So we think there will be a growing opportunity for us to offer white-labeled solutions to other fintechs and providers who want to offer end crypto solutions to their customers, but rely on our back-end tooling to enable that.
Perfect. Very helpful. Maybe from a customer engagement perspective, we've obviously seen a surge in market activity. I'm curious what you're seeing in terms of retail engagement and maybe how that compares to the cycle that we experienced in 2021?
Yes. So it's important to say crypto has gone through many cycles. We have definitely seen historically peaks and troughs of crypto. They've been product-led in some cases, some case macro influences. In every case, the last peak was lower than the current peak. In every case, the last trough was lower than the current trough. But it's been growing steadily up to the right when you zoom out to the biggest picture, even though it goes through these periods. So yes, we saw significant volume and volatility in 2021. You could look back prior to that, 2017, look back prior to that, 2014. In this cycle, what we're seeing is a much bigger mix of institutional and retail adoption. Quarter to date, so October, November, quarter to date, our mix of trading on our platform looks very similar to it did in Q3.
That means the mix of people trading on the simple product versus the Advanced, the institutional versus the retail, stablecoin pairs versus fiat to crypto pairs. All of that mix looks largely similar to Q3. So what that indicates is we've just seen growth across the board. Like it's all growing kind of on par with each other. It hasn't been a big mix shift so far quarter to date in the fourth quarter. That's different than we saw necessarily in 2021 when you saw a lot of retail growth accelerating beyond institutional growth. I think it demonstrates the maturity of the market. It's also so early to say. We've had three weeks now post or four weeks post-election. So these things can move quickly. But broadly, quarter to date, we've seen growth in all categories and are pleased to see that adoption.
Perfect.
The last thing I want to say there, what's important to note here is it's also been a combination of net new users to the space and reactivated dormant users. So what we've typically seen in retail is people come in, they buy, they have hodling strategies. They just hold that asset in their portfolio and seek to watch the long-term gains. And then when you see volatility in markets pick up, they reactivate and come into their accounts. And so we're definitely seeing that same wave of behavior of reactivation as well as net new user acquisition in these types of markets.
Great. Maybe switching gears to product. There have been a lot of stablecoin announcements recently, including that of Binance and Circle. I know we spoke about competition earlier, but how are you thinking about competition in the stablecoin space specifically and what you think differentiates USDC?
Stablecoins are my favorite project right now. Let me give a big picture, then I'm going to zoom in to Coinbase specifically, and I'll touch on Circle and Binance within that conversation. So, stablecoins, they're in their moment right now, where we're seeing broad adoption, and you're right. We've seen a number of new projects being announced to come into this space. They've seen the benefits of the speed of the blockchains, the instant settlement, and the adoption that we've seen with USDC and that opportunity, so you've seen many new partnerships become announced. We think that what it takes to win in stablecoins, though, is depth of liquidity, user adoption, broad participation in the ecosystem. I think that you're going to see things like small closed loops. Think about. We see lots of payment networks today that are very small and closed loop.
But the big open loop ones are when we're using currencies where I can take my dollar and I can spend it at 20 merchants or I can send it to anybody and they accept it as a dollar. That's different than, for example, my Venmo account where I can only send it to anybody that has Venmo and it's in a very closed loop system. We have long believed that stablecoins need to be an open loop system, that we need to create broad adoption where lots of people can all participate in the same network. And that's what we sought to do with USDC. We partnered with USDC with Circle in the early days back in 2018 to create that more open loop. We didn't want to create our own stablecoin and have it just a Coinbase coin or have it just be something unique to our platform.
We are incredibly pleased to see the news that Circle has entered into a new relationship with Binance today to drive that adoption as Binance is a large global player that will be able to offer USDC in markets that we don't have big footprints in today. We're, as I mentioned at the opening, we're largely a U.S. player. We have a significant presence in the U.K. and Europe, but we have not grown around the world. And so I think it will be complementary to build USDC adoption into many markets. This was long contemplated in the commercial arrangement that we have with Circle. So we entered into a new commercial arrangement with Circle in 2023 that contemplated the addition of new partners. And so we're just pleased to see this next step because we think it will grow the overall market cap, in which case everyone benefits.
It's important to note this doesn't change our own commercial relationship with Circle. We have a commercial arrangement where we earn 100% of the revenue for USDC that we hold on our platform, and then we earn 50% of the off-platform revenue. Any change to those economics would require consent by Coinbase to change that economic arrangement, and we did make a concession in this case to give some of that off-platform share to Binance, which we think is the net benefit of the overall ecosystem to grow market cap.
That's great context. How about derivatives? Really big market opportunity. What are you seeing and doing there, and how do you think regulatory clarity will serve as a catalyst for that business?
Derivatives in crypto represent roughly 75% of global trading volume. We've long been dominant in spot trading. And so our opportunity then is to grow into the derivative aspect of this. Interesting, this is one of the areas where regulatory clarity is not needed because derivatives are a well-understood financial product in most major markets where the regulations are actually quite clear. In the U.S., you need licenses from the CFTC. In Europe, it's a MiFID license and so on and so forth. In other countries, there's very clear standards for derivative trading. So we have gone down the path of obtaining those licenses. We launched the U.S. derivatives product last year, compliant with CFTC requirements. We run that through very standard processes that any other derivatives platform may offer.
We closed our MiFID acquisition in the third quarter and are in the process of operationalizing that platform to be able to go to market in Europe to offer and market derivatives to retail holders. So this is an area where our growth is really much more straightforward in many ways. We are building liquidity in each of the trading pairs. We are adding new trading pairs. We are adding leverage. We are building out marketing programs and getting the licenses needed to really build out that global network. This is an area that I would also comment that what we talked about earlier with competition is just building markets and continuing to grow the overall ecosystem.
This is an area where we obviously have a very small share and we can eat into other shares by bringing a more compliant, transparent product offering to the market and think that we have this opportunity not only to grow it, but also to take share in a meaningful way.
Perfect. Last product question before we pivot to a few financial ones. I wanted to touch on Base, which is your Layer 2 blockchain. Similarly, on a really exciting growth trajectory, how do you think about the medium-term vision there and when we can start to see some more meaningful P&L contribution?
So our goal is not P&L right now with Base. Our goal is adoption. So Base is a Layer 2 solution. And what that means, just in case this is a new concept to anybody, is Base was built on top of Ethereum. Ethereum is the new rail, the new metal essentially to enable peer-to-peer payments and transaction system. Base makes things faster and cheaper. And so our goal with Base was to bring transactions on Base down to less than a penny and less than a second. And we set forth and achieved that in about a year. Now our goal with Base is now that we have this fast, cheap global transaction system, is to build tools to attract developers, those who are building applications, decentralized applications, to build that app on Base. We want to create the best developer tools.
We are so pleased to see that we have been really successful in this, that Base is now the number one L2 measured by transaction volume, measured by assets on Base, and measured by the exciting developer products that we see in the ecosystem have chosen Base as that home. By creating the best developer platform and encouraging those transactions to grow on Base, that will build the ecosystem of volume. Transactions with consumers on those end apps will transact in that app. That will drive Base volume. Base drives sequencer fees. That will drive revenue. Our goal, though, to scale Base is we need to continue to scale and bring down that cost. We think that that is just the key element of developer interest in Base. Reliable, secure, safe, fast, cheap. That is what's going to drive that interest with the best tooling.
So that developer community and that ecosystem is the focus on the near-term build. All of that will lead to long-term financial growth, and Base plays that critical part. It's just one more tool in that stack when you think about we have wallets. Wallets enable our customers to hold their assets and then see these new apps on Base and other protocols so that they have distribution. They have awareness. Base is the protocol in which they're building. USDC, then it could be the stablecoin that they're using in this, and so all of these products work together to create an ecosystem of transaction activity on-chain.
Very helpful. On some of the more recent financial trends, on your Q3 call, you talked about elevated stablecoin trading activity. Curious, is there anything you would call out just in terms of some of the quarter-to-date trends that you've seen?
Yeah, let me touch on quarter-to-date trends in a couple of ways. So one, as I mentioned, through November, so quarter to date, the mix is largely the same as Q3. So the mix, as I mentioned earlier, between our Advanced and our simple product, consumer and institutional, and the stable pairs versus the fiat to crypto. So materially all in line, just all growing in Q4 to date. I need to caution, crypto moves very quickly. I'm not saying what December will be. I don't know what December will be, but what we've seen through November is very consistent. Broadly, other trends, though, with crypto market cap up, with volatility up, we are seeing all of our variable or very market-driven revenue streams and expenses trend to the high side.
subscription and services products, that revenue is going to come at the high end or exceed that area. So we're going to come into the high or exceed subscription and services. We are also going to come in at the high or exceed sales and marketing specifically as we're seeing unique opportunities to onboard new customers in this market dynamic that meet our ROI. And we want to continue to invest to meet the market that we see today.
Very helpful. Given the strength we're seeing in crypto markets and the expectations for greater levels of competition, you just alluded to the fact that you're sales and marketing opportunities. How are you thinking about expenses next year? And are there any sort of callouts you would make just in terms of where you're allocating capital?
too early for our 2025 guidance, but I want to share with you that we will continue to be very disciplined. So we really learned our lessons in 2021 at scaling too quickly. So not only from the expense space, but also from the culture standpoint. So we will be continuing to invest against products that are seeing growth, that we're seeing new market opportunities. As we shared on the Q3 call, we're really pleased that the new countries that we launched in 2023 are starting to cover their direct costs. And so they've really matured into that next category. So we may see us launch new markets to kind of create a new cohort of countries that we're going to invest in. But we're going to be adding fixed costs in a very disciplined way. And we will scale our variable costs along with the market opportunity.
Everything that's going to move with the market will move with the market. If we see market growth, you could see that expense base grow. On the fixed side, we'll be disciplined and make sure that we feel very confident that these are going to be strong ROI investments.
Very helpful. How about from a capital allocation perspective? You clearly have significant market cap, lots of cash, and you also announced a stock buyback. But how should we be thinking about M&A and your sort of interest in leveraging your financial position to drive growth?
Absolutely. We're very focused on leveraging our balance sheet to drive growth. So we've long been acquisitive. If you look at our story over the last five years, you've seen that most of our acquisitions have been adding either new product capability, new licenses, and/or have been tuck-ins where we're adding customers and assets to the platform. And we really look to use M&A to accelerate our growth plans and our product roadmap in those three ways. So I mentioned the MiFID license earlier. We've been doing a small number of tuck-in acquisitions to acquire key talent to build out Base and our on-chain products and services.
I think that we will look to be strategic to see how we can use our strong stock as well as the cash that we've been able to generate to continue to fill out that roadmap, fill out the world picture that we're trying to achieve in each of our product categories. We make sure that they hit our product roadmap goals, make sure that they hit our ROI goals. We're going to be pretty prudent in these deals, but we do have the ambition to be able to do so. Then the stock buyback, I just want to touch on that quickly. We designed that to be opportunistic. While we hope to deploy the cash through growth, we also want to recognize that we want to be mindful of dilution and have this available to return capital through stock buybacks if appropriate.
Very helpful. Rounding out the discussion, it feels pretty safe to assume that some of the more punitive regulatory outcomes across the industry have largely been de-risked and optimism across the industry is clearly accelerating. As you look ahead to 2025, where do you envision the most potential upside to come in your business, or what opportunity do you think may not be fully appreciated in the current landscape?
As we talked about earlier, I do think regulatory clarity is the current upside. I think if we get comprehensive crypto legislation, that will unlock the capital and unlock the innovation that we're really hoping to see. So that in and of itself, I think, is an unlock. But we're really pleased with the product roadmap and the adoption that we've had, seeing more developers on Base, finding those utility plays, starting to experiment with payments, starting to see that growth in derivatives that we talked about, and just finding if we see the clarity, the developer community come back and really build new innovative apps and what that will mean to broader adoption, more coins that we could list. I think that we're going to see just a lot of momentum in the overall ecosystem in 2025, and we're excited to be part of it.
Perfect. I think that's a great place to end. Thank you so much for joining us today.
Thank you. Thanks all for coming.
Okay, everyone, thank you. Thank you for joining us. We're going to get started. I'm Michael Infante. I'm an equity analyst covering fintech here at Morgan Stanley. I'm very pleased to be joined by Alesia Haas of Coinbase, their Chief Financial Officer. Before we get started, I just have a quick safe harbor statement to read. 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 measures 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 as a substitute for GAAP financial measures. So, Alesia.
Thank you for doing that.
Thank you again for joining us. I just wanted to start on the policy and the regulatory front, just given how topical it is. The new administration seems to be pro-crypto, of course, and embracing the sector. And we now have the most pro-crypto Congress in history. What does this mean for Coinbase, and how should we be thinking about some of the short-term impacts associated with the new administration in the U.S., and when are you expecting new legislation?
A lot to unpack there. Before I get started, I just wanted to thank you for having me here today. This is our first conference in London, and the U.K. and the E.U. are our second largest markets. We are seeing amazing growth here, and so it's an area I'd love to spend a lot more time in with all of you. Thank you for coming to this discussion. U.S. regulatory clarity. All right, so those who follow us, we had three goals this year: driving revenue, driving utility, and driving regulatory clarity. We've had a really productive election season.
What's so important to know is that there were 52 million Americans who own or transact in crypto, and that through efforts with our PAC as well as grassroots voters, we were able to have elections that drove a number of new congressmen and senators that have a very pro-crypto stance. And that leaves us very optimistic that we're going to be able to get the regulatory clarity and comprehensive crypto legislation that we have long sought in the U.S. and that we think will broadly benefit our customers and all participants in the crypto ecosystem. Important to know that Europe is ahead of us. Europe has MiCA, and we think that that's a really wonderful blueprint. We also have seen really thoughtful bills that were drafted in the prior administration, FIT 21, that passed the House that does provide for comprehensive crypto legislation.
So that is what we're hopeful to see. It will have to start again in the next administration, but we think that that is the first building block. In addition, we think we'll get stablecoin legislation in the U.S., which is critical just given the recent stablecoin growth and broad adoption that we're seeing in that space. That is different than I think what we think of as legislation for the crypto commodities, Bitcoin, Ethereum, and the long tail of crypto assets. Stablecoins are sort of an umbrella category in and of themselves. And so we think we're just going to see that momentum. And I think we'll get into more discussions about what that momentum means to our products, to our customers. Maybe we'll follow up with more discussion on that.
Oh, that's great. I guess when I think about regulatory clarity, it can obviously mean several things, right? What do you think from an operational perspective that that regulatory clarity will unlock and enable for Coinbase?
Okay. We have seen a chilling effect on innovation and participation in the U.S. with the stance of how the SEC was regulating via enforcement. One of the analogies that Brian, our CEO, likes to give is, let's pretend you're a young developer. You just graduated college, you've started your first crypto startup, and you call home and say, "Oh, mom and dad, I got a Wells notice from the SEC. I'm getting sued by the largest U.S. regulator." How do you feel if you're a venture investor and your seed round or your Series A went to funding all legal expenses and there's no product in development because all you're doing is spending money with law firms? It is not the right allocation of capital of where the interest needs to be. And so we have seen a chilling effect on developer participation.
When you look at the map of where developers are going, they have been leaving the U.S. in great numbers. We think this will bring back venture checks, developers into the U.S. ecosystem and the focus on product development versus on fighting legal battles. That's the first thing that we think it will unlock: innovation and development. Second is, we think this will unlock banking relationships. There's also been a chilling effect on banking relationships. Banking relationships are key because we need the ability to then come in and out of crypto. Fiat on-ramps and off-ramps, having multiple currencies around the world enable you to get in and out of crypto will create more penetration, more access, more availability in lots of markets. Banking rails gets unlocked.
Third, just the reduction of enforcement actions is going to enable clear rules, regulations that we all understand. What is a commodity? What is a security? What is a currency? This is technology that underpins all sorts of assets, and we do think there's going to be security tokens, commodity tokens, currency tokens, NFTs, art tokens. I mean, we're going to see just a preponderance of new assets put on crypto rails, and each of those should fall under different jurisdictional frameworks, different regulatory frameworks, but we need that taxonomy. We need to be able to talk about first principles, how these things can and should be regulated, and we do believe those doors will open in this new administration to have those productive conversations. With that clarity then, we think we see broad new capital come into the space.
We do know that institutions have been sitting on the sidelines waiting for clarity. We can see that with the ETF approval so when ETFs were first approved in January and then July of this year, what you saw is just broad new capital coming into the space. These have been the fastest growing ETF categories of any ETF in time. Billions and billions and billions of dollars of net new inflows, and what that had to Coinbase is then we also saw increase in trading volume on our platform. We grew the concentration of Bitcoin and Ethereum trading on our own platform so it just brought in more activity, more capital to the space, and we think that regulatory capital, I'm sorry, regulatory clarity continues to unlock that participation.
What we then see when price goes up, when volume goes up, institutions come in and then retail comes in. It's just a flywheel of activity that we think we'll be able to generate. New products, new developers, new capital, banking partners. We just think that regulatory clarity will kind of unlock the entire ecosystem.
Very helpful. With that regulatory clarity, of course, many companies are increasingly eager to get into crypto. Some recent examples include Stripe's acquisition of Bridge and Schwab CEO's saying that they will get into spot crypto trading once they do have that regulatory clarity. So how do you think about the competitive landscape for Coinbase and how are you preparing for more competition?
We are welcoming it with open arms. And that sounds trite, and I recognize that. But we do believe, and we can go back to the ETF example, new market entrants. There was a lot of concern that that would cannibalize our revenue, that we would just see retail trading shift from our own platform into the ETFs, and we did not see that at all. We just saw growth. This is a new technology, a new industry, and we do believe that the influx of competition will bring in a growing market, bring in new capital, bring in new investors.
And so just like the early days of the internet, where you saw dot-com startups, for those of you who are old enough to remember the dot-com days, and you just had these little internet native companies, and then you saw traditional companies say, "Oh, I need an internet strategy. I will create an online presence." And they started to invest in their brick and mortar and their internet presence. The online companies who were devoting all their resources, a lot failed, but then you got the behemoths that we have today building on this new technology and this new stack. So we think that we're going to see growth of the entire industry, and we think that us being a crypto-native company who has spent the last decade plus really understanding how to operate on crypto rails. This is new innovation at the rails.
This is not fintech innovating at the UI layer. Like we're deep in the tech stack understanding this new payment rail. We know how to validate transactions on-chain, and every chain is different. Bitcoin is different than Ethereum, is different than Solana, is different than XRP. These are different chains and how they have executing transactions, how you safely custody those transactions. And so competitors will come in, but it will be gradual. You've seen new entrants start with Bitcoin as an example. That's the first one. It's the biggest market. I'm going to start there. And then their first step is that you can access that asset for investment, passive investment. You can't send it and receive it on-chain. You can't wrap it and then lend it out in a DeFi protocol. You can't do anything with that Bitcoin, but you can get the passive returns on it.
That is a first step. Our product suite is much deeper than that. We are integrated into on-chain protocols. We enable you to transact in all of the ways that these assets were designed to transact in crypto. That is our platform's advantage, and that is what attracts customers to work with us. Our history of security, our trust, our regulatory compliance when the rules are clear, and the breadth and depth of our product offering and our deep liquidity pools and our deep access where we have trading platforms. So competitors will come in. It will grow the market. We will see competition in spot areas. We already have competition in certain of our products. We think that we offer the depth and breadth that is going to be hard to catch up with.
And then the last thing I would say here is we have a developer product platform where we offer many of the things we built for ourselves as APIs and tools to enable others to build in this space. So we think there will be a growing opportunity for us to offer white-labeled solutions to other fintechs and providers who want to offer end-to-end crypto solutions to their customers, but rely on our back-end tooling to enable that.
Perfect. Very helpful. Maybe from a customer engagement perspective, we've obviously seen a surge in market activity. I'm curious what you're seeing in terms of retail engagement and maybe how that compares to the cycle that we experienced in 2021?
Yes. So it's important to say crypto has gone through many cycles. We've definitely seen historically peaks and troughs of crypto. They've been product-led in some cases, some case macro influences. In every case, the last peak was lower than the current peak. In every case, the last trough was lower than the current trough, but it's been growing steadily up to the right when you zoom out to the biggest picture, even though it goes through these periods. So yes, we saw significant volume and volatility in 2021. If you look back prior to that, 2017, look back prior to that, 2014. In this cycle, what we're seeing is a much bigger mix of institutional and retail adoption. Quarter to date, so October, November, quarter to date, our mix of trading on our platform looks very similar to it did in Q3.
That means the mix of people trading on the simple product versus the Advanced, the institutional versus the retail, stablecoin pairs versus fiat to crypto pairs. All of that mix looks largely similar to Q3. So what that indicates is we've just seen growth across the board. Like it's all growing kind of on par with each other. It hasn't been a big mix shift so far quarter to date in the fourth quarter. That's different than we saw necessarily in 2021 when we saw a lot of retail growth accelerating beyond institutional growth. I think it demonstrates the maturity of the market. It's also so early to say. We've had three weeks now post or four weeks post-election. So these things can move quickly. But broadly, quarter to date, we've seen growth in all categories and are pleased to see that adoption.
Perfect.
The last thing I want to say there, what's important to note here is it's also been a combination of net new users to the space and reactivated dormant users, so what we've typically seen in retail is people come in, they buy, they have hodling strategies, they just hold that asset in their portfolio and seek to watch the long-term gains, and then when you see volatility in markets pick up, they reactivate and come into their accounts, and so we're definitely seeing that same wave of behavior of reactivation as well as net new user acquisition in these types of markets.
Great. Maybe switching gears to product. There have been a lot of stablecoin announcements recently, including that of Binance and Circle. I know we spoke about competition earlier, but how are you thinking about competition in the stablecoin space specifically and what you think differentiates USDC?
Stablecoins are my favorite project right now. Let me give a big picture then I'm going to zoom out to Coinbase specifically and then I'll touch on Circle and Binance within that conversation, so stablecoins have seen. They're in their moment right now, where we're seeing broad adoption, and you're right, we've seen a number of new projects being announced to come into this space. They've seen the benefits of the speed of the blockchains, the instant settlement and the adoption that we've seen with USDC and that opportunity, so you've seen many new partnerships become announced. We think that what it takes to win in stablecoins though is depth of liquidity, user adoption, broad participation in the ecosystem. I think that you're going to see things like small closed loops.
Think about, we see lots of payment networks today that are very small and closed loop, but the big open loop ones are when we're using currencies where I can take my dollar and I can spend it at 20 merchants or I can send it to anybody and they accept it as a dollar. That's different than, for example, my Venmo account where I can only send it to anybody that has Venmo and it's in a very closed loop system. We have long believed that stablecoins seem to be an open loop system, that we need to create broad adoption where lots of people can all participate in the same network, and that's what we sought to do with USDC. We partnered with Circle in the early days back in 2018 to create that more open loop.
We didn't want to create our own stablecoin and have it just a Coinbase coin or have it just be something unique to our platform. So we are incredibly pleased to see the news that Circle has entered into a new relationship with Binance today to drive that adoption as Binance is a large global player that will be able to offer USDC in markets that we don't have big footprints in today. We're, as I mentioned at the opening, we're largely a U.S. player. We have a significant presence in the U.K. and Europe, but we have not grown around the world, and so I think it'll be complementary to build USDC adoption into many markets. This was long contemplated in the commercial arrangement that we have with Circle, so we entered into a new commercial arrangement with Circle in 2023 that contemplated the addition of new partners.
And so we're just pleased to see this next step because we think it will grow the overall market cap, in which case everyone benefits. It's important to note this doesn't change our own commercial relationship with Circle. We have a commercial arrangement where we earn 100% of the revenue for USDC that we hold on our platform, and then we earn 50% of the off-platform revenue. Any change to those economics would require consent by Coinbase to change that economic arrangement. And we did make a concession in this case to give some of that off-platform share to Binance, which we think is the net benefit of the overall ecosystem to grow market cap.
That's great context. How about derivatives? Really big market opportunity. What are you seeing and doing there? And how do you think regulatory clarity will serve as a catalyst for that business?
So derivatives in crypto represent roughly 75% of global trading volume. We've long been dominant in spot trading. And so our opportunity then is to grow into the derivative aspect of this. Interesting, this is one of the areas where regulatory clarity is not needed because derivatives are a well-understood financial product in most major markets where the regulations are actually quite clear. In the U.S., you need licenses from the CFTC. In Europe, it's a MiFID license and so on and so forth. In other countries, there's very clear standards for derivative trading. So we have gone down the path of obtaining those licenses. We launched the U.S. derivatives product last year, compliant with CFTC requirements. We run that through very standard processes that any other derivatives platform may offer.
We closed our MiFID acquisition in the third quarter and are in the process of operationalizing that platform to be able to go to market in Europe to offer and market derivatives to retail holders, so this is an area where our growth is really much more straightforward in many ways. We are building liquidity in each of the trading pairs. We are adding new trading pairs. We are adding leverage. We are building out marketing programs and getting the licenses needed to really build out that global network. This is an area that I would also comment that what we talked about earlier with competition is just building markets and continuing to grow the overall ecosystem.
This is an area where we obviously have a very small share and we can eat into other shares by bringing a more compliant, transparent product offering to the market and think that we have this opportunity not only to grow it, but also to take share in a meaningful way.
Perfect. Last product question before we pivot to a few financial ones. I wanted to touch on Base, which is your Layer 2 blockchain. Similarly, on a really exciting growth trajectory, how do you think about the medium-term vision there and when we can start to see some more meaningful P&L contribution?
Our goal is not P&L right now with Base. Our goal is adoption. Base is a Layer 2 solution. What that means, just in case this is a new concept to anybody, is Base was built on top of Ethereum. Ethereum is the new rail, the new metal essentially to enable peer-to-peer payments and transaction system. Base makes things faster and cheaper. Our goal with Base was to bring transactions on Base down to less than a penny and less than a second. We set forth and achieved that in about a year. Now our goal with Base is, now that we have this fast, cheap global transaction system, to build tools to attract developers, those who are building applications, decentralized applications, to build that app on Base. We want to create the best developer tools.
We are so pleased to see that we have been really successful in this, that Base is now the number one L2, measured by transaction volume, measured by assets on Base, and measured by the exciting developer products that we see in the ecosystem have chosen Base as that home. By creating the best developer platform and encouraging those transactions to grow on Base, that will build the ecosystem of volume. Transactions with consumers on those end apps will transact in that app. That will drive Base volume. Base drives sequencer fees. That will drive revenue. Our goal though is to scale Base as we need to continue to scale and bring down that cost. We think that that is just the key element of developer interest in Base. Reliable, secure, safe, fast, cheap. That is what's going to drive that interest with the best tooling.
So that developer community and that ecosystem is the focus on the near-term build. All of that will lead to long-term financial growth, and Base plays that critical part. It's just one more tool in that stack when you think about, we have wallets. Wallets enable our customers to hold their assets and then see these new apps on Base and other protocols so that they have distribution. They have awareness. Base is the protocol in which they're building. USDC, then it could be the stablecoin that they're using in this, and so all of these products work together to create an ecosystem of transaction activity on-chain.
Very helpful. On some of the more recent financial trends, on your Q3 call, you talked about elevated stablecoin trading activity. Curious, is there anything you would call out just in terms of some of the quarter-to-date trends that you've seen?
Yeah, let me touch on quarter-to-date trends in a couple of ways. So one, as I mentioned, through November, so quarter to date, the mix is largely the same as Q3. So the mix, as I mentioned earlier, between our Advanced and our simple product, consumer and institutional, and the stable pairs versus the fiat to crypto. So materially all in line, just all growing in Q4 to date. I need to caution, crypto moves very quickly. I'm not saying what December will be. I don't know what December will be, but what we've seen through November is very consistent. Broadly, other trends though, with crypto market cap up, with volatility up, we are seeing all of our variable or very market-driven revenue streams and expenses trend to the high side.
subscription and services products, that revenue is going to come at the high end or exceed that area. So we're going to come into the high or exceed subscription and services. We are also going to come in at the high or exceed sales and marketing specifically as we're seeing unique opportunities to onboard new customers in this market dynamic that meet our ROI. And we want to continue to invest to meet the market that we see today.
Very helpful. Given the strength we're seeing in crypto markets and the expectations for greater levels of competition, you just alluded to the fact that you're sales and marketing opportunities. How are you thinking about expenses next year? And are there any sort of callouts you would make just in terms of where you're allocating capital?
too early for our 2025 guidance, but I want to share with you that we will continue to be very disciplined. We really learned our lessons in 2021 at scaling too quickly. Not only from the expense space, but also from the culture standpoint. We will be continuing to invest against products that we're seeing growth, that we're seeing new market opportunities. As we shared on the Q3 call, we're really pleased that the new countries that we launched in 2023 are starting to cover their direct costs. They've really matured into that next category. We may see us launch new markets to kind of create a new cohort of countries that we're going to invest in, but we're going to be adding fixed costs in a very disciplined way, and we will scale our variable costs along with the market opportunity.
So everything that's going to move with the market will move with the market. And if we see market growth, you could see that expense base grow. But on the fixed side, we'll be disciplined and make sure that we feel very confident that these are going to be strong ROI investments.
Very helpful. How about from a capital allocation perspective? You clearly have significant market cap, lots of cash, and you also announced a stock buyback. But how should we be thinking about M&A and your sort of interest in leveraging your financial position to drive growth?
Absolutely. We're very focused on leveraging our balance sheet to drive growth. So we've long been acquisitive. If you look at our story over the last five years, you've seen that most of our acquisitions have been adding either new product capability, new licenses, and/or have been tuck-ins where we're adding customers and assets to the platform. And we really look to use M&A to accelerate our growth plans and our product roadmap in those three ways. So I mentioned the MiFID license earlier. We've been doing a small number of tuck-in acquisitions to acquire key talent to build out Base and our on-chain products and services.
And I think that we will look to be strategic to see how we can use our strong stock as well as the cash that we've been able to generate to continue to fill out that roadmap, fill out the world picture that we're trying to achieve in each of our product categories. So we make sure that they hit our product roadmap goals, make sure that they hit our ROI goals. We're going to be pretty prudent in these deals, but we do have the ambition to be able to do so. And then the stock buyback, I just want to touch on that quickly. We designed that to be opportunistic. While we hope to deploy the cash through growth, we also want to recognize, so we want to be mindful of dilution and have this available to return capital through stock buybacks if appropriate.
Very helpful. Rounding out the discussion, it feels pretty safe to assume that some of the more punitive regulatory outcomes across the industry have largely been de-risked and optimism across the industry is clearly accelerating. As you look ahead to 2025, where do you envision the most potential upside to come in your business, or what opportunity do you think may not be fully appreciated in the current landscape?
As we talked about earlier, I do think regulatory clarity is the current upside. I think if we get comprehensive crypto legislation, that will unlock the capital and unlock the innovation that we're really hoping to see. So that in and of itself, I think is an unlock. But we're really pleased with the product roadmap and the adoption that we've had, seeing more developers on Base, finding those utility plays, starting to experiment with payments, starting to see that growth in derivatives that we talked about, and just finding if we see the clarity, the developer community come back and really build new innovative apps and what that will mean to broader adoption, more coins that we could list. I think that we're going to see just a lot of momentum in the overall ecosystem in 2025, and we're excited to be part of it.
Perfect. I think that's a great place to end. Thank you so much for joining us today.
Thank you. Thanks all for coming.