All right. Well, wonderful. Thank you for our 1:00 P.M. session. Delighted to be joined by, Alesia Haas, the CFO of Coinbase. Thank you for joining us.
Thank you, Lisa, for having me.
Yeah. No, great.
Delighted to be here.
Yes. Very happy to have you here. I will say, I do point out to everyone quite frequently that Coinbase is my best performing stock in my coverage year-to-date by a wide margin. Even on a one-year basis, it's in the middle of the pack, I will point that out. Good stuff. Look, let's dive in. We do have Oh, yeah, safe harbor statement up, maybe in a minute, let's flip from that to the QR code. Yeah. Because Alesia is taking questions from the group as well, if you guys wanna do the fancy QR code approach. Let's dive in. Look, crypto's had a pretty tough last 12 months. It goes in cycles. We know that.
Coinbase, you know, though, was founded back in 2012, has gone through several of these quite severe crypto cycles. Can you just help by baselining with everyone, what's the state of the crypto industry right now?
Sure. Thanks for the question. Look, I think more companies than crypto have gone through a hard year. It's not like the banking sector is having an easy go right now, and non-profitable tech didn't survive too well over the last year either. Crypto, interestingly, through the very low interest rate environment, through COVID stimulus, started to track and be much more correlated with high growth, high risk stocks, high beta stocks, started to be correlated with the broader economy. Before that, you wouldn't see any correlation between, like, the Nasdaq and Bitcoin. You started to see this tight correlation. Now it's broken again. There's just been an interesting macro trend of crypto, and crypto traded off as we move from a risk- off mindset.
We had two black swan events in 2022 that really exposed the poor risk management practices that were happening in crypto. I like to say that these are just poor risk management. It wasn't crypto-specific. We had Terra LUNA, which was a algorithmic stablecoin that had bad asset liability management, and no different than a bank run, actually. They just had a run on the outflows, and the assets weren't worth what they thought they were worth, and it depegged and collapsed. When that collapsed, it precipitated a deleveraging event, and it caused Bitcoin collateral value to come down. Companies that had too much exposure then were over-levered, they then subsequently failed. We have the fraud of FTX in the fall. So two black swan events. What I would note is that crypto is incredibly resilient.
You mentioned that Coinbase has performed well year to date. Bitcoin has performed incredibly well year to date. More than that, just looking at the price, what you actually see is an increase in developer activity. You see an increase in Americans holding crypto as an asset. Now, one in five Americans hold crypto, and that has held steady throughout this incredible volatility. What you see in crypto, as you mentioned, price cycles, and I'm glad you did 'cause we talk a lot about this, is despite these two black swan events, I mean, massive fraud, big deleveraging, poor risk management, but the trough is still higher than the last trough. The peaks are higher than the last trough.
You just see there is volatility, but when you smooth it out and look at it at a long scale over time, it has been steadily rising up into the right with more utility, more use cases, more developers. That is the trend that we really look to and are excited about.
All right. Talk a little bit about how, especially now coming off this cycle, maybe looking ahead into the next cycle, many investors think of Coinbase as a brokerage or an exchange for crypto assets, whereas in your investor materials and on your website, you always describe Coinbase as a platform for accessing the crypto economy. Can you just talk a bit about the positioning of Coinbase and really how investors should think about Coinbase?
Absolutely. We think of this as an evolution. The first pillar of our strategy is that crypto is an asset, and that is the products and services that you've seen us build to date, which is: How do you buy crypto? How do you store it safely? How do you trade it? That gives rise to the products that look like a trading platform or an exchange, the ability to custody an asset, the ability to act like a broker and find ways to engage. What we're rapidly moving to and hoping emerges very soon is phase two. We have crypto now as an asset. We can buy it. We can hold it. We can do all these things. We're gonna move to crypto as updating the financial system. We think of crypto technology as technology that can make financial services better.
Phase two is then really about utility, updating existing financial products. Things like this are thinking about, for example, we launched Base, which is a Layer 2 solution. Think about, like, Ethereum as a protocol. The challenges with Ethereum today are the gas fee spike. Like, last couple weeks with Pepe, the meme coin, we saw, like, crazy gas prices. That's not good for, like, confirming transactions when all of a sudden your price is too variable. Layer 2 solutions are looking to drive down the cost of transactions getting confirmed and increase the speed. Our goal with Base as a Layer 2 solution, it's sitting on top of Ethereum, is really the ambition of getting to one second, $0.01 .
If you think about one payment rail that can universally, instantly settle any peer-to-peer, you know, B2B, B2C, intercompany transaction in a USD stablecoin for $0.01, one second, that is really interesting for use cases around global remittances, for an example, where with current global remittances, especially in long tail currencies, you're stitching together so many different banks and intermediaries, correspondent banks to actually settle a payment. This is an open access protocol that anybody can plug into globally. I think that this is next generation. How do we think about crypto making financial services products better? Staking is another interesting example. Staking is if you own an asset, you are validating transactions on a proof-of-stake network . That is what the purpose of your asset is doing.
Think about this, if more and more transactions are happening on that payment rail, on that protocol, you are earning and you are participating in that economy. This is what we talk about is crypto is permitting more people to be included in the financial system. You don't benefit necessarily directly if there's more transactions on the Visa network. You can if you own the stock, this is directly participating in the underlying protocol by the growth of this network, by just owning the asset and then getting these staking rewards. We think this is then financial inclusions, crypto making financial services better, participating more people in the economy. Third pillar is crypto as the new Web3, this is like how do we then think about crypto with decentralized identity?
How do we think about creators and content makers communicating directly with their fan base? You're seeing early examples of this with NFTs. Starbucks has an NFT program where they're giving NFTs to their customers. Starbucks has a huge loyalty program. They've got a 29 million member loyalty program, where today it's like any other loyalty program you're probably all members of. You get 10 coffees, you get one free or whatnot. This is now I get an NFT, I get exclusive rights to certain events. I can participate in unique ways, they can communicate with their members. Those NFTs can be traded, they have value. Maybe you decide like you're no longer gonna drink Starbucks, and that thing had value because you were like a diehard member, but now you can monetize that involvement.
Really just interesting. These are people are dabbling. Like, think about this as like the first wave of the internet, where, yes, Pets.com exists, you could buy pet food. It failed. We all now buy lots of things on Amazon that we weren't ready to do in 1999. These are early kind of indications. What we see in these waves of technology is you get these early startups, you learn something, then the next version comes out a little bit better and a little bit better. We think of pillar three as like the pinnings of the new Web3, is we're starting to see this benefit of like sending value online. We send data online all the time, but now it's sending value. What does that unlock? All right.
We're a platform underneath all that, creating the basic tools to access all of these pillars.
Yeah, I was gonna say. To maybe connect the dots a little bit, some of the you mentioned Base, you mentioned the staking products, yeah, what are the types of products and services and investments that Coinbase is making that support that, those like next horizon...
Visions, yeah.
as you're describing them.
We think of ourselves as the primary account that our users need in crypto. At your basic fundamental level, you need a place to hold crypto assets. These are different than holding dollars, different than holding securities, because these are bearer instruments, and so holding that private key material is really important. It's different. We offer a variety of ways to do that today. We offer a full custody solution where we are accountable. On the other spectrum, we offer a self-custody wallet where you are fully accountable for your private keys. In the middle, we offer something what we call our dapp wallet, where it's kind of a semi-custodial solution where we hold part of your key, you hold it, which means if you lose your key, we can recover it for you.
You have the benefit of interacting with decentralized applications, and you are in control, but you're not so in control that if you lose your key, you lose everything and then your money is lost to the ether. We're offering very different customer experiences that we can enable customers to participate in the economy. We're offering then what we think is really important is all of the on-ramps. Just like today, where you have the growth of text and email, you still have physical mail. It still exists, but we can print that mail, we can send it, we can scan it, we can do all sorts of things to bridge between these two worlds. Moving fiat to crypto, moving crypto back to fiat, moving crypto to crypto. We think those bridging technologies are really important because different end use cases require different applications.
Being a fiat on-ramp is really critical to us, and you see us building more and more of these access points to just connect the worlds and make sure that there's less friction as we move money through these ecosystems. Then we're building, frankly, just crypto-native technology. How do you confirm a transaction on a blockchain? We are a staking validator. How do you do transaction monitoring, which is super important for compliance reasons? We have unique tools and capabilities for that. Tools, infrastructure to enable crypto transactions is the core of our product suite.
All right. Let's talk about the revenue drivers. I could talk about the long-term vision all day, but you are the CFO, unfortunately. Let's talk
Let's dig in.
The revenue drivers of Coinbase. Let's focus first on what's historically been the primary revenue stream, that's the transaction revenues. First talk a bit about the relationship between transaction revenues and crypto assets. As crypto asset values have recovered, you've seen some.
Mm-hmm.
in your transaction revenues, sequentially this year. How should we generally think about what drives transaction revenues?
Today, and what has been the case for the last few years, is the biggest drivers of trading, which is in the phase of crypto as an asset, it's still speculation. What's driving speculative trading is no different than what drives speculative trading in other asset classes. It is price, it is volatility, and while we have seen price recovery, volatility is actually at four-year lows. We've seen it go down from Q4 to Q1. That is what is saying that transaction revenues have increased in part due to volume, in part due to changing in the pricing structures that we talked about in our letter. Volatility is not at the same level as it was on average in 2021 in 2022. You haven't seen that as the pickup.
I think then over time, our goal is to drive more utility so that then engagement, even in trading, is driven by need of these assets for other utility use cases, and it's not as tied to speculation and not as tied to price and volatility as it has been.
Mm-hmm. Mm-hmm. Good. Okay. Then S&S. Subscription services revenues, the diversification piece of Coinbase. They're 47% of total revenue in Q1. That's up from a single-digit % contribution just a couple of years ago, of course, some of that is because the transaction revenues have come down, but actually S&S has grown sequentially very consistently now for many, many quarters. What are the major services driving S&S? Then over a longer-term time horizon, how do you see that portfolio evolving?
I consider there's two families of revenue streams broadly in the Subscription and Services bucket. Broadly, family number one is revenues that we generate based on assets on our platform. At the core, safely storing assets is one of our key strengths that we've done now since our founding. We've been able to build revenue streams on top of just having the customer's asset. We can then offer staking as a service to enable customers to earn reward, where we provide a software service on top of the asset that they're already holding in their wallet. Custody is the product that we're monetizing by securely storing specifically institutional assets in a qualified custodian structure, in their own segregated address that they find value in, and they meet their qualified custodian requirements under their fund structures.
USDC is another example where we store assets on our platform, and we can participate in the pass-through of that interest income. There's a family of things that as the crypto economy grows, as more and more assets are added to our platform, as we leverage our technology of being a safe custodian, that will be a broad way we can monetize assets in more and more ways. We think that over time, there could be financing revenues associated with these. There will just be other unique ways in crypto, like staking is not something we'd ever heard of, you know, before 5 years ago. The next family is what I would consider the subscription revenues. These are more like software contracts or I would say the subscription product pricing. This is where Coinbase One sits.
Coinbase One is a pricing product that we have for our retail, where for a monthly fee, you get fee-free trading, but you also get other benefits where there's higher ATO, account takeover protection. There's different access that you may have as a Coinbase One subscriber. We also have this is where our cloud revenue is. Cloud revenue is, I've talked a lot about, like, we think that we're really special at doing things in crypto, which we are, that we wanna make those tools available to other fintech companies, other companies that wanna build in crypto, and they don't wanna have to build the back-end systems. They just have great things they wanna offer to their end customers.
Here we're offering things like the ability to white-label our custody solutions if you want to offer that within your bank or your financial services company. We're offering things like Coinbase Pay, where you use our fiat on-ramps to then participate with your dapp. We're offering staking directly for those companies. We're offering then our tools in white-labeled APIs that are being more like software. These are much more nascent. We consider these in our venture bucket in our portfolio, but this is where I think long-term growth will be as more and more companies think about building applications in crypto.
As this technology evolves and moves from its nascency into it truly is faster and cheaper and more accessible, it becomes back-end tools that lots of companies will want to be able to build on, and so that's the next kind of family and growth that we see as long-term growth initiatives.
All right. Good. let's talk about yields. Ever since your IPO a couple of years ago, one of the big controversies around Coinbase has been the sustainability of yields, specifically on the retail side. Yet they just jumped in the last quarter of where they had been running, I think in the 1.3%-ish range and jumped up over 1.6% this past quarter. Talk to us about the sustainability of retail yields, what drove the jump, and then also just how you think about that over a long-term time horizon, and maybe also just kind of like where you think the street gets that wrong?
We offer three products for retail trading. You can have a Simple Trade, which is a very easy-to-use interface where you can say, "I want to buy $100 of Ethereum." We lock that in at that price that we show you on the screen. We show you, "Here's the price, here's fees," and you can click Confirm. We then take the risk of executing that trade on the back end. We also offer Advanced Trade, where you are interacting directly with the order book, you are putting in a market order, and then you are getting a price without a spread. You are just getting the price for executing on the exchange. The third is then we offer Coinbase One, which I just talked about.
We've integrated these now into a product portfolio. What we are doing is, both on the consumer side and on the institutional side, is now starting to really reassess pricing and really evaluate different structures, testing elasticity, testing the response to different pricing to understand how consumer behavior is. We believe we've just gone through, as we talked about at the opening, an incredible shock to the system with the FTX fallout and with the bankruptcies of 2022. We think that our brand of being the most trusted is really a valuable proposition to our consumers, and we're seeing people attracted and being a flight to quality platform, and we're taking that and learning more than about what the appropriate pricing structures are for our product suite, which we think is in a premium product suite, as well as our operational and our customer needs.
Think about this as being dynamic, and we're doing a lot of learning at this point in time as we assess different pricing streams. Over the long term, Lisa, I think we've said this before. At some point, crypto will become commoditized. At some point, this will become, we believe, broadly adopted by all sorts of platforms, and that it will become you can buy your Bitcoin in any financial services firm, or you can buy all sorts of crypto assets. That's when pricing gets driven down. Today, you're seeing the opposite. You're seeing fewer places to buy these assets, at least in the United States, after a few events have happened.
We're taking just consideration of what market environments we're operating in, but there will be a point where these things become commoditized, and that is what we think is then the point where we will see compression in fees. We also believe that's the point where you're gonna see broader adoption and growth and wonderful things that will offset the fees through volume. That's what we saw, obviously, in securities trading. It took 20 years for securities trading to come down to the zero fees that we have today. We're just earlier, much earlier in the cycle in crypto.
Mm-hmm. Mm-hmm. Okay. All right. Let's switch over to the cost side of the equation. Your first quarter operating expenses, which came in right around $900 million, were about half of where they were only a year ago. As a result, you guys beat by a mile on adjusted EBITDA. Can you remind us what your goals are now around profitability? You've adjusted that a bit over this last year. What levers you're pulling to manage to that outcome.
Absolutely. Lowest since Q1 2021. First of all, our goal this year is to improve adjusted EBITDA year-over-year in notional terms. We have not changed that goal. We had -$371 last year, and our only goal is to improve that. We had a very strong Q1. What I think is important here is that we're controlling what we can control, and we're being very disciplined now in our expenses. What happened in 2021 is unfortunately a bit. It's sort of sometimes I'm really proud of what we did, sometimes I'm a little embarrassed what we did, but we were trying to meet scale. We had 6x growth within, like, a quarter in terms of volume.
When you grow at that speed, what our entire focus on was our customers, keeping the systems up and running, making sure everything worked for the customers. That means we opened the spigots in terms of software spend. We hired people. We also were moving at a pace that we didn't have as detailed controls and checks and balances to make sure all that spend was the right thing to do during that time. 2022, obviously rapid reversal. We talked about the macro, we talked about the episodic events, we moved quickly to change our expense base. We have done two reductions in force. What I'm really proud to say right now is we're operating with more efficiency. We've also had more reps with our team. We went from 1,250 employees at December 2020.
That grew to 3,650 at December 2021. like 3x growth in a year. The average duration or tenure of an employee was six months, seven months, like really short in 2021. We now have two years of people who we've hired in 2021 and got them coming into 2023. just that depth of knowledge, institutional knowledge, we're seeing productivity gains, we're seeing efficiency, we're seeing people know more and be much more disciplined. We were able to cut costs in every single line item, and we're really proud of the accomplishments on the expense side.
Talk about investment. Of course, as we talked about upfront, Coinbase has been a successful player in the industry since 2012. You've gone through these cycles many times.
Mm-hmm.
Although this is the first one as a public company, so under a little bit more of that shareholder scrutiny. How do you manage investments through these downturns to make sure that you are building appropriately for the next phase?
We are a company that is always focused on where our customers are going, where is cryptos going. Because we're so nascent, we can't just be complacent and build. We don't wanna be Yahoo! We don't wanna stay in one product. We have a portfolio approach where we make a lot of new investments in venture initiatives. For example, Base, which I talked about earlier, is definitely a venture initiative for us to build a Layer 2 protocol. NFTs was a venture initiative. Our key here now is to treat those as like seed investments with really small, scrappy teams in Coinbase. Then treat them almost like, do they get Series A funding once they hit certain milestones, and keep them small and not to over-invest until we start to see the right signals.
We're being more disciplined in our capital allocation, but we are continuing to test new things. We expect things to fail. We're never gonna bat a thousand, and we wouldn't be taking enough risk in trying new things, is our view, if we were getting to 100% success on product market fit. We're really focused in on the mature businesses, driving the right unit economics, getting to the right margins, are they healthy, and then balancing it as a portfolio approach. The other thing that we are very cognizant on is we cannot predict our revenues with accuracy. As I mentioned, crypto asset price, crypto asset volatility, really important drivers of our revenue, really impossible. We are a company that focuses on scenario planning, and we are always running scenarios, what if it drops down?
What if it drops down meaningfully from where it is today, and how would that look compared to our expense base? We use those as tools to say, can we afford this with the capital and the resources we have on balance sheet to weather different hits, to take in exogenous events like FTX's failure into our plans and continue to hit the goals that we set forth with the market. That's how we approach it. We are continuing to put money towards new initiatives, and we're starting to see some of those, like USDC was one of those back in 2018 when we started it, and now it's 25% of revenue. We think this is the right approach.
Yeah, I was gonna actually ask that exact question. If I think back, but I don't have the perfect memory of Coinbase, but if I think back to the last cycle, the 2018 downturn, the last point of despair, out of that, you made a big acquisition in custody.
Yeah.
Like you said, that was when stable coins really emerged and USDC emerged.
Staking as well.
Staking.
Early 2019. Yeah.
Yeah, just for the learning purposes, yeah, what are the types of things like that that typically come out of these downturns? Yeah.
We think that downturns make us stronger, and we think that we have the expertise, the balance sheet to really take advantage of these down markets and really emerge stronger coming out. For example, you saw us acquire an asset management company in Q1, which I think that really fills out more of the pillars of our institutional product offering. We are experimenting with these Layer 2s to really drive the utility to make things faster, make things cheaper, make things more usable within the crypto space. This is something we are working on. The other thing that we're really working on is operational excellence, getting efficient, ensuring that we don't repeat the sins of the past, ensuring we don't get ahead of ourselves on the cost space.
That's why you see with the growth in revenue that we saw in Q1 against the cost savings, we generated meaningful EBITDA within one quarter. You can see that there's good leverage in our business model, and as we said publicly, we don't plan our headcount, we expect to be roughly stable over the course of this year. We're prepared for revenue to go up and down, but we're really building on those more diversified revenues, more consistent revenues as you see with the goal towards the Subscription and Services, and trying to continue to fill in the portfolio of what will customers want as we go into the next cycle.
What other metrics, so from a financial health perspective, so, you know, after the black swan events of the last year, there's been a lot of scrutiny on financial health and risk management, what are some of the other measures that, you know, you focus on at Coinbase, you've started to disclose some of these publicly, that you'd highlight that give you confidence that Coinbase is financially healthy to weather sort of any, you know, crypto outcome going forward?
First of all, I'm really proud that we've weathered the Terra LUNA, Celsius, Three Arrows. We took no losses there. We did have a $14 million loss with FTX, which was well within our risk appetite. All that was deposits we had on their platform to execute trades on behalf of our users to the extent that they were looking for certain trades that we needed. Then through the banking crisis, we lost two banks that were active in our portfolio, but we had zero minutes of downtime, and we were able to continue business as usual. We run a three-deep strategy. We've had spent a lot of time on business continuity and risk.
I do think that we are really seeing the fruits of those investments in risk management as we've gone through a lot of these events over the past year. What I would point to and why I think that we have the ability to be a generational company and why I feel so confident in the platform that we're building is we do have a balance sheet of over $5 billion of USD resources. It gets close to $6 billion when you add our liquid cryptos holdings at fair value that we could monetize at any point in time if we so needed those. When I look at $6 billion and the long duration of our debt that has no immediate covenants, we have the ability to be really opportunistic.
We have the ability to think about being greedy when others are fearful, finding attractive acquisitions, finding ways to grow in these types of down markets. We also have the ability to really, you know, run these risk scenarios and say with confidence, we can absorb a lot of hits. I mean, we run scenarios all the time to say, what is the next black swan? What if another big thing happens? Are we prepared? We can do those things with confidence around just the health of the balance sheet.
We spend a lot of time in our shareholder letters sharing with you, like what has changed, what our counterparty risk is, what our quarter-over-quarter cash position is, to try and share with you that we have been really thoughtful and diligent about the types of risks that are still prevalent in this very nascent industry. I think that another thing to look at, though, on our balance sheet is what are customers doing with their assets? Like, customers can vote with their assets. We saw lots of customers vote with their assets by moving them out of regional banks in the last quarter. Our balances grew in the last quarter. We actually saw both our fiat and our crypto balances grow in the last quarter.
People looked at us as a flight to safety, which is really fascinating to see crypto being a flight to safety within broader banking instability. I think it's are people continuing to vote with their feet and saying, is Coinbase a safe platform to hold my assets? I think it's can Coinbase have the resources to navigate volatility while we really work to the next generation of crypto, which is regulatory clarity, more utility, working through these kind of early years. Are they making the right decisions? Are they adapting to market conditions? Are we being nimble when we see changes in the atmosphere around needing to reduce our force and then we're going to cost base in mind? Like, do you see us being thoughtful? Those are the things that I look at for the health of our business.
I'll go to a couple that have come in from the room. Just a question on the competitive environment. How do you feel about the competitive environment currently for Coinbase? How has that changed over this past, you know, year? How do you view Coinbase's sort of position maybe differently going forward?
We've always thought of Coinbase as uniquely positioned between crypto- native companies and traditional financial services companies. In the traditional financial services or fintech companies, we are heartened to see more and more fintech, so the PayPal, the Robinhood, the Block, Fidelity of the world, offering more crypto products and services, access to buying and selling Bitcoin and Ethereum, custody products, et cetera. On the crypto- native side, Binance is the largest crypto player globally. We think that we compete with them against trust, that we are the most trusted, that we are transparent, that we are offering lower leverage products that are unlikely to create risk. Everyone can see that their assets are clearly safeguarded with our audited financial statements, that you can see that there's a control environment, that you can see that we have risk controls.
There's opacity with a lot of the competitors that we see on the crypto- native side because you don't have that assurance. We think we compete with trust, and we think that we compete with compliance on that side. I think our goal, though, is to let 1,000 flowers bloom, and we want more and more companies building in crypto. That's why we're building these developer tools, and we hope that this is just building more and more sharing. We're heartened to see more participants in this space. I do think we're gonna hopefully get more regulatory clarity, so we'll clean up some of the things that were clearly poor risk management practices and clearly not good for the long-term health of the industry. More and more, we think of ourselves as competing against fintechs and financial services incumbents.
There we think that our speed, our ability to be crypto native, that we have more DNA around blockchain knowledge and confirmation and moving to proof of stake, that is where we'll be able to compete with just that inherent knowledge. We think of it as like back to the internet days, that the dot-com startups were internet- native. The brick-and-mortar companies tried to go into digital offerings. They weren't always as successful when they tried to run two discrete business models as the companies that started off as being internet- native companies. That's one of the analogies that we think about.
All right. Well, not surprisingly, the regulatory question was the next one that came in from the audience.
Oh, how could we miss this one?
I'm sure appalled that I've made it this far through the conversation without getting to that. Saving the, you know, the. Talk about the, yes, the elephant in the room, the regulatory environment here in the U.S. Let's just start with the Coinbase's perspective on the right outcome, like your house view on sort of what's the appropriate way that crypto assets and products should be regulated in the U.S.
I think that the challenge with saying crypto is now you've just said like this real estate, like underneath this big umbrella, there's lots of different things. Stablecoins look and are trying to be dollar-backed stablecoins, I should be more specific, are just a digital form of currency that looks much like a currency. Bitcoin looks like a commodity. We tried to go public, if you can read our first S-1 filing with COIN as a security token, that would have looked like Coinbase, like a registered security token. We ran into challenges, so we couldn't pursue that. We're a normal security today. We believe that blockchain technology makes financial services better because they can be faster, they can be lower, the settlement's instantaneous. You don't take settlement risk. Lots of value that we think comes from just moving the tech stack.
We think that there are gonna be commodities, there are gonna be securities, there's gonna be currencies, and there's gonna be collectibles. Like, you know, there's NFTs, which are digital collectibles, no different than baseball cards or art or other things. Under that big umbrella, Lisa, there's no perfect answer. There's not one single thing. We think that this is going to have lots of different regulations. The challenge of the regulatory environment today is much of what is traded is a commodity, although the CFTC does not have spot trading jurisdiction for crypto. We do think there needs to be spot trading jurisdiction for crypto commodities with the CFTC. It's really interesting to think about the typical securities, this concept of like, ours is Ethereum a security, is Bitcoin a security? Who files a financial report?
Like, there's no employees of these companies. These are decentralized developers who are contributing code. It doesn't act or behave in any way like a security today. We analyze everything that we list on our platform. We have a very extensive listing process that then analyzes each asset we list under the Howey Test to say, does it have characteristics that look like a security? We look at it from a compliance standpoint, from OFAC, from, you know, is this a scam coin? What is the compliance risks on this? We look at it from a cybersecurity perspective. Is it gonna be hacked? Is like people gonna be rug pulls from these assets? We look at it from like a market, and do we think that there's customer demand? Do we think that this is a viable asset?
It has to meet all of those criteria for us to list on our platform. We reject 90% of assets that we review. We think there's a lot out there that is not meeting one of those pillars, and many of those could be deemed to be too high-risk as securities. We don't list those. Getting more clarity, more taxonomy in the space, we think is really important. Getting clarity on commodities, how they should be regulated, 'cause that's the majority of the trading. Like Bitcoin and Ethereum represent still 50%+, and stablecoins are then even a greater % of trading. Carving off little pieces, stablecoin regulation would be really great to get reserves under control.
I think that there's low-hanging fruit, but I think we have to recognize that technology is moving really quickly here with new use cases, different characteristics, and it's hard because the regulatory environment moves at a different speed. This is what we're trying to do, is help drive regulations to kind of check off some of these boxes so we can move and build with speed on this new innovation.
You highlighted a little bit about some of the priorities, stablecoin regulation, like you highlighted, particularly around reserves, spot trading jurisdiction for the CFTC for things like Bitcoin and Ethereum. What's the path to get there in your view? Is this legislative? Is this a judiciary process? Like, what do you guys see as the likely path so that investors can kind of track it or know what to be watching for?
All of the above. It could be all of the above, I think there's gonna be work towards all of the various paths. Pre-FTX's failure, there was a lot of advancement with bipartisan legislation to try and work towards legislative solutions. FTX was like an earthquake in the space and everyone stepped back to say, "How did we miss this?" I mean, this is massive fraud for people to have missed, us included. That kind of pulled everybody back, but now we're seeing everybody kind of re-engage in those conversations. We are cautiously optimistic, and we said in our Q1 shareholder call that we think that there's gonna be progress on bipartisan legislation, even this quarter, things moving forward. That is a path.
We're obviously working through, you know, the Wells notice process with the SEC. It's hard about that is it is vague at this point in time. We don't yet know from the SEC what exact assets they have issue with, why, what are the facts about those. All we know is that they believe that we have listed security tokens on our platform. They believe that there's something about staking that could be a security. We don't know any facts. Until we get to the next layer, until we have data, we can't help give anybody like a path or how big or how small or what the sizing is. That's what we've been really pushing for, just to get data on the table. Obviously, we have the path of the courts. That is always available to anybody in the U.S.
Settlement with the SEC, negotiation with the SEC, legislation, judiciary system, too early. We're in the earliest phase of this. The most important is we are business as usual. We are continue to focus on our financial health, focus on product innovation, focus on utility, serving our customers, while we work for regulatory clarity for both Coinbase and, more importantly, the broader industry, so this innovation can flourish in the U.S.
Mm-hmm. On that point, just to, I guess, reconfirm, I know you commented about a lot of this on your quarterly call, but are there any direct impacts to your business right now, given with all of the regulatory uncertainty?
Not that we've seen.
Also maybe as a good point of context for some folks here that may be less familiar with it, I know you've been very feeling optimistic about some of the regulatory progress in other regions around the world.
Mm-hmm.
Maybe just give an example perhaps of some principles or, a regulatory framework that some other regions, the EU or Singapore, et cetera.
EU is a great example, right? I mean, MiCA is EU legislation that will come forth in the coming years. It's really just suited towards the nature of crypto assets. We think that legislation specific to the nature of crypto assets, for example, instant settlement, these things have value. It's just recognizing that these are different than what we have today. It is still focused on the important things around consumer protection, around market structure, around conflicts of interest. We share these values. We wanna create clear market structure, and we want to avoid, you know, risks in the financial system. We just believe that the form on how we comply may look different for different technology bases.
All right. Good. Let's turn to your forward outlook now. Taking a long-term view, I liked the three horizons that you talked about up front. Frame for us what are some of the prominent longer- term investments you're making at Coinbase, maybe that you're particularly excited about or you see as being particularly promising?
The challenge is I can't pick favorite children in our product portfolio. I think that as I kind of articulated, I think there's a family of products around adding assets, and I think that our unique value proposition of storing bearer instruments will give us a unique advantage to create asset-based revenue streams. Then I think the long term is really around more and more companies building on crypto. If I think about, you know, companies that needed to build web applications, they needed the underlying technology stack. Not every company is gonna be building their own end-to-end tech stack from the protocol on up. Like, think about the protocol layers, then there's the app infrastructure layers, and the application layers. Like, people might wanna go straight to application. They don't need to build all the way down to the protocol.
That's where we can help provide our tooling in the cloud business. Long term, I think cloud business will give us the ability to serve a lot of commercial customers, business customers with this tooling. I think that there is going to be a primary financial account, and I think that our long history of trust, I think that the fact that we have been early adopters of unique attributes of crypto will enable us to be a strong player, direct to consumer, to build the primary financial account for our retail and individual users.
We talked a little bit about how when you look back on past cycles, right? You know, with the hindsight, there have been, in each of these major cycles, a handful of technologies emerging from them.
Yeah.
-that then have become really the major drivers of the next phase. Last one was custody and stablecoins, staking, as you highlighted. If you had to do your crystal ball, what do you expect those are right now?
This is where we can't do that, unfortunately. That's why we have a portfolio of products. You know, it wasn't clear to us that CryptoKitties was gonna kick off then the collectible boom of what we saw with NFTs in 2021. You know, that has taught us new things about what we think the next wave of collectibles can be. Every cycle creates new learnings, so the products get more innovative and more useful. There's early dabblings now about music on NFTs. There's these loyalty programs and membership programs that I mentioned. We're starting to see inklings of how these things can create more utility value in the next cycle.
I think scalability is really an important key here, and there's a lot of development work going into how to make blockchains more scalable, which is what unlocks a lot of the making financial services better. Faster, cheaper, reduce settlement risk. These are the things that I think can make financial services products lower cost, more inclusive, and that is around scaling of blockchains, better infrastructure. There's the usability. It's, it's moving from, you know, these long alphanumeric characters where I have to send you my Ethereum to your Ethereum address and my Solana to your Solana address, where we're making now multi-coin wallets. We're making ENS names, which is the equivalent of like DNS, went from TCP/IP addresses where it was like 139.27.whatever, and then you got to coinbase.com.
Like, now those are ENS names where you can send to alesia.eth versus whatever my eth address was. Making it usable is another big area of investment that we think pushes all this tech below the surface. It makes users go like, "Okay, yeah. It's just as easy as like using something that we're already familiar with." That's what I think you're gonna see come out of this cycle, is just this next gen of the tech.
All right. let's talk quickly about international. Just to remind us, that's an area where you've been leaning in a little heavier, more recently. One, just remind us how much of your business is outside the U.S. today, and then how are you expecting that to evolve?
As of Q1, it was 11%. It's been up to 20% in past quarters. Today, our international business is largely comprised of consumer trading by Bitcoin, by Ethereum, by any other asset in predominantly U.K. and Europe. The key here is fiat-to-crypto rails . You need to have a way to get your euros, your dollars, your pounds into crypto to make these markets really effective. That's why there's on-ramps capability that we talked about. We're launching more on-ramp markets. Those are our go- deep markets, where we have to go get financial services licenses. We build rails, we build bank accounts. It's more of an upfront investment, but we've now launched those products in Australia, Brazil, Singapore, Canada. We're building more go- deep markets to create more on/off ramps, more fiat pairs, more access. That's one initiative.
The next initiative is rolling out more products to these markets. They're mostly buy/sell markets today. The opportunity to add USDC, which we just announced this earlier this year, adding staking to these countries, adding more utility to the buy/sell is kind of the next prong of growth. The third is the international exchange. Up till this point, the exchange was in the U.S. We used the non-U.S. countries as distribution markets, but they were trading against the U.S. exchange, but the front end was the fiat on-ramps. Now we have an offshore exchange, separate personnel, separate decision-making on products and services. U.S. customers cannot trade on the non-U.S. exchange. It is serving a longer tail of countries. This gave us the ability to offer perpetual futures to get our first toe in the derivatives market.
This is the market that generates the most trading volume in crypto today. It's where Binance is very strong. It's where FTX generated the vast share of their revenue. We think there's an opportunity for our brand as one that is more trusted, that has public financial statements, that you can see the details of where your assets are held, to now get into that volume and that market share to serve those customers in a way that's differentiated from the current product offerings in that market. That's two weeks old, I have very little to say about it at this time, we hope to share in coming quarters. That's our first kind of toehold into derivatives. That means that that's the first kind of thing that institutions can kind of build in the international market.
It's getting a disproportionate amount of investment now compared to where we've been because there is regulatory clarity, there is consumer demand, there is an existing market that we can go and participate and try and then build market share and build our brand in those markets.
All right. Well, I'll go to a couple of our wrap-up questions. One, on the revenue side, obviously, Coinbase's revenues are unpredictable as you highlighted, and they have this, you know, sort of, cyclical nature to them dependent on the crypto cycle. How should investors or, what pointers would you give investors to think about what the long-term, sort of throug- cycle top-line growth profile of Coinbase could look like?
Our belief is that crypto makes financial services products better, and that crypto is the best way to drive more economic freedom on a global basis, which is our mission. We can make things long-term faster, cheaper, more accessible, more assets come on-chain, more use cases. Consumer can go direct to content creators, cutting out middlemen, cutting out friction. This is what we're here for. This is what we're trying to do. If that happens, we think that has use cases that we can't even wrap our minds around today. Just like when the early internet started, like, did we think about Uber? No. Do we think about ordering all of our groceries in Instacart? Probably not. We were all just, like, doing AOL online and with dial-up modems, and it dropped the calls half the time. It was like we're moving from that dial-up phase.
We now need to move to broadband with scalability. We're gonna build the apps on top of it that are really cool, and that's when we think that this really can get some good momentum. Scalability, usability, regulatory clarity, these are sort of the key pillars of Unlock. In doing so, the ability to send value as easily as we send data today, we think has huge benefit to society and use cases that can then broadly proliferate, and then our platform grows because of the tools and the experience that we have. I don't know the timing, Lisa. I can't give you the exact dollar amount, but that is what we're building towards. That's what we're seeing more and more people buy into. We've run a recent campaign around update the system.
Many people think that the existing financial system is in need of an upgrade, that it doesn't serve their needs well. It's slow, it's clunky, there's friction, there's cost. We think that this technology can make that better, make that more accessible for 1 billion people around the globe, and that's what we're really excited about the future of this.
All right. one, I'll just sneak in a quick one just on capital allocation question. You've been pretty opportunistic with M&A in prior downturns. Are you out there looking now, and are there any particular areas you're focused in?
We are always in the market for attractive assets, teams, or new technologies or capabilities. Everything that we do, we take a buy, build, partner approach to. Sometimes there's interesting acquisition opportunities, sometimes they're not. We're really excited to buy One River Digital Asset Management in Q1. We think this adds a really unique asset, which is a track record. It's hard to start asset management from scratch and to convince people to give you their assets when you don't have a track record. We have a team, we have a track record, we have now experience in building this asset management business, which we think is going to be really beneficial to unlocking new forms of capital to come in crypto. Many funds don't have the ability to participate directly in the spot market, but can participate in structured vehicles, other types of assets.
This will open up new doors of capital. Yes, we're looking. We are judicious, though, in our approach. We are not buying anything at any price, and we will be thoughtful as we look to build out our existing roadmap. We're not going off in every single direction. We're being very judicious in our approach.
All right. Just as our final question, we've covered a lot of ground. Give me the elevator pitch for an investment in Coinbase right now.
We are building economic freedom through our tools and through our products and services. We think that crypto can be the best vehicle to create this economic freedom. As I've said, we think it will make it faster, cheaper, more accessible. The ownership of in the value chain that you can have, the direct-to-content creator relationship that you can have, this opens up new use cases. That we are building these tools. We are building the primary financial account for our consumers, for institutions, for developers to participate in this new ecosystem. We are a company that is now very focused on our financial performance.
We have $5.3 billion of USD resources on our balance sheet, so we have the balance sheet to weather the current downturns, whether they be macro, whether they be crypto episodes, whether it be the regulatory clarity that we need to seek. That we are gonna be disciplined in those investments, but be really strategic to try and expand access and availability of this ecosystem. We'd love you all to join us on this journey. It's a very exciting place to be.
All right. Thank you. Wonderful. Thank you.
Thanks, Lisa.
All right.