All righty. Well, in the interest of time, I think we should get started here. Morning, everyone. My name is James Yarrow. I cover brokers, crypto, and investment banks at GS Research. With us, directly to my left, we have Emilie Choi, President and COO of Coinbase. And further down, we have Alesia Haas, CFO of Coinbase. Emilie and Alesia both joined Coinbase in 2018, something I just recently figured out.
Fun fact.
Fun fact. Emilie has served as COO since June 2019, as President since November of 2020, while Alesia joined and has remained CFO the entire time. Together, they've contributed to building one of the key global digital asset exchange and infrastructure businesses. Thanks so much for joining us. Quickly, just a safe harbor here. 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 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 measures. All right. Let's get started. Alesia, let's start with you.
Coinbase's business has evolved significantly since going public in 2021. You now serve multiple customer segments, and you also have a meaningful infrastructure business. How are you able to cover so much surface area within the digital asset space?
Well, thank you for having us. It is a delight to be back here with you this year, James. When we went public, we basically served spot trading needs for both retail and institutional customers. Over the last five years, we are really pleased to have really expanded out the number of assets that we offer to our customers to trade, also deepened our institutional business, and built out an infrastructure business, as you noted, James. It is really important to us as the most trusted player within the crypto ecosystem to ensure that we are building durable financial infrastructure to now enable customers, both retail institutions, to buy, trade, sell, engage with crypto in the largest sense. Once we did that, we wanted to make those tools available to others, whether they be other fintechs, banks, or other corporates who wanted to build on our infrastructure.
Today, just to give it as a point of reference, Bitcoin spot trading makes up about 10%, just over, of our total revenue. When we went public, that was over 50%. We have really diversified. Our subscription services revenue now is about $2.5 billion on an annualized basis, meaningfully higher than it was when we went public, where it was less than 5% of our total revenue at the time. That has grown on the back of stablecoins. Stablecoins have seen tremendous product market fit over the last five years, huge volume in terms of payments, trading, settlement now happening on stablecoin rails. That concept of tokenizing a U.S. dollar has now opened up the doors to tokenizing many other assets, and we can talk more about that in the later days. It all comes down to we are building on a solid foundation.
We start with the premise of safely storing assets with our custody products. We store more crypto than any other player. Roughly 12% of the world's on-chain assets are held on our platform. On top of that, we have deep liquidity, so we can really provide best pricing when people are trading. We have the whole set of compliance security controls that live on top. It is an ecosystem that offering these additional products created a network effect on our deep infrastructure Base, and that is where we keep building and expanding, scaling the infrastructure, expanding the product set.
Great. All right. Emilie, let us bring you in here. We have seen a lot of constructive progress from legislators and regulators over the past couple of years. What, in your view, have been the primary unlocks, and what are the opportunities you see ahead given the current regulatory trajectory?
It's been a sea change, this administration. We were joking in the lobby just about the previous administration was about regulation by enforcement. We were living day to day not knowing how we could ship our products in a compliant manner because we got no guidance. We just got a Wells notice. This administration has just been so much more productive. We have a great SEC and CFTC head who are aggressively moving towards rulemaking. We're very excited about the possibility of the CLARITY Act getting passed by the Senate next week. We have gotten preliminary approval for an OCC charter. So it's been a very productive environment. Globally, we've also gotten our MiCA license. Last year, the GENIUS Act, which was a stablecoin act, passed. So it's just this whole confluence of great things that are pushing the whole ecosystem forward.
Okay. Maybe another one for you, Emilie. Over the past year, we've seen a substantial number of TradFi, traditional finance institutions, entering the digital asset space in crypto trading. We've also seen a number of IPOs of digital asset companies. Maybe you just talk a little bit about the competitive backdrop and how it's evolved over the past year.
Yeah. It's funny. I think this is really much a validation of our whole strategy, which was we got in the digital asset space very early, 13 years ago. Seeing all of these competitors get into the space is just, it's like, "Yep, we were right." This is a disruption of the existing financial system, and so we're kind of excited about all these different players wanting to get into it. It validates the space. It helps us bring things forward. We're big believers in free markets.
At the same time, I think it's kind of the analogy I like to use is just, you had Amazon that was digital native in e-commerce, just like we are digital native and crypto native products and infrastructure, and then competing against those who kind of have legacy systems and architectures. Because we invested in that so early, I think we just have a very unique proprietary advantage in terms of thinking about the way that the systems are built out, the types of talent that we want to hire. So we feel really good about the space as it evolves. It's definitely more competitive, but there's a reason that everybody is playing in it right now.
Okay. What is, in your opinion, the overall vision for the Everything Exchange? I guess, what is your right to win across those products?
The vision for the Everything Exchange is actually quite simple. We want one place where customers can trade any asset, any time. We started, as Alesia was mentioning, with crypto spot trading. That was our core. Over time, we have built more and more products to help support this. We launched derivatives, which reached an all-time high in market share in Q2. We recently launched our prediction markets product, which is at $100 million annualized revenue run rate, one of our fastest-growing revenue products of all time. We launched our traditional equities product in Q1. It is about having one place, one platform, where everybody can trade and access all of these different assets. In terms of right to win, we are the number one regulated crypto custodian in the world, and I think that we have these roots in security, safety, trust with our customers.
Customers want to be able to trade where their assets reside. I think that that is a huge moat for us. We have also invested very much in liquidity. We want to make sure that we have the deepest pool of liquidity globally. We made an acquisition of a company called Deribit that helped us become the number one crypto options exchange in the world. We have an international exchange. We have the retail and institutional pools of liquidity. I think all of these things contribute to a competitive advantage in the market.
Let us turn back to you, Alesia. You have said that the Everything Exchange strategy is now working, delivering real revenue diversification and customer value, not just green shoots. Can you help size us what is driving the inflection? How much more growth is left, I guess, as derivatives, perps, and prediction markets continue to scale?
You want to talk about our saplings, is what we want to talk about, James.
Yes. Moving on from our seedlings and our green shoots. As Emilie said, the Everything Exchange is about diversifying from spot crypto trading to derivatives, equities, and prediction markets. We now have four pillars of trading products offered to our retail customers. As we shared in our Q2 update, we are really starting to see some traction. Prediction markets crossed $100 million of revenue. To show some additional data there, that was up 2x in terms of revenue and contracts quarter-over-quarter from the launch in Q1. As we then launched crypto binaries, we have seen a 3x increase in average daily traders and a 4x increase in average revenue on those products. We then launched combos, and we are seeing additional lift coming from combos.
We just are getting started with prediction markets, but we have seen the ability to take a product, enter the market, and see the scaling occur. What is really nice about this market, and we can go into potential growth areas, is this is not a green field. There are new contracts that people want to trade. We can express views on weather. We can express views on politics. We are just getting into football season. There is a lot of momentum here with prediction markets that we think give the ability to grow this product. Similarly, with derivatives. Derivatives, we had some important licenses to get in place. We had important wins to get out of the CFTC that Emilie cited, that we are really pleased with Chair Selig and the ability to innovate now in the U.S.
We brought real perps to the U.S., i.e., what has been the large global market for crypto has been trading perpetual futures. We brought this product to the U.S. market. We are now going to harmonize liquidity and really grow that product in the U.S. Starting to see some momentum and growth there. As Emilie said, we reached an all-time high in trading volume market share, but more importantly, we are gaining new users, new traders to our platform with this product. Equities is the same thing. We think that having now the place where you can hold more and more of your assets, building on the layers of cross-margin, providing more capital efficiency when trading, unifying that on one technology stack is what we are really unique and differentiated at. That is why we believe that we have moved on. That it is working.
We are starting to see this momentum. James, this is before marketing. This is not new customers. This is cross-selling existing customers. We are just getting started with these products. Once these products harden, we think we can turn on the growth engine here.
Excellent. Emilie, it does seem that the barrier to entry for perps is perhaps low, although maybe you'll disagree with me, but I guess in the sense that there could be multiple providers that come into the space. I guess maybe you could narrowly focus on differentiating that offering from others.
Yeah. I would slightly disagree. I think launching a perp is not very challenging. I think it's about the distribution, and this goes back to what I was saying about the liquidity pools that we've invested so much in terms of our retail and institutional U.S. and international clients are building an international exchange, owning Deribit, our options exchange, and having this ability to cross margin and have the best execution. Our prime offering is best in class. I think, yes, unto itself, launching a perp may be simple, but actually making it successful is the thing that is challenging, and we feel really good about our competitive advantages there.
Okay. Maybe just one more here, because I just want to nuance the point here. You secured the CFTC the no action relief for, I guess, connecting U.S. customers to global perp liquidity. Can you just talk about why that's significant, why you chose to do it that way in terms of building your U.S. perp offering?
Sure. Just for context, obviously perps are like a many multiple kind of volume type of product than spot. Spot is our core, but we think that perps and derivatives tend to be a higher volume thing. I think the thing that's really novel here is that this is the first time that U.S. customers can access global perps, not under a VPN. They can do it compliantly, and access this, and have all the great access to the other products that we have and liquidity pools we have. It is novel. It's very compelling, and we were super excited that the CFTC was willing to move forward with this. Again, we find them very proactive, and we have a slew of other things that we want to work with them and the SEC on, but this is a big unlock for our customers.
The big benefit here is global liquidity, meaning you get best price. It is the best outcome for customers to be able to trade on the deepest liquid order books that they can possibly trade. So getting the U.S. to agree to this and not fragmenting liquidity by country around the world is an end benefit to all participants in these markets. The other benefit that we have that we haven't talked about, but I maybe just want to from the CFTC way on here, is we're a great counterparty. We're a public company. You can look at our balance sheet, you can understand our capital and our entities, and that really stands apart to global market participants at this time in terms of just our size, stature, and our control environment that we can offer.
Makes sense. Alesia, you touched a little bit on prediction markets. I want to come back to that. How big do you think that could become for Coinbase over time, and what's the roadmap to expanding prediction markets products or maybe verticalizing the offering? Then, I guess in terms of behavior, do you view this as additive or potentially cannibalizing other trading products?
Let's start there, and then we'll go backwards. No, we do not view this as cannibalistic. What we've seen so far is that prediction market trading is incremental to our other revenue. We're really excited that this is just a new path to engage customers with a new product set and drive added revenue to Coinbase. Going backwards, prediction markets in general, the entire asset class has been a growth category for many. This has created a lot of excitement with traders, with market participants. We have many customers, we have many employees who just watch the market daily. They're not trading necessarily, but the information they're getting by understanding what's happening and where people are placing trades is really interesting as a new social channel in some ways. We're focused on doing is distributing more and more contracts to our customers.
I mentioned earlier in my comments, we launched binaries, we launched combos. We're continuing to expand out the types of contracts that one could participate in. That is the huge growth vector. James, I view, and this will come with time, I think it's really interesting to think of a future when there's deep participation on liquidity and these become meaningful markets where investors can think about expressing views on corporate KPIs around earnings different from the overall stock price. That a KPI swap on the USDC on our platform could become an an interesting contract separate from what is Coinbase's overall earnings for the quarter. I do think the market will continue to expand with different types of contracts, different types of market participants as these products grow, as the regulatory clarity becomes clear.
As you know, there's also some litigation in this space that the industry is working through. I think that the market is large and growing. On our own roadmap, as I mentioned, looking to continue to expand out the contracts, distribute these to our customers, harden our product. It is still a six-month-old product, so we do have some work to just continue to make that product great. When we think about then other opportunities, we came to the market early with a partnership with Kalshi. We could expand out partners. We could choose to do a vertical integration, so we had more control over the contracts. All of those are options that we'll continue to explore as we grow this product.
You have been able to grow trading volume, market share, despite being in a bear market. What's different about your trading business, maybe versus prior cycles, and how are you thinking about your share and how durable that could be going forward, Alesia?
We have grown share, and part of it is structural because we've continued to add on the products that we offer trading for. I mentioned in my prior comments when we went public, it was spot trading, and we had a really great share in spot trading. We were the largest U.S. spot trading venue, and we were growing our international share. Now we are a derivatives trader, and so when we look at our market share today, we now express that as a percentage of total crypto, both spot and derivatives around the world. Everything that's crypto related, and we're just over 10%. One, we have an opportunity to grow internationally. Our bread and butter is the U.S., but we are continuing to expand that international product offering. Now we're bringing international products to the U.S., as we mentioned earlier.
We're also growing our U.S. trading by continuing to grow out that TAM of the U.S. for perpetual trading in the United States. It's a structural change by offering more and more products and providing more of that trading on one venue where we can continue to gain share while gain trading with our customers on our platform versus that being fragmented across many platforms. That's what we're going to continue to do. The next chapter that you'll see from us, in addition to continuing to add contracts and products, is providing margin and cross-collateralization both to retail and institutional customers. When they can trade with more capital efficiency on our platform, we think that will be another structural advantage to us to gain share of trading on our platform.
I want to ask one on the Everything Exchange. You are adding all these products. You have all this data. One thing that traditional exchanges have done is monetize the data.
I am curious what your approach or-
Yeah.
Eventual strategy might be to monetizing that data, especially as the market institutionalizes more.
It is a great question, and I think about this a lot because I grew up in TradFi. Crypto has chosen to monetize differently than TradFi at this point in time. We charge higher fees on trading, in part because these are bearer instruments. On the retail side, as an example, we do not charge for custody. On the institutional side, we do. But we offer data for free. There is also a lot of free data on-chain, given these are on-chain products. You cannot monetize the same way that you do in TradFi, but it is something that we continually explore.
What is the right way to monetize, and how do we make these products familiar to traders who are trading across the asset classes so that they can feel familiar and comfortable with pricing, but also monetize what is appropriate for the risks in our trading product suite and what is also generally available to the market?
Makes sense. Okay, Alesia, we've seen, I would say, a bit of a shift in crypto volumes recently to the positive, which I guess we're all happy about. What's your read on what's driving this, and I guess what needs to happen for the positive momentum to be sustained?
Crypto is never dull. It goes up, it goes down. I think that what you saw over the last nine months, it's important to look at this through the lens of history. Last October, so nearly 11 months ago, we had a significant market event in the broader ecosystem where there was liquidations that caused a bit of a dampening in trading activity over the crypto ecosystem. In addition to that one-time event, we saw broader macro risk-off mindsets. We saw all-time low volatilities. We just saw, as a result, less trading volume in the crypto space. As we look right now, we've definitely seen better macro conditions. We see positive optimism around the hope for regulatory clarity getting passed out of Congress, and there's bulls and bears on both sides of that.
I would say generally, there's some optimism that's coming back in the market around that. As Emilie shared, just the regulatory unlocks, new products, people seeing innovation occur in the U.S. and new things happening, that is driving also positive momentum. I think it's a combination of better macro conditions vis-a-vis for traders, new product momentum, new excitement around prediction markets, then bringing more trading activity back to the platform, et cetera, that is helping the market have this upturn. I think it's a continuation of what keeps it up. I think it's a continuation of all those things. Utility, product growth, innovation, excitement for customers will help drive the volume.
Great. Let's turn to stablecoins. Stablecoin transaction volumes continues to grow, but supply has been relatively flat. Could you, Alesia, maybe comment a little bit on what your view is on what's driving that, and maybe what would cause the USDC supply to start ticking upwards again?
Supply in terms of total market cap?
Yeah, exactly.
Okay. I think it's important to note that the supply or the market cap has been relatively flat during a period where we just talked about trading volume coming down materially. Trading volume was down 20% quarter-over-quarter, market cap was flat. Volume, i.e. transactions on stablecoins, are going up. So one, I think it shows that stablecoins have seen product market fit and are seeing differentiated volume drivers from trading alone, which was their start. Stablecoins grew up and gained the first supply, gained the first transaction volume, because they were the quote currency of crypto, and they operated 24/7 and provided liquidity across the global exchange ecosystem. Now we're seeing the growth of actual payments and other forms of utility using stablecoins. That is driving volume. We think that supply will follow volume.
I think it's important to note, though, beside that, we're still growing our platform. We saw all-time highs average of $20 billion as of Q2 of USDC on our platform. The overall USDC market cap still hit an all-time high of $77 billion in the quarter. It's not growing at the same rate of volume, but I think that's because you've seen the dampening of overall crypto trading. As crypto trading comes back, I think supply will come back, and I also think that just continued growth and utility of more and more stablecoin payments, we can also see potential growth in the market cap as well.
Emilie, let's turn back to you. On tokenized equities, we've seen the SEC innovation exemption proposed in the U.S. International is rolling out already. Could you give us more detail on how you'll structure your tokenized equities offering globally, U.S. and non-U.S.? Whether clients will be able to move tokens off-platform, and I guess, is it just the innovation exemption needs to get finalized in the U.S., or do we need other things to change as well?
Yeah. In this case, international markets are just moving more quickly than U.S. markets, which is not a new paradigm for crypto. We've launched first internationally, in partnership with the Abu Dhabi Global Market. These are real tokenized equities. Shareholders have a claim, there are dividends and so on. They're rights as long as somebody has KYC'd. To answer your question, they are portable. They're all the kind of novel things that you can want to do with tokenized assets. This is that thing. In the U.S., we want the exemption. It's very important in the U.S. specifically to have a sandbox and to have this exemption so that we can actually launch these products safely, securely, and then the SEC and CFTC can kind of watch and then be able to rule make based on the data that they get from those things.
That's how it all works. I think that the U.S. will follow international, and then we'll be able to have something that is truly a global product.
When you're with clients talking about. Oh, go ahead.
Just quickly. Yes, they can be withdrawn. They're on-chain.
Yeah. It's all portable. Yeah.
You're self-holding the security.
Yep. If you have a wallet.
The analogy that we use to come up with this product, which I think is an important one, is the tokenized security is much like a tokenized U.S. dollar. It is just a new thing on a new technology stack. We've seen that for now decades, centuries within the U.S. financial markets around the dollar moved from different technology stacks. There was a dollar on ACH rails, there's a dollar on wires, there's a dollar on a checking account, there's a dollar on an exchange, sorry, on a traveler's check, there's a dollar on a prepaid card. Now we're seeing innovation with securities. We went from certificated securities to securities with the DTCC and digital. Now we're putting securities on-chain. It is still a security. It has dividend rights when there's dividends available. It will have voting rights.
That is just a technology thing that we're working on, and it's not a regulatory thing. It's not a structural thing. There will be options for voting on these. You are a security holder in token form, and you are holding it just like you used to put your security in your vault when your grandparents had their certificated securities. You are now putting your tokenized security in your wallet. Same thing.
Perfect. Emilie, when you're with clients talking about their appetite to build tokenized products, what is the impact of the CLARITY Act not yet being passed? Is it impeding the demand to innovate? I guess, is the SEC innovation exemption sufficient in clients' minds?
Yeah. To answer the last part, the innovation exemption is enough for us to kickstart it in the U.S., which I think is the thing that gets us to rulemaking. In general, we view CLARITY as an accelerant. It is not something that we need to wait on to all of a sudden launch products. We know what we have to do. We have weekly meetings with the SEC, the CFTC, and so on to make sure that we are launching products in a compliant manner. CLARITY, I think, just codifies things. If you think about GENIUS for stablecoins, that covered the 10% of the market that is stablecoins. CLARITY covers the other 90%, and we think that that is a very important thing, and we are going to be watching senators very closely for their vote to make sure that they are voting in a pro-crypto manner.
But in any case, we have such a productive, proactive regulatory regime right now that no matter what, we are going to ship. I think the accelerant that happens with CLARITY is just everything will happen faster. I think that smart money will get off the sidelines and all the things that we have started to see start to manifest are just going to happen in a much faster way.
Okay. Alesia, could you just underscore for us where the focus for Base chain and Base app are today? What are the milestones that we as investors and analysts should be paying attention to as Base matures from an experimental consumer app towards more infrastructure?
All right. Well, the Base chain is the infrastructure. The app is distribution. So very separate concepts that I think are important to understand. We recognize that we might have confused the world by naming them similarly, but let us just focus on we have a chain. The chain is built on Ethereum to offer fast, cheap global transactions. I use the word transactions with intent here because you have heard of other chains being specific for payments or specific for trading. We are building a universal chain for transactions, and we have seen tremendous growth and adoption from developers. It is one of the most highly used chains for USDC payments. It is the number one chain for agentic stablecoin payments, and we are growing our total value locked on-chain. It is in market. It is real.
It is gaining adoption, and we have many pilots with many well-known Fortune 100 and 500 companies on-chain. The goal with this chain is to scale, to drive the most capacity at the lowest price, and to build unique elements so that you can create better efficiency for payments, for security tokens, for other things. And those, for example, like the memo fields for a payment on the ISO. We can build those on-chain. So we are making the subcomponents of the chain work efficiently for all transaction types. That is what the chain is really focused on. The app. Moving on. The app. This is a wallet. This is what you need if you would like to be a self-custody holder of crypto tokens and trade with protocols.
It is a new form of bank account for all intents and purposes, but one that does not belong to anybody but you. And this is where we are trying to innovate to create the best wallet for people who want the ability to self-custody and hold all of their assets, hold their security tokens, hold their tokenized dollars on-chain by themselves outside of a third-party intermediary. We also offer these same products and services through our custody option, where Coinbase Security is spending 24/7 watching and monitoring your assets. But for people who want both, we offer a link between these so that you can choose self-custody, you can choose full custody. Choice is yours, consumers.
Okay, excellent. Another one for you, Alesia . You have maintained a commitment to positive Adjusted EBITDA.
Yes.
Earlier this year, you actioned headcount reductions and lowered the expense guidance. How do you think about the balance between investor intensity and cost discipline from here? I guess how much of the cost base is truly variable if we go back to a softer market once again?
We are committed to delivering positive Adjusted EBITDA. We did lower our expenses based on where revenue had trended for the first two quarters for the year. We did a 14% reduction in headcount. We brought down our expenses such that full year 2026 will be roughly flat to 2025, excluding where USDC Rewards goes. USDC Rewards, truly variable expense example.
We are committed to maintaining this financial discipline. Despite bringing down our expenses, we are shipping just as fast as we ever were, and that is due to the efficiency that we are seeing with AI. Our pull requests are up, our quality is up. Every one of our employees is feeling the efficiency and productivity gains by working with agents as part of their team. We have managers that manage agents. Our pods are smaller, we are producing, but we are able to do that in a more cost-effective manner.
We view those costs as fungible, meaning total cost, headcount versus agents, it is just cost that goes into serving that overall product and looking at what that output is for that total cost base. In terms of variability, James, when I think about true variability, it is not that most of our expenses are variable. Our transaction expenses are variable, USDC Rewards, some of our marketing, but we are willing to make structural changes to our expenses to ensure that we can deliver on our financial commitments.
Excellent. Emilie, last but certainly not least, what do you think investors still underappreciate about the Coinbase opportunity, and what are you most excited about as we get closer to 2027?
I think that the thing that we are going after is disrupting the entire financial system, and that is a very big market opportunity. That is a $50 trillion TAM. Whereas I think sometimes the misconception might be that we are going after some piece of the crypto pie. Crypto is completely disrupting that system, and so we are going after all of it. We think because we have this vertical stack, we have the exchange, the custodian, the brokerage, we are the largest distributor of USDC in the world, and we are the only end-to-end player in agentic finance. We have all of these very unique pieces that are playing into these very rapidly growing segments. We think the Everything Exchange is fantastic. It is showing great promise, and the next foray for that is tokenization, which we think is a very important theme, as we talked about.
We think stablecoins are entering this golden age of value for different customers, and we play in that space. On the agentic finance part, as I mentioned, we have the whole stack there with USDC, with x402, with Base chain. We believe that we're playing in all these different parts of where financial disruption is going to happen, and we think that that is the TAM. That's the opportunity, and we have very big ambitions.
Excellent. Well, with that, we're out of time, but thank you so much.
Thank you for having us, James. Thank you everyone.