Conference Transcript - COIN 2025-12-10

James, Analyst — on behalf of Steve Volkmann)

Well, thanks everybody for joining us. Before we get started here with Coinbase, and I know there's some confusion around room, so thanks for everybody for being flexible. The team from Coinbase has asked me to read their quick safe harbor. And before we get started with Q&A. Is it working now? Oh, great. Thank you so much. Oh, it works better. 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 filing. 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. So with out of the way, Alicia, thank

Alesia Jeanne Haas, CFO

you very much for being here. Thank you, James. I'm delighted to be the second year in a row.

James, Analyst — on behalf of Steve Volkmann)

I love it. Yes, no, it's great. So maybe I'll just kick right off and get into, at least I'm sure, a lot of the questions you've been getting and want to set the stage for everybody about the market generally. The trading activity has been very volatile of late, the last couple of months at least. From your perspective, kind of what set that off and how would you characterize who has been trading, who has been selling, and what the reaction of other participants in the market has

Alesia Jeanne Haas, CFO

been so far? Great. Well, it's important to note that volatility is not new to crypto. And what we've seen over the last few months does have historical precedent. But as always, there's new drivers to what caused recent volatility in the markets. So we are seeing crypto more heavily correlated with broader macro trends. So on October 10th, we saw a significant sell-off in the market. Three things were happening at the time. One, Trump had announced tariffs against China. Two, there was a view on changing in Fed rates. and three, and probably the crypto-specific incident was what caused the largest sell-off in liquidation, is there was a poor price feed that came in from one of the large global exchanges into some of the DeFi protocols. And as a result, it showed, and so the price being here, the price was here, and it resulted in auto-deleveraging. And that auto-deleveraging then had a cascading impact where there was 19 billion of liquidation. It's the largest liquidation event in crypto's history, concentrated amongst the non-U.S. exchanges, concentrated on a few very specific platforms. And so that's really what caused them.

James, Analyst — on behalf of Steve Volkmann)

So that's kind of what has set it, that set it off.

Alesia Jeanne Haas, CFO

That's the triggering event. Right, triggering event.

James, Analyst — on behalf of Steve Volkmann)

And what's your sense of, like, has that been entirely cleaned up? I think there have been some people speculating that maybe more recent kind of sustained weakness where we've kind of, at least for Bitcoin, been around this $90,000 level, has been just ongoing cleanup from that? Or any sense as to what the follow-on trading activity has been like?

Alesia Jeanne Haas, CFO

So we're really business as usual on our platform. I want to share that we are very concentrated within our U.S. market is our large home market. Our second largest market is actually the U.K. and then Europe. So we do not have as much exposure to Asia and rest of the world as many other platforms do. So we are business as usual. And what I think is important to look at recently is in the last week alone, you've seen positive net inflows now back into the ETFs. And so I think that we are starting to see stability again, and people are really buying the dip in the $80,000, $85,000 Bitcoin price level. I think what this is demonstrating, though, unlike past events where there has been significant dislocation in crypto, I mean, 2022 was not too long ago where when we saw significant disruptions, we also saw numerous bankruptcies. We haven't had any bankruptcies. We haven't had any systemic fallout of any firms. People took some losses, but it shows the depth and maturation of the market. I think that we are renormalizing, moving back, and starting to see it again.

James, Analyst — on behalf of Steve Volkmann)

Yeah, I think that resilience is notable. So what about incremental implications? You know, what do you think? Are there implications from recent volatility on market structure, winners, losers, et cetera? Or do you feel like most of the market has absorbed it relatively well?

Alesia Jeanne Haas, CFO

we kind of move forward as we have been? That's a great question. In the U.S. and in other regulated markets, we definitely have rules from the CFTC, as an example, in the United States around how much leverage we can have in contracts. We have many non-regulated market participants within crypto where leverage is much higher. And so I do think it's important for market participants, for traders to understand leverage levels, understand their counterparties, understand the risks that they're taking as they engage. And you're going to have rules in many parts of the world that will then dictate those leverage limits. But as we can see with decentralized finance and other markets, there's always going to be some aspect of unregulated entities that have higher leverage. And high leverage can lead to, we've all seen this in all asset classes around all of history, high leverage, unregulation, you can have bubbles, you can have bankruptcies, you can have price dislocation. But I think as more and more of wealth flows into crypto in markets that have more concentrations of wealth, it will balance out and kind of create more broader stability over time.

James, Analyst — on behalf of Steve Volkmann)

Got it. And then just kind of last market-related question before we kind of move on specifically to Coinbase and how you see the landscape. But how do you track, like, elements of leverage or what's your – are you able to get a good sense of how much leverage is in the different parts of the market, et cetera? Because that's a question that we often get and one that I find hard to answer.

Alesia Jeanne Haas, CFO

It is hard to answer, and it's hard to answer because there's not a lot of disclosures amongst many of the platforms that then offer levered products. We are unique in that we are public. You can read our financial statements. You can see the leverage. You can see that our products offer nominal leverage and that we're fully collateralized. And so we don't have the same types of highly levered products that you can see throughout the market. But no, because of lack of disclosures, it is hard to get that level of transparency. We do, for at least our own customers, underwrite our customers where we're extending leverage and have a very good sense of the leverage within our own portfolio in our book and are proud to say that we haven't had any losses in our credit book, are proud to say that we haven't had any significant deleveraging. On October 10th, for example, we had two margin calls. It was immaterial. We didn't talk about it with the market because it was so single-digit millions type of thing.

James, Analyst — on behalf of Steve Volkmann)

So that's really encouraging. So let's talk about regulatory. You mentioned that just a moment ago, but spending a couple more minutes there, I guess arguably doing business as a crypto firm has not been easy over the last few years. and but seemingly we're it seems like I guess we're moving into a more favorable backdrop with supportive new administration etc from from your perspective how are conversations with regulators and and policymakers generally compared to a year ago I can't help but quip that when you're

Alesia Jeanne Haas, CFO

innovating at the edge of a new technology nothing is supposed to be easy right right right this is supposed to be hard otherwise we'd all be doing it we've obviously in the United States had a sea change. I mean, Europe led with Mika. We've had leadership in Singapore to bring crypto regulation forward in other countries. But the U.S. had really, in the past administration, been quite antagonistic against the industry. So I cannot tell you what a sea change it's been, what the pendulum has shifted in the other direction. I was meeting with a bank officer yesterday, and his comment to me was, in banking, we've been beat up for so long that when we got the new administration we started saying oh can we move from here to here one inch forward and all of a sudden the regulator's like no we'd like you to move over here like maybe a foot forward and he was like i have to drag my own risk teams all the way across he's like we've been so conditioned to that innovation is incremental and now we have this opportunity to have constructive data-driven discussions with our regulators so one we've got the genius act packed passed in the u.s the genius The Genius Act is stable coin legislation that brings forth who can issue stable coins, what reserves look like, what disclosures look like. Very straightforward rules that we can now use stable coins as payment vehicles. This is opening up the opportunity for payments growth on stable coins. How do we think about stable coins as collateral in trading and markets activity? All opening up possibilities because of the Genius Act. You've seen a growth in overall stable coin market cap. seen growth in overall payments volume. So regulatory clarity brings in market participants, brings in confidence in operating in this ecosystem. We are pursuing the same with market clarity rules. And the Clarity Act has received markups from both Senate Ag and Senate Banking. Good bipartisan support, getting everything through Congress in the U.S. is not a straight line, as anybody who's tried to get legislation passed in the U.S. knows. And so we move forward, We get distracted by something else going on, but crypto is keep pushing. So we are still very optimistic that this will get passed, given the number of days left in calendar year 2025. Less likely this year, but really strong momentum coming out of Senate still. So we think that this is near term.

James, Analyst — on behalf of Steve Volkmann)

So on that point, one of the things that obviously everybody is waiting for is the next piece of legislation, the Proposed Clarity Act. And it seems like with that passage, once again, is that you could encourage or at least have more people be amenable to looking at the market and entering the market. So how do you, with that being the case, though, it also seems like you could see more competition for Coinbase. How do you win with that additional competition, potentially entering the space? And what is, from your perspective, the unlock anticipated from a regulatory clarity that you're looking for?

Alesia Jeanne Haas, CFO

So let me ask what clarity is, and then we'll talk about competition as the second step. So the Clarity Act is going to give us asset taxonomy. So what does that mean? It's going to share with us what is a security, what is a commodity. It's going to create delineation between what falls under the SEC's jurisdiction and the CFTC's jurisdiction. It's going to cement these into law so that we are not at the whims of administration changes to say what we can and cannot do as a business. And we believe that this will bring more developers back to the U.S. It'll drive innovation as everyone's going to be able to focus on their product roadmaps versus their legal bills to defend themselves against government inquiry. So it'll just provide the rules of the road for how we bring forth crypto commodities, crypto securities into the market. absolutely though we expect that once we have these rules and there's not a threat of enforcement action it will bring more market participants in it'll bring more banks in it should bring in more fintechs it should bring in more corporates broadly we think this will grow the overall market so in addition to being risks to coinbase it's opportunity for coinbase because of just the growth so we believe that we're going to see more competition against our products. I think it's important to share that we are the most diversified platform in crypto in the United States. We have products for our retail investors, for institutions. We have developer tools. And we have amongst those different customer sets, trading products, financial services products. And we see today spot competition. So we have competition against our custody business for institutions as an example. That's one of our many products. Or we have competition for our retail. So we're definitely going to see it in spot. I don't think we're going to see it on the broad. What's also important is this competition provides a new revenue stream opportunity for us. So we have a business that we call crypto as a service. What we recognize is that we can provide tools to banks, to fintechs, to others who want to then build in crypto and provide crypto to their end customers, where we white label our solutions and allow them to use our API to then serve their end customers. In that way, we're an infrastructure company, very much like Amazon was an infrastructure company. They built their logistics business and their cloud business to serve their merchant needs, then they sold all those services to others who needed similar. So we can offer custody. We can offer back-end trading. We can offer on-ramps, fiat to crypto on-ramps. We have over 260 businesses who are now building on our platform. And so that will then feed into our institutional revenues. It feeds into our custody revenues, into our institutional trading revenues, into the USDC balances. But this is a way that we can also grow because we can enable many of those companies to get to market very quickly through building on our tools versus building vertical stack on their own. Got it. So let's talk about in terms of like

James, Analyst — on behalf of Steve Volkmann)

your business development and kind of your capabilities. Coinbase has been quite active on the M&A front. Can you help us understand what are you looking for when you're looking to do acquisitions? What are you looking to add to Coinbase's capabilities? Sure. We are very

Alesia Jeanne Haas, CFO

acquisitive. We're probably the most acquisitive in the crypto space. We've done eight deals this year. Many of those deals, most of you will not have heard of. We do what we call aqua hires, where we're looking for unique talent. And those would be teams of maybe five, 10 people that will just bring very unique talent in to accelerate our existing organic roadmap. We count those as M&A. And then we have the other end of the spectrum, things like Deribit. Deribit was a platform that we acquired and closed this August. It's a derivatives platform that brought us options capabilities. We can talk more about there a bit later. We don't know if to go into depth here. But the spectrum is we're looking for talent. We're looking for product. We're looking for things that can bolt on to our platform to offer more types of tradable assets to our universe. We look for new licenses. So as we enter new markets, oftentimes we need to get a license to be able to operate. Last year, we bought a method license in Europe so we could then offer certain products to the European customers on a go-to-market versus a reverse solicitation by obtaining that MIFID license. So those are the types of things. It's people, it's products, it's licenses. It's anything that's going to advance our roadmap that we think that will add unique capabilities and serve our end customers.

James, Analyst — on behalf of Steve Volkmann)

So let's spend a minute or two on Deribit. It's, you know, as I understand, a non-U.S. derivatives exchange, et cetera. Is there a plan, I guess, with Deribit to bring it into the U.S. or leverage their platform to scale internationally? What might make sense in how you would approach taking advantage of what you got in that acquisition?

Alesia Jeanne Haas, CFO

Deribit is an options platform, as I just mentioned. They have 75% of the options trading market share. They are the market leader in options. That is not all they do, but that is where their dominant position lies. Coinbase is dominant in spot trading. That is where our historical strength has been. We are more than 50%, for example, of the U.S. spot trading market. We are a growing share in the international spot trading market. We had just recently launched derivatives, meaning futures. So we have perpetual futures outside the U.S. We also have now perpetual futures, we're really proud to say, in the U.S. adding options, we now have futures, options, spot, that we can bring all in one platform. So this is currently, Darabit had only offered this to institutional customers and advanced traders, so sophisticated individual traders outside the U.S. Step one is to just integrate options into our international business. So then all of our customers, both Darabit customers and Coinbase customers, will have one trading platform where they can trade spot alongside futures, alongside options. What we think this provides is capital efficiency. We offer cross-margining, for example, on spot and futures today for institutional customers. That's typically 2x more capital efficient, so people can put less dollars to work and trade more, which they find very attractive. Adding options just continues to expand out the collaterals, expand out the tradable universe on our platform. Step one is international. Step two is we absolutely would like to bring this to the U.S., but that's going to be further on down the roadmap. We just closed in August. So we are good at many things, but integrations are complex, and we want to do this

James, Analyst — on behalf of Steve Volkmann)

right. So let's talk about four options and that kind of thing. It seems like the natural, and you mentioned earlier that you have product for not only consumers and individual trading, but also institutional. And institutional has clearly been kind of the aspiration for the industry for years, right? And with the Genius Act and now with the Clarity Act presumably going to pass at some point, the expectation is that there's going to be increasing interest from institutional investors generally. Can you give us an overview of, like, Coinbase's institutional offering today, and how has that business evolved over the last few years, but really with setting the stage to help us understand what you see as the growth opportunity within institutional for

Alesia Jeanne Haas, CFO

Coinbase. Sure. So our institutional business looks and feels very much like any other prime services business today, except for crypto. So we offer integrated custody, trading, financing, and in the trading, we're expanding out the asset classes that one can trade. What we're seeing is that we have over a third of the top 100 hedge funds as clients of our platform. we won 80% of the ETF custody business. The ETF providers not only custody with us, but they source the crypto that they need to back the ETFs on our exchange. They use financing products. So we have an integrated offering, and what we have found is that we're the only institutional grade player in the market at this point in time. And you can see that by evidence that there are other Bitcoin custody providers. There's many of them. But when we can win 80% of that business, it demonstrates that we are at the scale that can serve institutional clients in the ilks of BlackRock, et cetera, that we can pass that operational due diligence. So we have a very robust institutional offering. We are finding that we are continuing to be a platform of choice. So, for example, we just had news, was it yesterday, this morning? I'm a little bit off in my time zones right now. PNC Bank has become a partner where they're now offering Bitcoin to their high net worth customers and executing that all through our platform, that we are subcustodian, there's trading on our platform to offer that to their end users. PNC Bank is one of the major regional banks in the United States. So Institutional has the foundation to grow, as you pointed out. We do see post-regulatory clarity. We get inbound interest from new corporates. Governments, many governments now is an interesting new client set are looking to acquire Bitcoin and hold that as a strategic reserve asset, the U.S. included. Many of these are the types of customers that we are now poised to serve with our business.

James, Analyst — on behalf of Steve Volkmann)

So talking about different types of product that are in the market, we've seen multiple crypto ETFs start up over the past year or so. And you've also taken, and you mentioned a moment ago, some additional custodian role for the vast majority of these assets. It's like, how do you think about the long-term opportunity and role of Coinbase to support the ETF world? And what do you think that ecosystem of players looks like in the long run?

Alesia Jeanne Haas, CFO

It's a great question. I think what's really interesting is you can see the demand for access to crypto. And so you've seen new wrappers come out, such as the ETFs, such as the digital asset treasury companies, providing different wrappers, different structures to enable more and more asset categories, more and more investor types to find exposure to underlying crypto assets. And our role in the ETFs is that we are acting as subcustodian for all of the Bitcoin that sit behind the ETF. We are also supporting the ETF issuers through being a deep liquid market to be able to buy that crypto to support that. And oftentimes that we're also using financing because crypt is a 24-7 instant settlement asset class. And so as an ETF issuer, you can choose to either pre-fund Coinbase and other platforms where you want to buy your coin, or you can get trade finance from Coinbase to say, all right, I'm going to take credit from Coinbase and I will settle out my wire in hours, days, whatever the case may be for normal fiat settlement time. We can offer that full integrated service. But importantly, and many of you probably have this within your own businesses, when you get to a certain size and scale as many of these ETF issuers are, business continuity is of critical importance. And so you do have to have multiple service providers for each service that you have to ensure that you can provide 24-7 constant uptime. So we will see many of these adopt additional custodians, additional financing partners. And I think that is a natural evolution. And it shows also just the demand and maturity of the asset class to get to the point where we're focused more on business continuity and redundancy and crisis management than just a, can I buy crypto? How do I put it on my balance sheet? Where we were five

James, Analyst — on behalf of Steve Volkmann)

years ago. Right. So let's talk about, just a few minutes left here, but I did want to touch on a couple of specific products. And let's start with USDC and in particular on the institutional side. Where are you seeing demand or growth increasing the amount of USDC they're holding? Is it primarily individuals or is it institutional? And what are they using, if for anything, those stablecoin assets to transact for?

Alesia Jeanne Haas, CFO

It's both. We see demand both on the retail and on the institutional side. On the institutional side, what's important about what USDC started in is a trading pair. So we just talked about how crypto markets are 24-7, they're instant settlement. Fiat's not a 24-7 instant settlement. market, there's market hours, there's the banks aren't open on Sunday. And so what traders, what market participants needed was the ability to settle back to fiat and to have a stable asset to be able to sit in a market but not around the world. So what the institutional clients are mostly doing is holding it as a settlement asset. They use it to provide liquidity across all the trading pairs. They use it to have arbitrage trades across various different liquidity pools and exchanges around the world. And with our international exchange, for example, we only quote in USDC. So if you want to buy a perp, you have to have USDC in that account. So we don't quote back to fiat. We've done it a crypto only. So it's all crypto to crypto trading, essentially, or crypto to stablecoin, I should say. So the institutions are holding it predominantly there. And that's where the bulk of it is, it's trading behavior. But increasingly now, post-Unius, We're seeing companies want to hold it for payments. That is nascent behavior, starting to see real growth there, but that's a trend that we expect to continue.

James, Analyst — on behalf of Steve Volkmann)

So key question has been, and love to get kind of what you think, how you think this plays itself out. There is the open question of, for example, Coinbase is paying of rewards on stablecoin, whether that in the rulemaking process will be categorized categorizes as interest payments effectively and hence be prohibited or if it won't be or maybe it'll just be, I think everybody prefer if it was just addressed in the Clarity Act to clean

Alesia Jeanne Haas, CFO

up the uncertainty there. Well, it was addressed very cleanly actually in the Genius Act. So we have law on this right now that issuers cannot pay interest on the stable coins. Coinbase pays rewards. So we're paying this on the behavior of the total client activity on our platform. Lots of companies have rewards programs. So it's very structurally different than passing on interest on a balance, what we have designed on our own platform.

James, Analyst — on behalf of Steve Volkmann)

Got it. That's helpful. Lastly here, just quickly on credit card, you recently launched your own credit card. What are your expectations for that product, and what is the early response? And I guess really, what is the customer profile you're going after? And how is your offering different than what's already in the market?

Alesia Jeanne Haas, CFO

It's an incredibly unique offering as we're offering up to 4% Bitcoin back. That is a unique rewards program to receive Bitcoin back on your purchases. And it's unique because Bitcoin is an asset that many believe, including myself, has long-term asset appreciation value. Where many points programs have had deflation in them over time. And so now to have, effectively, your points go into an investment vehicle versus going into something that could have a deflationary impact, we think it's really differentiated. What we've seen is rapid adoption of the card. It is gated behind the Coinbase One membership, so we're also seeing growth of Coinbase One. We use the card as a customer acquisition vehicle, quite candidly, and we're really focused on building that Coinbase One subscriber base because what we see with Coinbase One subscribers is that they tend to be more actively engaged on our platform with many of our other products and services. So we're monetizing through the product stack with the acquisition vehicle at the Coinbase card. But we're delighted to see that it's become a top-of-wallet card. We've had incredible plausible feedback, both on the design of the card and the utility of the card.

James, Analyst — on behalf of Steve Volkmann)

Got it. Last question. How do you think about managing and operating the business through crypto cycles? I mean, there seems to be cyclical volatility, but how do you think about managing business through those?

Alesia Jeanne Haas, CFO

i think that um we've become very good at this i'm almost going on eight years here at coinbase prior to that i was at a hedge fund where i wasn't able to forecast returns very effectively either so it does feel like the last decade of my career has been managing and forecasting businesses that are crystal balls so the answer is we are never right at one forecast but we are very good at swim lanes and we're very good at scenario planning and so we manage the business through scenarios and we have triggers about various scenarios and various levels of revenue about what that means to our operating expenses and how do we then manage the OPEX. So we focus on components of variable expenses, how do we bring those up and down with various revenues and we're always planning risk scenarios and downside scenarios and ensuring that we can cover those operating expenses and be EBITDA positive in all operating conditions if those low revenue periods emerge.

James, Analyst — on behalf of Steve Volkmann)

Well, that's all the time we have. We're right at the top of the hour.

Alesia Jeanne Haas, CFO

Thank you so much. Appreciate it.