Institutions, legal, and web3: is Coinbase strategy working?
août 18 2023

Institutions, legal, and web3: is Coinbase strategy working?

Beaten by the bear market and over-zealous regulators, the US crypto industry is going through hard times.
Despite this, Coinbase ($COIN), the largest US crypto institution, remains resilient.

The steps it has taken this year reveal the cornerstones of its strategy – institutions, legal, and web3, with the recent launch of the Base blockchain. Judging by the company’s recent public earnings call, they may be working.

🏛️ Focus on institutions

Unsurprisingly, Coinbase’s main revenue stream – trading fees – has significantly declined during the bear market.
However, while retail investors are waiting for better times, institutional ones spot an opening, and Coinbase seizes this opportunity 💼

In the past few months, it opened the Coinbase International Exchange in Bermuda for non-US institutional clients and launched institutional-sized futures on its derivatives exchange. Coinbase is also designated as a custodian on the numerous spot crypto ETF filings, including those of BlackRock.

⚖️ Legal Engagement

Of course, the ETF card can only play out if the SEC gives a green light, and so far it has been a ferocious enemy of all things crypto.
SEC is suing Coinbase for “unregistered securities offering”, but the former has recently asked the Court for dismissal, arguing that crypto is beyond the SEC’s responsibility.

Coinbase also works with Congress on comprehensive crypto legislation, and two more bills have recently been introduced by the House committees.
Recently the company launched a nonprofit called Stand With Crypto, aiming to “activate” American crypto users 🗳️

👾 Web3 Bet

Coinbase’s CEO, Brian Armstrong, noted that the customer’s interest is shifting from trading to a wider range of web3 activities.
The company is following, and last week’s release of Base, its own blockchain, is showing how strong that commitment is.

Base is a layer-2 network on Ethereum, built in cooperation with Optimism, another layer-2 using optimistic rollups (an approach to scaling that involves moving computation and state storage off-chain). It rather is centralized now, but the company plans on decentralizing it further down the road.

Even prior to the public debut, there were already $139 million of deposits locked into apps and protocols on Base. A week later, this figure has increased to over $227 million (source: L2Beat).
Coinbase’s Jesse Pollak said on Tuesday that 100 DApps were already deployed or ready to go on the new network 💻

🔍 Is the strategy working?

Like many in the industry, last year Coinbase started to cut costs. By now, it has reduced reducing its operating expenses by almost 50%, which visibly did not impede its ability to develop new businesses.

The firm can now generate new revenue streams from institutional business (possibly also the assets under custody if the ETFs get approved).
It also advanced into the web3 direction, hoping for longer-term revenue coming from transaction fees and the overall ecosystem growth📈