Derivatives Platform Growth
Q: How is Coinbase's derivatives platform progressing?
A: Coinbase's derivatives platform is making significant strides, although it's still early days. Derivatives represent 75% of all crypto trading volume, and Coinbase is now active in the U.S. and internationally. In Q2, they expanded to include more contracts and were the first to offer margin to crypto futures for several assets. They also added real-world assets like gold and oil commodities futures. Volume on Coinbase International Exchange has been strong, and they are building momentum. With the MiFID license expected to close in 2024, they aim to unlock derivatives in over 20 EU markets, which is a big opportunity. While derivatives are not yet a material driver of financial results, they are optimistic about its future impact on revenue.

USDC Growth and MiCA Legislation
Q: What is the impact of MiCA on USDC, and how is USDC performing?
A: The MiCA legislation is a significant development in Europe, and USDC is the first MiCA-compliant stablecoin. This compliance gives USDC a credibility boost, potentially encouraging migration from other stablecoins like Tether. USDC has become the fastest-growing stablecoin, with market cap up 30% year-to-date. Average on-platform balances increased 50% quarter-over-quarter, and recently, there was $20 billion of transaction volume on USDC on Base. MiCA has been a critical unlock, and Coinbase sees strong potential to drive USDC adoption across digital asset trading, DeFi, and global dollarization.

Balance Sheet Strategy and Interest Income
Q: How is Coinbase managing its growing cash balances and interest income?
A: Coinbase is pleased with its balance sheet strength and is using cash to support its prime financing business and ETF launches. A significant portion of cash is allocated to support products and to pay off the 2026 convertible notes. They maintain a strong balance sheet to be opportunistic for investments, both organic and inorganic. Regarding interest income, they have benefited from higher interest rates with USDC over the past year. They are prepared for rate declines and aim to grow USDC usage and native units to offset potential decreases in interest income.

Pricing Environment and Take Rates
Q: What's driving changes in consumer transaction take rates?
A: The blended average fee rate increased due to growth in new revenue streams like derivatives and wallet fees, which contribute to consumer transaction revenue but are not reflected in reported spot trading volume. This creates a disconnect when calculating average fees, as it's not an apples-to-apples comparison. The mix between simple and advanced trading remained consistent with the prior quarter, and there was no material change to fees this quarter.

Impact of Regulatory Clarity
Q: How might regulatory clarity affect Coinbase's position and competition?
A: Regulatory clarity is seen as the biggest blocker for institutions to allocate more funds into crypto. If crypto legislation is passed, it could unlock new pools of capital and lead to a huge surge of innovation. Coinbase believes that clear rules are good for everyone and is optimistic about where the industry could be in five or six years with supportive regulation.

Retail Engagement Trends
Q: How is retail engagement evolving at Coinbase?
A: Retail engagement has expanded beyond trading to include staking, USDC rewards, and products within Wallet and Smart Wallet. Customers are engaging in new ways, and while retail traders behave in line with market volatility, deeper engagement comes from the broader portfolio now offered.

Coinbase Asset Management Roadmap
Q: What's the strategy for Coinbase Asset Management?
A: Coinbase Asset Management offers institutional customers different strategies to access crypto markets. They aspire to provide index funds and retail products in the crypto space, similar to a "Coinbase 500," a market cap-weighted index for retail investors. However, current regulatory constraints make this challenging, and they are continuing policy efforts to make it possible in the future.

On-chain Initiatives and Coinbase's Role
Q: How is Coinbase supporting on-chain initiatives and developer engagement?
A: Coinbase provides core infrastructure like Layer 2 solutions and smart wallets, enabling innovators to build at the application layer. They are hosting events like the Base Camp hackathon to support builders. Coinbase's developer platform, CDP, offers tools for third parties to build on-chain applications, integrating crypto into various sectors of the global economy. They aim to update the global financial system with faster, cheaper, and more permissionless crypto rails.

Headcount Increase and Cost Management
Q: Why is Coinbase planning to increase headcount in the back half of the year?
A: Coinbase plans to increase hiring, focusing on consumer and international platforms and strengthening product foundations to scale with anticipated growth. They are being prudent in managing fixed costs, investing thoughtfully in key growth areas to meet market demand.

Political Landscape and Bipartisan Support
Q: Is there increasing bipartisan support for crypto in the political landscape?
A: Crypto enjoys strong champions on both sides of the political aisle, and there has been a significant rhetorical shift from both parties. The crypto community represents a massive voting block now taken seriously in Washington, D.C.. Over 1.3 million people have signaled their intention to elect pro-crypto candidates. Coinbase feels there is substantial momentum in gaining political support for crypto.