Coinbase Global, Inc. (COIN) Q3 2021 Earnings Report, Transcript and Summary

Good afternoon. My name is Celine and I will be your conference operator today. At this time. I would like to welcome everyone to the Coinbase Third Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Anil Gupta, Vice President Investor Relations. You may begin your conference.

Thank you. Good afternoon and welcome to the Coinbase Third Quarter 2021 Earnings Call. Joining me on today's call are Brian Armstrong, Co-Founder and CEO; Emilie Choi, President and COO; and Alesia Haas, CFO. I hope you have all had the opportunity to read our shareholder letter which was published on our Investor Relations website earlier today. Before we get started, I'd like to remind you that during today's call, we may make forward-looking statements. Actual results may vary materially from today's statements. Information concerning risks, uncertainties, and other factors that could cause results to differ from these forward-looking statements is included in our SEC filings and shareholder letter available on our IR Website at investor. coinbase.com. Our discussion today will include references to adjusted EBITDA, a non-GAAP financial measure. We believe that certain non-GAAP measures of financial results provide useful information to management and investors regarding trends relating to our financial condition and results of operations. non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP measures, you can find additional disclosures regarding adjusted EBITDA, including a reconciliation to net income that comparable GAAP measure in our shareholder letter and current report on Form 8-K, which are posted on our IR Website. I want to note that we're once again using the Say technologies platform to enable our shareholders to post questions to our management team. In addition, we will take some live questions from our research analysts. And with that, I'll turn it over to Brian and Alicia for some introductory comments.

All right. Thanks, Anil. Thanks everybody for joining us as well. We've had another solid quarter and this is to admit the volatility happening out there in crypto markets. We never know exactly what's going to be happening in this quarter in crypto, but we are seeing really strong and accelerating pace of crypto adoption globally. In the letter, we actually shared some insights on the pace of this adoption and how it mirrors that of Internet 25 to 30 years ago. And we looked at some third-party research which indicates that crypto users have doubled in the first half of this year, now over 200 million people in that growth is accelerating. So what are going to focus on Coinbase? So there's 4 main areas. The first is about products, we're a product-led Company, and we focus a lot on how we can improve the customer experience to get to a billion people accessing the crypto economy through our products every day. So how are we doing that? Well, we're investing in our core apps, the main retail app. We're also investing in our prime brokerage app for institutions. We're building Coinbase Cloud, which is our AWS like developer platform for any business out there that wants to build into the crypto economy. And we've been investing in new initiatives like in a few marketplace, in our direct deposit offerings. The second area is around customer service. So you saw that we announced 24/7 phone customer support, which we're going to be rolling out next quarter. We're also investing in cyber liability. In midst of all this growth, we're very focused on maintaining adequate uptime for our apps and website in this unprecedented growth period. And then lastly, we're focused on our policy and government relations, efforts, and regulation. And so this is continuing the tradition that Coinbase has had since the beginning of seeking out regulators, being the most profit game licenses, and actually being in educational resource to help educate [Indiscernible] around the world about how this industry can be something very positive for the world. So I know there's lots of questions to get to you, but let me stop there and I'm going to turn it over to Alesia next to share a summary of our financial performance.

Thanks, Brian. As Brian shared, Q3 was a strong order for Coinbase. We provided a lot of disclosure in our letter, but I thought I would share a few perspective. It starts with volatility, the story of our third quarter really centers on lower volatility that we saw early in the quarter. Our monthly transacting users and trading volumes and therefore transaction fee revenue all correlate with volatility for some very important driver of financials. Trading volume across the entire crypto spot market declined quarter-over-quarter in Q3. For Coinbase our institutional volumes outperformance this broader market and our retail volumes performed in line with the industry. Next I want to share a bit of color on our retail transaction fees. I know you all watch this closely. As you'll see from our disclosures, the blended average fee rates were lower in Q3 versus Q2 for our retail business. We want to be clear, there was no change to our retail transaction fee rates in the quarter. The decline that you see is the result of math. It is a result of the facts that in low volatility periods, we see our low dollar volume traders become less active. We've seen this transaction reimbursed in October as customers have been very active on Coinbase, given the change in crypto prices and volatility that we've seen in October, and our blended average retail fees were higher in October. I want to share with you again, this is just an outcome of activity on our platform and that there's no underlying change to the fee rates. 3 other important trends on a Cloud. First, our focus on asset addition and paying off, we told you before we want to be the Amazon of assets, and today we see 59% of our trading volume in Q3 coming from other Crypto assets. We don't know precisely which asset customers are going to adopt, so our strategy of learning to support all legal assets will give our customers have brought us and save us choices to do some. Second, our customers are deepening their engagement with our product fee. 28% of our retail MTUs that invested also engaged with a second product gunpoint mix in the quarter. And 49%, nearly 50%, of our MTUs are engaging with non investing products overall. We see this as a great indication that we're moving to the utility phase of Crypto. Third, our subscription and services revenue was strong at $145 million, this is up 41% compared to Q2. We are pleased to see this growth despite the impact of volatility on the transaction revenue. And again, this is just an encouraging sign that crypto is increasingly moving to utility, particularly with these cases around yield and rewards, I want to turn to our outlook. In our shareholder letter, we noted that Q4 is off to a strong start. Volatility in crypto prices both increased in October, which has resulted in October monthly transacting users of 11.7 and October trading volume of $186 billion. Additionally, as I mentioned before, we've seen an increase in those retail fee rates in the month of October. As a result of that strength, we've increased our MTU scenarios for full-year 2021. Our low is now 8 million MTU s, which is the average over the course of 2021, and our high is 8.5 million, as outlined in our letter. We also shared that we anticipate our 2021 annual average net transaction revenue per month will be in the high $50. On the expense side, our updated outlook reflects our strengthening view of Q4, including transaction expenses in the mid-teens as a percent of our revenue. Sales and marketing will be higher compared to Q3 as we ramp up our brand investments, and our tech and dev and G&A spend should come in in the neighborhood of $1.4 billion combined. It's important to note that that excludes -- it does not include stock-based compensation. With that, I will turn it back to Anil to get started with Q&A.

Thanks, Brian and Alesia. Before getting into Q&A, I wanted to clearly lay out some principles for our Q&A question today. First, we will answer the most uploaded questions determined by a number of shares and make group questions together that touch on the same teams. Second, we don't plan to answer questions related to potential listing of new assets. And third, we will avoid questions we've answered in the past if there are no updates. For example, we still don't plan to issue a dividend. So our first question is from Sylvie UP and Jason M. They asked about Coinbase ventures. Can you talk a bit about our venture strategy, investment process and maybe highlight 1 or 2 investments you are particularly excited about. Can you walk us through the capital allocation strategy and how these investments are captured in our financials?

This is Emily Troy, President and COO, thanks for being on the call. So we're very pleased with the progress of Coinbase ventures. We launched it in 2018 primarily with the mandate to support the growing crypto ecosystem and we have become one of the most active corporate investors with more than 200 portfolio companies at this point. One of the questions was about the ones we're most excited about and we look at it as thematically what is really interesting and popping and what teams and technologies are really interesting. So this includes everything from open fee, which we invested in their seed round in 2018, because we thought NFTs was going to be interesting, tax bit and coin tracker because taxes are so important in crypto. BlockFi for lending, Uniswap for decentralized exchanges, and then CoinSwitch, because we think India and international are such important themes. And that's the way we think about the portfolio we just -- we really look at interesting themes and then try to find the best teams and technologies in the space. And as I mentioned, we want to support the ecosystem because it helps support and grow those companies and also helps us get differentiated in size about what's popping. A secondary goal for us is about M&A pipeline and or partnerships. So for example, Bison Trails is a Company that we invested in as a Coinbase centers Company and it is now -- had been acquired by us and forms the basis for Coinbase Cloud. Another example of this, on the partnership side is that we invested in compound before partnering to support their day 1 listing for custody and trading. So we think there's a lot of different ways that we can work with these companies across the spectrum of partnership to acquisition. And then finally, we also do care about ROI, and we think that will be showing strong returns in coming quarters around that, but that's kind of a secondary goal for us. Final thing, I'll say on this is just that we've been spending a lot of time as of late working with protocols, Web3 infrastructure, DeFi, CeFi, and of course NFT Metaverse. And we think there's just an abundance of innovation in this space and we want to keep doubling down on those opportunities. Alesia, do you want to talk about the financial part of it?

Happy [Indiscernible]. So first part question, how we think about our capital allocation framework, and here I would sure there's no hard and [Indiscernible] rules. When we look our overall Balance Sheet, we allocate capital to 4 different use cases. 1. Is just to working capital, 2. Is to product support and strategic initiatives of which venture investments and strategic investments fall into that bucket, 3rd. Is to any potential risks that we may have that we want to self-insure and then lastly, is the ability to be able to fund our business through a crypto winter. So this capital allocation is a constant discussion between Emily, Brian, and I about what is the best and highest use of our resources, but in some very important area that we allocate capacity to. We called our strategic investments on our Balance Sheet under other non-current assets, income CDOs in our financial disclosures in our 10Qs

10-K. The majority are equity investments who withhold less than 10%, so these are minority passive investments. We recorded net cost and test for impairments on a regular basis. They could be -- subsequently in Britain up, this is a very rare because the accounting world for when we actually write up an investment are very precise. It has to be an identical transaction and what we typically see in these investments that they have subsequent rounds that are not identical investments. And so you will see us typically carrying this at cost. There could be a significant delta between the fair market value of these investments and the carrying value reflected on our books. We look forward in the future to producing more disclosure and giving you more insights into this portfolio and may disclose fair market value at a future time.

Next, we received several questions about NFT. Sylvie UP and Steven D. asked if we can talk about the recent announcement of the Coinbase NFT platform and the overall strategy there. What are your plans for international expansion of the NFT platform and cross-platform usability. Devin Ryan from JMP Securities, asked about the social component of NFT and Rich Repetto from Piper Sandler asked about the timing of when we will launch our marketplace?

So this is Brian, I'll jump in on this 1, so we're very excited about NFT. I think, this is going to be a very large area for crypto in the future, and it already is today. Traditionally our Coinbase is focused on FTs fungible tokens. And we're equally excited about NFT, I think it could be as big or bigger we don't know. So reasons do not permit it because of course we launched Coinbase NFT or we announced that we'll be launching it in next quarter or 2. And so Coinbase is a multi-product Company, we have an effort internally we call Project [Indiscernible]. Like Coinbase wallet, and Coinbase commerce. The direct deposit feature that we announced and these NFT all came out of that. This is NFT product that we've talked about is really just a small team. So there was a question there about the social experience, and I think that's something that Coinbase can bring to the table here. We'd like to make our Coinbase NFT a little bit more like Instagram as opposed to say an auction like eBay. People that you can follow your favorite artists or creators and having a feed of content that is populated from those people you follow, that could be really powerful. And in addition, you can go in there and buy a NFT if you really like it, and we'll kind of showcase in your own social profile. In addition to that, I think we can just make hopefully a feed a much easier to use that kind of a hallmark with Coinbase tried to do out there to bring more and more people into the crypto space. So just simple things like, how do you connect your wallet? You don't, hopefully you won't have to install a perm extension and if your identity and your payment methods and everything are just already connected from your Coinbase account, buying could be hopefully a 1 quick experience. So I think this is going to be a global phenomenon. We want to make sure our NFT platform is interoperable with every other platform out there. And hopefully we will see something launched in the next couple quarters there.

Our next question comes from Lee L. (ph), who has noticed some Coinbase marketing efforts lately, including ads on YouTube and our recently announced partnership with the NBA. Can you walk us through the evolution of your marketing strategy and how that will continue to fuel the growth of your user base and how do you measure effectiveness?

Thanks for the question. So like many classic consumer Internet companies, we have still such a strong base of organic users. And frankly, historically, we use very little marketing spend prior to this year. And now I think we see a huge opportunity and we're working to right-size our budget and invest more in marketing. We think that the next concentric circle to reach 1 billion crypto users globally as possible here and we want to use both organic as well as marketing efforts to help reach those users. And we're also looking to figure out what is authentic for Coinbase? How do we celebrate the unique aspects of Coinbase in the crypto community in those marketing efforts? So to that end, we recently hired our first CMO, Kate Rouch who came from Facebook. And for the first half of this year was focused largely on performance in gross marketing. And now what you're seeing is that we're expanding into the full funnel of marketing including brand efforts such as Made in America in Q3. The multiyear partnership with the NBA as their exclusive cryptocurrency platform partner that you referenced, and we have lots more to come. We think we have a very big opportunity to invest in brand, expand the channels that we reach, and that includes things like eSports to art, to sports, and we're also very excited about investing in content, educating existing and new users about the possibilities of crypto.

Just to add on a little bit, Emilie, what I would share with regards to the -- how do we measure it, how do we think about it? Marketing after decent efficacy is a new muscle that we're building as Emily noted, our marketing spend is moving beyond performance marketing. So for performance marketing, we -- we're pretty well tuned here and we look at our customer acquisition costs in [Indiscernible] and have i [Indiscernible] region outcomes we'd like to see. And we're planning to test, and learn, and gather insights into the spend, and so you should expect to see us iterating and testing quite a bit, and we'll share updates as they are relevant.

Our next question comes from Hobic K. and Caleb O. who saw the updates to our crypto investment policy. Can you share a bit more detail around that program for those who may not be as familiar, and what purchases -- what have purchases looked like so far and would Coinbase ever consider getting into mining?

Thanks for the question. So yes, in August, we announced an update to our crypto investment policy, and they picture our goals to become vast majority, if not 100%, crypto over time. We want to have [Indiscernible] in that direction. We've made 2 commitments. The first was to invest $500 million of our cash and cash equivalents in the crypto and second, we're allocating 10% of quarterly net income into the crypto investments. We're dollar cost averaging into a diverse portfolio over time, you will not see a $500 million step-up in our investments at the Q3, but you should expect to see this balance continue to grow. We've invested upwards of our crypto assets held are on our balance sheet at cost. They sit in a line item called Crypto Assets Held and you can view additional disclosures on our foot notes, which break these out for what is an investment versus what is crypto that we hold for operational purposes. You can also see on that footnote some fair value disclosure and you can see that our crypto investments as of Q3 were on the balance sheet and we disclosed a bit and other crypto assets break out in those details.

[Indiscernible] who asked regulation is top of mind, can you give us a bit of insight into the regulatory state of affairs in the U.S. today? How is Coinbase participating and how would you like to see the conversation evolve? And to add on, Owen Lau from Oppenheimer asked about how the digital assets policy proposal has been received by regulators.

Yeah, I can take this one. So a regulation in our policy efforts are certainly top of mind for us as well. And whenever we see a run-up in crypto, we see an increased interest in policymakers around the world. And so just going back to our roots, Coinbase has always reach out, get -- keep licensing, be the most regulated, the most trusted, and also be really an advisor and a helpful voice for finance minister than anybody around the world who's trying to think about this change that's happening to our global economy with crypto and how it can be really a source of strength and growth for the countries that embrace it, while minimizing the small amount of bad activity that's out there. So we've continued that trend in recent months. We've met with a number of different regulators out there on regular basis. We even had a meeting -- I had a meeting last week with the chairman of the SEC, Chair Gensler, which I think was very productive. There's a variety of different regulators in the U.S. and this is part of what we talk about in our digital asset quality proposal is that it [Indiscernible] CFTC, the SEC, the Treasury, and then of course, on transmission licenses and lending licenses. This is just in the U.S., 1 country of many, almost 100, where we have customers and so it's amazing that we as Coinbase, we have 53 regulators in just 1 country, U.S.. And so part of what we talked about in that proposal, as it is the digital asset policy holder with maybe it's time to have 1 regulator at the federal level in the U.S.. It could be underneath one of the existing regulators. It doesn't have to be a completely new [Indiscernible] a bit and use that as a way to enable more innovation in the space. Because Coinbase is a pretty large Company and frankly it's almost like better for us if there's more regulators because we can shoulder the burden of that as a larger Company, but it's really harming the startups in the space more. And we really want a space to grow and have a 1,000 Company to create economic growth and economic freedom here in U.S. as a financial hub in a world leader, I think it's important for U.S. to embrace that. So that's part of what we proposed in the digital asset policy proposal. And I think with the tens of millions of Americans out there that are now using this asset class for all kinds of things, not just financial services and you need [Indiscernible] payments and things like that, but also for art and new forms of governance and identity and the Metaverse in thousand. And it's just so exciting that the millions of young people, the talented young people all over the U.S. [Indiscernible] but all we can all do, share these goals, both crypto companies and regulators is to come together and figure out how do we make this a safe industry that, let's get rid of the scams, let's go prosecute those, let's have good consumer protection and disclosure. But also help the industry grow because that's going to be [Indiscernible] American people long-term.

Thanks, Brian. Our next question comes from [Indiscernible]. How should we think about compression and transaction fees driven by competition? And how do you plan on diversifying your revenue streams?

Great question, [Indiscernible]. I'm glad you asked. So I will start with it and we've shared before that we don't think of ourselves as primarily competing on fees today. As we believe the services that we're providing are not commoditized. On the retail side, we compete on access to assets, which is why we focus on asset addition. We focus on products that allow our users to use their crypto, and increasingly the ability to more single interact with defined. So we're providing an economy that is you can differentiate.

On the institutional side [Indiscernible] well, where we offer an institutional grade [Indiscernible] broker, deep liquidity, we offer secure storage to our [Indiscernible] solutions so fees is not the primary aspect that we compete on. [Indiscernible] I would just want to share is that we haven't changed our fee structure in Q3 and haven't in some time. However, we do see the weighted average fee vary quarter-to-quarter depending on the mix of volume that we see on our platform. We did see a decline in our retail transaction fees in Q3, as we saw more volume from our pro platform than our consumer platform. And this is very common in periods of low volatility like we saw in July,

that we see high activity remain under our institutions and our Pro users and retail or the consumer trading some size build bit. And the opposite is true for periods of high volatility, like we saw in September and then we saw in October. And so, we do think in the long-term though, zooming out level, that we will see some compression as more and more products will become commoditized in crypto. And so we've already begun focusing on diversifying our revenue and you can see that progress to the growth of the line item in our subscription and services revenue. As we turn to our opening comments, what were really excited about is to sign to see crypto entities utility phase. And so users are not coming to us just to transact and buying [Indiscernible], they're also engaging with products like taking, earned, borrow lend. And I think it's just the beginning as we've announced that we're launching new products and services over the coming quarters that we think will further diversify these revenues. So I think our job is to continue to build compelling products experiences, allow our users to engage and multiply to become that primary financial account. We think this will camping out the revenue volatility and [Indiscernible]

Variance. So Timothy asked, Adam W. and Nicolas have asked for the improvements in the inept functionality around cost basis, profitability, etc. of a position. And similarly, what are you doing to [Indiscernible] what are you developing to help consumers come tax season?

Yeah, so I can take this one. So let me just talk generally about how we think about this and then I'll answer your question directly. Just how do we think about taxes and costs basis in crypto well, we want to make it easier and easier for every customer of ours out there to calculate this so that "just works. " And you don't have to -- if you bought some crypto, and it went up in value, and now you want to spend it on [Indiscernible] or with Coinbase Commerce, that all just works. We've produced one simple forum for you at the end of the year, and the government's copy, you get a copy just like any other financial service firm out there. So that's going to be great for crypto and I think we're -- the good news is that we are getting very close to having that ready so we already sort of rolling out something called the Coinbase tax center and basically this is a single quarter's, let's say Coinbase commerce, and deposit the crypto on point data, we can help track all that for you so you don't have to worry about it. Now in the future, I would love to see the crypto industry actually even companies is actually interoperable by deposit put it somewhere else and you move it here and you spend it there, like there's a way to get information sharing behind us to do on that in future. But I think, [Indiscernible] tax center will rolling out. It's going to be a huge step in the right direction and make it Coinbase just work for the people who are on Coinbase products at least. Secondly, you'd asked about cost basis and profitability, if we gain, loss, its summary. And this is a feature that we also feel is important. We've been working on for a while. So by Q1 in time [Indiscernible] from Tony P. who asked about competition, how do you think about the competitive landscape and who or what do you view as Coinbase's largest competitive threat?

We think it's a very positive development when companies enter the crypto economy because we think it creates more innovation in this side. There are companies like PayPal and Square and Robinhood and traditional financial institutions who are entering and we believe that that's a huge validation of the whole space. In many cases, we're actually collaborating with those companies and exploring ways to partner. And we talked about our differentiation point relative to those companies as being crypto-native. We can offer features and assets more scalably because we have a crypto-native bench. Other crypto-native companies that are out there that we admire a lot, their piece of innovation is risk. But also we look to them for inspiration in terms of what is resonating with crypto native users. In many cases, those companies are not regulated and we can offer more usable, more regulated versions of those products to customers. Customers, as we've talked about, choose us for trust, ease-of-use, safety, and security of our services. I think that ultimately the way that you should think about Coinbase in this market is we are happy player that makes things as usable as possible for our many customers. And then we also -- we are able to offer many more assets and many more crypto needed features such as staking rewards, borrow, earn, because of our exclusive focus on crypto.

Great, thanks. So we'll take one more question from say before [Indiscernible] Here is from [Indiscernible] and Jason M who has international plans [Indiscernible] product in future roadmap internationally notably across South Asia and South America. And additionally, harsher to rollout from Sanford, Bernstein asked if we can provide an update on recent launches in both Japan and Germany.

Sure. Our platform is now available in more than 100 companies globally, to fulfill that mission, we have to have as deep global and broad global reach as possible. So we're working to build products with the shift-international-by-default mindset. crypto is very global so our product capabilities need to be as well. We have different geographies and so we're mindful of which features to scale where and when, and we look at a host of different signals in these different countries and regions. GDP, crypto volumes [Indiscernible] so currency stability and we look actively to pursue both M&A and partnerships to help accelerate our path into those different geographies. Alesia, do you want to talk about the latter part of that question?

Absolutely. So thank you for the question on Japan and Germany, which you're going to -- our Q2 shareholder letter that we had just received licenses in both of these markets, and so they were long awaited launches for us. Just to go back a long license application process with the regulators. So sometimes we don't know exactly when we will launch. As a result, when we launch in those countries, it is an NBC product. Is the first foothold in a country, and so what we see in Q3 is we don't have a meaningful update to provide you in terms of those launches. But our goal is to develop the very similar products in those markets that we have in the U.S. reduce customer friction, offer delightful on-boarding experience within customer rails, and that's what we're building towards in those markets to really be able to then market and grow those customer pieces. So not yet material, but we hope to have news in the coming [Indiscernible]

Okay, super. Thanks. So with that, we'll now transition and take a few live questions from our analysts. So Celine, I'll turn it over to you for the first question, please.

Thank you. [Operator Instructions]. We'll pause for just a moment to compile the Q&A roster. We have our first question coming from the line of Kenneth Worthington with JPMorgan. Your line is open.

Hi, good evening. The crypto currency markets have had a nice move in recent months, in recent weeks. Do you think that the drivers of this interest in the crypto currency markets and ecosystem today -- and I think from the drivers that drove interest in the ecosystem late last year and even earlier this year. And maybe [Indiscernible] system evolving for retail and corporate [Indiscernible] currencies evolve from the fringe towards more of the mainstream.

Thanks for the question Ken. I can share my high-level thinking on this and then I'm not really sure I don't have any thoughts as well, please jump in. I think if you go back really 3, 4, 5 years, a lot of the cycles in crypto were more speculative in nature. People were buying it because this was now a scarce digital good and they thought it would be valuable in the future. And there were some people using it for payments and things like that, but it wasn't the primary driver. What's exciting now -- and by the way, people would always ask me back then, [Indiscernible] nobody is really asking me that question anymore. We're now seeing the tons of these cases where -- like the NFTs and games, and you're seeing staking and borrowing and lending and Coinbase card. And I think, as Alesia shared at the beginning, almost half of our customers now, our active customers, are doing something other than trading crypto. So I would say that -- I always hesitate to speculate on what is driving momentum and what's the recent rally or whatever we're currently a little bit longer term, but to me, the most important thing is how do we drive more people after using crypto from working, we're now seeing that in the numbers and I have to amend in that driving a lot of this recent growth, becoming less of a speculative thing. So Alesia and Emilie anything you want to add?

I agree with all that, Brian, I would just -- to connect the dots perhaps a little bit. When we see the growth of NFT that has great tailwind effects to than the etherium work chain etherium assets. And then we're seeing new development on Florida, which then has time protocols. And so I do think it's just the that were seen that is driving a lot of the overall crypto market cap growth. I think that's definitely the case on the retail side of the [Indiscernible] and then on institutional and I think we're continuing to see these new types of institutional investors besides make an allocation to crypto. And what we see there is an adoption curve that have starts with bitcoin, typically then moves to Ethereum but if to DeFi finding ways to say to make that's in the growing innovation [Indiscernible] than of crypto broadly. Lots of different drivers, but it does feel different as Brian said. But it feels less speculative than more driven by utility and broader adoption of crypto in more traditional use cases.

Great. Thank you very much.

Lisa Ellis, with MoffettNathanson. Your line is open.

Oh, terrific. Thank you. Thanks for taking my question. This quarter we've seen the launch of crypto ETFs in the U.S. Can you talk a bit about how ETF s are affecting Coinbase or may in the future? And I guess maybe the broader question is, can you elaborate a bit on how Coinbase is thinking about partnering versus competing with some of the traditional asset managers as crypto investing mainstream? Thank you.

Maybe in affiliate, so maybe I'll start and then Brian, Emilie, feel free to add on. So about the bitcoin ETF, and we think that it will benefit trading volumes just broadly. [Indiscernible] the system and ads a broader adoption. If there's some institutions that don't have the ability to invest in underlying spot. That doesn't mean it's a different market, so crypto stock market is 24/7 global, there's never a dull moment in them. But in these cases, obviously the bitcoin, each kiosks will also benefit about our stock market and we have the ability to provide custody solutions and are actively having conversations that how we can support the broader each [Indiscernible] adoption. And while our business today is entirely spot, we do have ambitions of launching a futures trading business in the future and applied for approval to do so in the U.S. So we're excited about the potential for that future growth of our own businesses as well. So in general again, very positive we're excited for the growth of the crypto economy and what that will bring more users into the space.

Thank you.

Thank you. We have our next question coming from the line of Keith Christensen with Citi. Your line is open.

Good evening. Thanks for the question. Glad to be here. Brian, I appreciate your color on the question regarding policy. Not -- doesn't necessarily have to be under completely different umbrella, but certainly a separate regulatory framework. But how do you think about that in the context of the world on a regulatory front? I mean, there's -- you have to get [Indiscernible] dollars into crypto somehow. How are you thinking about a policy maybe should be formed around that notion? Thank you.

Good question. Thank you for bringing financial system in this new crypto economy, and so we often need to play in both worlds, right? We, for instance, we're custodying customer funds in U.S. dollars and so we have money transmission licenses for that as an example. I think this maybe a good question that, Emilie, feel free to add more.

[Indiscernible] and I think our goal right now is to get all regulator focused on crypto. I remain grew up around the need for financial intermediaries. Thanks local dealers to really facilitate the regulations and to see the interface between rigs in the customers. The technology can provide some of those services directly in crypto until we need to make sure that the regulations. And then around the comments we have around, yes, we don't want to have brought -- we don't want to have scams. We want to protect customers, but technology solves that in you have intermediaries as an example. And so we think that having a single regulator and then help with the new principal per financial regulations in crypto look like will be helpful but we also believe that there's going to be -- and those crypto [Indiscernible] crypto commodities will be regulated all under traditional financial services regulation. But there's a lot of things that are new that need to be adopted. And so having that focus, we've seen this valuable. I don't know if that helps frame our views.

I would agree with that, I think, there's some parts that were probably applicable in this new crypto Cloud, we don't want to scam. Market structure rules are probably there for good reason. There are some rules that we're always questioning. Doesn't that [Indiscernible] in the room that a lot of regulators and [Indiscernible] policy makers are having to grapple with right now, and we're trying to be a helpful [Indiscernible] to them is what really -- back in the '40s around orange [Indiscernible] we're all that crypto economy are these holding back innovation. And so those are big questions to ask, maybe even above our pay grade a little bit but I think they're important ones to ask.

Thank you. Great.

Thank you. We have our next question coming from the line of Will Nance with GS. Your line is open.

Hey guys. Maybe just another question on the regulatory environment. I think the Coinbase has always been part of this 1 of the members of the crypto ecosystem that's been the most proactive with regulators with your approach to compliance. What are you seeing in conversations with regulators today? And when you think about framework around crypto as it relates to your ability to rollout new products. I mean, what do you feel should be prioritized in those two kind of pull back on the reins a little bit and let you guys be more free to rollout new products. Is there a pipeline of new products that you are most excited about, but that you can't proceed with until there's more regulatory clarity?

Thanks for the question, Will. I would say 90% of our interactions with regulators are really positive and constructive, and I generally feel like they're going really well. We try to reach out proactively to everybody before we launch products well in advance and kind of give them a heads up, and usually that worked out pretty well. 1 out of 10 times when we see some kind of bad policy that's proposed and we feel like we have a responsibility to speak up and kind of for the industry as the largest player in the U.S. and push back on it where it needed. But our deep follow-up is really just to proactively engage and I think that [Indiscernible] the time the regulators that we interact with our really thoughtful people and mutual respect. And we're just really trying to achieve the same outcome, same goals which is consumer protection and fair market. There are certainly have been times where we felt like we wanted to launch a product and we've gotten a different answer at the last minute about whether we were allowed to roll it out and it's really tough on the team Coinbase that have put a lot of time into building this thing. So that's not always great, but this is a fast-moving space. We understand that these are complicated issue, so it's not always simple answers. And frankly, it's regulators don't always have the resources to go meet with every single Company in different places, thousands of it starts now, so it doesn't feel great sometimes but competitors have had something out there in the market for 2 years and then we aren't able to [Indiscernible] things like that but I also understand why that happens and regulators can't meet with every single [Indiscernible]

Operator, we have time for one more question please.

Thank you. We have our last question coming from the line of Rich Repetto with Piper Sandler. Your line is open.

[Indiscernible] on the black team rewards. [Indiscernible] doubled, acquired [Indiscernible]. The profit that really drove the up scripts. I guess, turning down [Indiscernible]you burn or can you? going forward. We're staking in Ethereum but what do you expect, can you continue to grow at it at what type of pace given the great results you've had here in the lot of the quarters?

Thanks Rich, for the question. I'm gonna reinstate it just because your -- but I think your question was you've seen significant growth in our blockchain rewards revenue that grew meaningfully quarter-over-quarter, and you're asking about what the trajectory is? Can you just confirm that I understood the question?

That's exactly it.

Okay. Great. Thank you for the question, Rich. Nice to hear it from you. We're really excited about the growth of blockchain rewards, which is predominantly sticking revenues today. And the growth here is really around the growth of overall proof-of-stake networks and the growth that crypto overall. So 1 is, we're going to add more proof-of-stake networks and offer staking in more assets on our platform. 2, is we have continued to have a waitlist for the period staking. And for the existing staking we offer and more users into the staking assets that we do provide. So we have existing runway with those assets. And those are going to be 2 significant that we believe that this is the direction the industry is growing. Brian, you want to comment on [Indiscernible] networks and the overall industry views.

No, I think Coinbase data is going to continue to grow and I think staking award is walking reward with the economy, I think will be an important growth area for us in the future. I believe it at this point, in Coinbase is the largest guarantee stakers, for instance, which is really great. Emilie, anything else you want to add on this before we wrap up?

I think it's big source of innovation that goes back to one of the other questions about what is driving the activity in the ecosystem, and I think it comes back to this. And so we're pretty bullish on the potential for this, both as just helping the ecosystem as well as being an important source of subscription revenue for us.

Great. Thank you. Thank you. Brian, Emilie, Alesia, and thank you all for joining us today. We look forward to speaking with you again on our next call.

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