Coinbase Global, Inc. (NASDAQ:COIN) Oppenheimer Technology, Internet & Communications Conference Call August 9, 2023 2:55 PM ET
Company Participants
Alesia Haas – Chief Financial Officer
Conference Call Participants
Kwun Sum Lau – Oppenheimer & Co. Inc.
Kwun Sum Lau
All right. Our next session is with Coinbase. Thank you, everyone, for joining us today. For those of you who don’t know me, my name is Owen Lau. I cover information services, exchange and digital assets at Oppenheimer. Coinbase is well known to be a crypto exchange, but it also has a joint venture with Circle, which issues USDC. Outside of trading, Coinbase also provides custody, staking and other blockchain technological services to customers.
And today, we are very excited to have CFO, Alesia Haas, joining us. Thank you, Alesia, for your time.
Alesia Haas
Thank you, Owen. I’m delighted to be here with you.
Kwun Sum Lau
For the people who are listening to the webcast, please feel free to submit your questions online, and we’ll try our best to address your questions. Before we get started, I have a statement to read for Coinbase.
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 reference 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.
Question-and-Answer Session
Q – Kwun Sum Lau
So without further delay, Alesia, again, Coinbase is widely perceived to be a crypto exchange. But actually, I think around half of your revenue comes from so-called subscription and service revenue. Could you please summarize for us your effort to diversify away from the trading revenue so far?
Alesia Haas
Thanks, Owen. Yes. So we are really proud of our history that we are the leading crypto trading platform in the United States and a building platform on a global basis. When we were founded, our goal was to make buying, selling Bitcoin simple, easy to use and to develop a really trusted place for anybody that had an Internet connection, could buy a crypto asset. Today, we are now trusted and easy to use for accessing the broader crypto economy and it’s something we’re really excited about.
We’re really excited to move the world from online to on-chain, and that’s kind of a key theme that you’ll start hearing a lot from us. So we’re now building products and services that are meeting the needs of consumers, our advanced traders, institutions and increasingly developers, like Web3 developers or folks that are developing new apps on-chain. So – but our roots are in trading and trading for us is just the basic idea that you can move from Fiat to crypto.
And so to access this new on-chain world, you have to have a crypto assets. The foundation of our product platform is the ability to buy and sell easily between the Fiat and the crypto world. So we’re continuing to roll out features that make this trading platform more accessible. That means adding more assets. So giving people the option to explore and use all sorts of new crypto assets. This is expanding payment rails in other markets, giving people more paths to be able to access crypto in more currencies in some case or in more just easy to use.
So whether that is through PayPal or Google versus just having like an ACH and connecting to your bank. So we did more of that in Q2. But you pointed out something really interesting and that this is the first quarter that we’ve now had our subscription and services revenues exceed our transaction revenue. So this is the first time this has happened in Q2 that broadly subscription and services came in at $335 million, and the transaction revenues came in at $327 million. So it exceeded 50% for the first time.
I want to share that like broadly, our goal is to grow both revenue streams. And so this is as we diversify revenue and we may see some quarters or one is higher or some quarters with the other, but the goal is to grow all revenue streams. It’s not that we tried to grow subscription and services to become a higher percentage. It just happened to be that this quarter because of broad dynamics that occurred. So this has been an area that we’ve had focus on now for many years.
And as Brian mentioned on our Q2 call, we’re really trying to have our products grow to utilities beyond trading. So beyond trading now, we help customers with a variety of needs, whether it’s making payments in crypto, saving and having it be a store of value, Bitcoin has been broadly thought of as a store of value asset. They can earn rewards to go on Quest to kind of learn more about crypto projects.
There’s financing opportunities for customers. There is ETH staking, which now has liquidity so they can participate in validating transactions on a proof-of-stake network, which is an exciting way to earn rewards on those assets. And this is kind of what we think the future is more and more crypto activities. So, we’re really pleased. We think that we now have a next generation that we’re really investing in to make crypto more of a utility. One of the things I’d like to say is we’re still in like the dial-up days of crypto, the dial-up modem days had to see the broadband then you needed to have GeoTagging and iPhones to really unlock the amazing applications we see on the Internet today.
So dial yourself back kind of 20 years and think about like dial-up modems and like just early data transfer. So we are investing in that technology infrastructure layer to really make this more fast, more – less expensive, more useful. And so that is the initiative we have around that base that we just launched today, which is a layer two solution that will hopefully make transactions faster and cheaper. This is around our wallet products. This is around cloud. This is so we’re getting everybody the tool, which is a wallet that they can then store NFTs, store crypto-assets because these have a different nature of holding the asset as their bear instruments. So we’re really excited about the future. We’re continuing towards diversification, and this is how we hope to shape our business going forward, a platform of products.
Kwun Sum Lau
Got it. So Coinbase reported results last week, I think there were two bright spots for us. The first one was the retail fee rate. And Alesia, you mentioned a few times that this is an output, not an input. I think – but I think quite a number of people still think Coinbase has been facing fee compression since 2021. But based on our math, the retail fee rate actually increased from 110 basis points in the third quarter of 2021 to 221 basis points in the second quarter of 2023. I mean could you please explain to us what’s going on there?
Alesia Haas
I can. And I really appreciate you saying that it is an output and not an input, as that is the message I really want to drive home to everyone, which is what we report is we report our retail trading volume. We report our institutional volume, and then we report transaction fee revenue for both consumer and institutional.
And so a lot of people do the math and say, okay, therefore, your output was this weighted average fee rate of X. That number has varied meaningfully over the last two years, as you point out, but it also can vary meaningfully quarter-to-quarter. So I want to just talk a little bit about what goes on driving that output. The first thing that goes on is we have multiple products underneath both of our consumer product suite and our institutional suite that leads to transaction fee revenue. So for example, on the consumer side, we have the simple trading experience. We have the advanced trading experience. We have Coinbase One. We also have Fiat to crypto-trading versus crypto to crypto trading. All of these have different pricing. All of our pricing is transparent, it’s disclosed to our customers so they know what pricing that they’re experiencing in these products, but they are different.
And so depending on the mix shift of like did we see more simple? Did we see more advanced? Do we see higher growth in Coinbase One? Were there new coins that came out that resulted in more crypto to crypto trading versus fiat to crypto trading, all of these dynamics can play into the behaviors we see on our platform within a quarter and can lead to different revenue earned versus volume, which then mathematically lead to a different outcome. So thematically, that is going on.
The other thing that’s going on, Owen, is as we have been continuing to evolve these products and these platforms, we experiment, we test out different fee structures. And we learn about customer behavior and getting to the right price point for the products that we’re offering and making delightful experiences for our customers and engage them on our platform.
So in Q2, as we said, this was a mathematical outcome. In Q1, we did increase spread for the simple product, and we shared that with the market in that shareholder letter. But this is something we’re going to continue to evolve as we’re optimizing for the right pricing on our platform as well as the right customer experience and we are seeing behavioral shift as a result of the overall market evolving, the competitive landscape changes, quarter-to-quarter in some cases. Sometimes it’s a longer horizon and what options our customers choose to engage with. So our goal, though, is to drive great products for our customers, engage them in our products and then total drive topline revenue. That is what we’re focused on.
Kwun Sum Lau
Got it. So another surprise to us was your expense control. I think based on our math, you managed to cut OpEx by 58% year-over-year and even 13% quarter-over-quarter. I mean, are you comfortable with your employee base, given all the growth initiatives going on? How do you think about that?
Alesia Haas
We’re really proud of the discipline we’ve taken recently on expenses. And we shared that we grew significantly in 2021 and 2022. We had ambition to grow further. The market changed. We recognize that, and we needed to attack our cost base. And so we are really proud that we’ve cut operating expenses meaningfully year-over-year. And in Q1 to Q2, the way that we articulated it is we did have a restructuring charge in Q1. So when you include that, it came down 13%. But absent that, we were able to bring down our recurring expenses, which are our technology and development, sales and marketing and our general administration by about 1%. So we’re continuing to drive this down.
This is something where we said in our shareholder and this is going to moderate from this time forward. We had a significant step down as a result of two reductions enforce that you’ve seen. But we are driving as much efficiency as we can in our cost base and looking for those opportunities. However, we think that they will moderate from this point forward, they’ve seen a big step down kind of already in 2023. We are really comfortable with our employee base. What we found is that we are more nimble, we’re seeing good productivity. We are really proud of what the initiatives that we launched in Q2, which is broadening into derivatives, expanding that product suite, launching Base, a decentralized chain. These are complex initiatives, and we’re seeing good momentum in our product innovation.
We’re also seeing good efficiency gains. And so I think that we’re comfortable with this size. We want to make sure that we’re much more thoughtful. And as Brian articulated on earlier calls and then we said to the market, we want to start building towards a company that can be profitable in all environments. And so there’s discipline on the expense side, combined with the revenue diversification, we think, are critical parts of our journey.
Kwun Sum Lau
Got it. So in terms of capital allocation, I think you still have – you have a pretty strong balance sheet, good cash. Could you please talk about your appetite for M&A? And also, I think you make an announcement on Monday about buying back some of your debt. Could you please talk about what’s in your mind in terms of M&A and also buying back debt?
Alesia Haas
Absolutely. So as we’ve long said, we have – our company that has done a number of acquisitions earlier this year. We bought a company that expands us into the asset management business. So we’re going to be opportunistic on the M&A. M&A for us is part of our product roadmap, and we always look to see should we build, should we buy? Should we partner to advance our product initiatives and build more of those delightful experiences for our customers.
For us, for M&A, we are looking for unique new skills, whether it’s adding talent, whether it’s adding a new product line like asset management or just adding key talent. And so M&A will always be part, but it’s opportunistic. We have good pricing discipline and we want to make sure it’s really additive to the business and that the market’s shifted. There’s not – we haven’t been as active this year as we have in past years, and we’ll continue to manage that and see how that market evolves.
But with regard to the debt repurchase, this has been a turning point. As we brought down on that expense base, we said earlier in Q1 that we would now open ourselves up opportunistically to look to our opportunities to buy back debt. So, we announced another opportunistic transaction, as you mentioned earlier this week. We’re looking to just use the cash flow that we generated in the first quarter. We had a positive of $156 million that we added to the balance sheet. And we announced that we’re going to use that cash to then hopefully retire some debt. So that’s a market transaction that we’re interested right now, we will continue to be opportunistic. We look at these all as continuing to enhance the financial strength of Coinbase.
Kwun Sum Lau
Got it. So there were a number of events, notable events over the past two months or so. I think the first one that got quite a bit of attention was the spot Bitcoin ETF applications by BlackRock, Fidelity, Invesco and many other asset managers. I think Coinbase is the custody of the BlackRock application and you’re being named as a partner of that surveillance sharing agreement in many of these applications. So what is the responsibility of Coinbase in this agreement. And beyond that, what are some of the potential direct and indirect financial benefits on Coinbase if this Bitcoin ETF, it’s being approved?
Alesia Haas
Yes. I want to just zoom out for a second. We’re really excited about the number of applications that are now on file with the SEC to drive forward a Bitcoin ETF. We think that this should help broaden adoption. This opens up new pools of capital that can come into crypto as there’s different funds that don’t have the ability to directly invest in crypto spot. And so being able to access an ETF will help give them this exposure to this asset class and kind of continue to build out this ecosystem. But these are early, early days. And I think it’s really important to just remember that these applications have yet to be approved and that we at Coinbase are really looking forward to supporting the applicants as part of that process.
We were honored to be selected as service providers to multiple ETFs, and we’re going to help them with their applications with the SEC. But early in terms of talking about revenue potential because these have yet to be approved. So the – assuming they get approved, let’s just kind of move then past that and say the primary early economic opportunity for Coinbase will be in providing custody services.
So as you said, Owen, we have been selected as a custody partner, which means that we would be storing the underlying collateral of the ETFs. And this would be how we would monetize. This is an existing product for us. It would grow our assets on platform and we would monetize through that revenue stream as custodial fee revenue. As that grows, though, over time, we would hope that we would also be able to monetize via trading that we would expect, obviously, to win some of that trading business as we market ETF providers would be able to buy spot on our platform and hold it in custody. So and then over time, maybe an API reporting.
As you mentioned, we also separately from this, have been entering into bilateral surveillance sharing arrangements with the major ETF listing exchanges. So on one hand, as BlackRock application for an ETF, we would be able to be their custodian. On the other hand, we are entering into listing agreements with NASDAQ and CBOE with regards to surveillance sharing. This is not a new skill for us. For years, we’ve now been operating a very sophisticated surveillance program to align with very high compliance standard. And so these programs are generally required to be in place across other asset classes with approved ETF products as well. This is just bringing traditional securities processes to a new asset class. And so this is the same thing that we’d be entering into with NASDAQ, et cetera.
Kwun Sum Lau
Got it. So I think like all these asset managers and exchange know that you’re in the middle of the lawsuit with the SEC, but they still name Coinbase as the partner in this agreement. What does it mean to Coinbase?
Alesia Haas
Well, I think that – I hope that it would be known and expected that all of these institutions have incredibly rigorous due diligence processes and that we’re honored to have been selected by many high-quality applicants because of the capabilities that we have. And I think it evidences that we have a really strong control environment that we are a trusted platform and that we’re able to hold ourselves to the same standards of other service providers that they would work with.
I also think that this is a belief by many of these applicants that crypto is an asset class that is here to stay. This is an asset class where they are putting their own resources and capital into building out products to serve their end customers. So I think this speaks broadly to customer demand for the asset class, their belief in this asset class and then their belief in Coinbase as a partner. I think we would all agree that we are seeking regulatory clarity. And so this is more voices at the table to hopefully drive policymakers, legislators in the U.S. to say we need to create rules so we can create consumer protection and bring forward this innovation to support the Americans.
Kwun Sum Lau
Got it. So another key event I think it’s a summary judgment from the repo case. I mean let’s unpack a little bit here. But over the past month or so, I think there have been like two significant court rulings right? In separate cases, one with Ripple, the other one is TerraForm, but it seems that there’s a little bit of conflict between these two cases and these two decisions. I mean, can you walk us through your way through from these cases and how might that inform the ongoing litigation with the SEC for your case?
Alesia Haas
Absolutely. So you’re right, there’s been two recent cases. There was things that they agreed upon in the two cases. There are things that they disagreed on in these two cases, and then there were areas of zero overlap between these two cases. No single development is too promising or too negative. What is really important takeaway for us for these two cases is both cases stated that digital assets without anything more, but just the digital asset by itself is not a security.
There has to be a digital asset or a token plus some commitment or plus some additional contractual engagement to qualify it as an investment contract. And so importantly, the SEC is not alleged that there is anything more in our case. So we talk a lot about this in the motion to dismiss that we filed last Friday, and I encourage everyone to read it, is that it really lays out our key legal arguments here. But for us, this really underscores the fact that the courts may be excellent places to resolve disputes but they’re not the place to create policy. They aren’t the place to create legislative solutions that recognize the new characteristics of these tokens. We broadly believe that there needs to be investor protections. We broadly believe there needs to be market structural rules. We broadly believe that this will help and foster innovation in the U.S., but the courts are not the way to find this.
And so Coinbase, the broader crypto industry, we are looking for regulatory clarity. We’re looking for long-term durable solutions for crypto markets based on sound rules, regulations that recognize the unique characteristics of these assets, and that is why we’re focused on these legislation and these policies that have been brought forth in Congress.
Kwun Sum Lau
So can we talk a little bit more about your lawsuit with the SEC? I think you had the pre-motion conference in the middle of last month. I think last Friday, you mentioned that Coinbase filed a motion to dismiss this case. And I think two questions. The first one is, any estimate about the timeline when the judge can make the final decision? And what are the key – and then the second question is, what are the key arguments from Coinbase against the SEC complaint?
Alesia Haas
So Owen, I first want to thank you for attending the pre-motion conference and being so close to this and really being one of a careful follower of this story. So I’d – second want to zoom out. So first, I want to say we are very confident in our case and believe that we can win. Our goal is regulatory clarity that our industry needs. And that any clarity we get, we believe that we’ll adapt, the industry adapt and that we can really then grow crypto from that point in time. So our business is diverse. We’re capable of adapting to any outcome regardless of what happens here.
You are right, we’ve had the pre-conference motion. We filed the motion to dismiss, filing motion to dismiss is very common in this stage of these types of actions. And so that is we are just on course for a very typical court proceeding. So to your question on timing, the process is publicly available through the court itself. And in fact, Paul Grewal, our CLO, has tweeted this court process. So step by step, we filed our motion to dismiss on Friday, pursue into the court time line and Amicus briefs are due this week.
At that point, the SEC has 60 days to respond. And then following that, we have another three weeks to respond to their response. So what this says is really the next thing that you’ll see is that the motion will be fully briefed at the end of October. So we have a lot of confidence in the arguments we’re making to the court, and we’re really grateful for the opportunity to be heard after seeking this clarity for so long. So that is when you’ll next see us.
Lastly, on our position and kind of like what our legal arguments on, again, I want to encourage everyone to read our full motion to dismiss that we filed last week as this lays them out in great detail. But to summarize, at the core, there’s really three points. Coinbase does not list securities. And thus, the SEC does not have jurisdiction over crypto. Second, investing in a company as a security, buying their product is not. These tokens are products of these platforms. They are not investments in the capital structure of these asset issuers. And so for us, Token is synonymous with baseball cards, real estate, BB babies, American Girl dolls, things that have value, things that may appreciate but their products. They are not securities and rather, we think the more appropriate treatment for these are commodities. And so again, I really recommend that you read the motion to dismiss.
Kwun Sum Lau
So another technical question, I promise you we’ll move on to another topic. The SEC also claims that you’re staking as a service product, it’s a security. I think staking only accounts for like 4% of Coinbase net revenue, not material now, but it may have some potential in the future. Could you please like briefly explain why Coinbase doesn’t believe staking as a service, it’s a security.
Alesia Haas
We think staking is critical to the health and security of proof-of-stake networks. And so we are rigorously defending this product and access to being able to be a staker for Americans because we think it is critical to the growth and the development of the crypto ecosystem. So I want to start with that – because you’re right, it is not material to our net revenue at this point in time, but it is critical to the health and the growth of the crypto ecosystem.
I want to remind you that proof-of-stake networks are 99% more efficient, energy-efficient than proof of work networks. And so we think this is important technology innovations and that the ability to be able to validate a transaction on a proof of network, we think is something that should be available to all parties.
So now let’s talk about then why we don’t believe this is a security on our platform. So for us, again, the motion to dismiss lays this out rather eloquently in great detail. So I’m going to summarize it here. But essentially, when customers stake at Coinbase, they own their assets. They are not giving their asset to Coinbase. They are owning their assets, the title to their assets remain with them. We are providing administrative services, IT services to enable them to validate transactions on blockchains, to enable them to stake. That’s technology. The reward that they earn for staking their assets is dictated by the protocol, the protocol itself changes, Coinbase does nothing to change that.
So there’s no managerial efforts that we’re making that says, Oh, okay, we’re going to take this risk and you’re going to get a return. So we think that the fundamental product that we offer is a technology product. And that is why we don’t believe it’s a security. We believe that customers can go stake on their own using the same types of technology on their own. And therefore, this is just a more efficient way for them to do it with professional service providers of this type of product. But we will – again, we’ve detailed all of those arguments in our motion to dismiss, and we will have the opportunity to present this for the courts in October.
Kwun Sum Lau
Got it. And thank you for the explanation. So as you alluded to above, one court judgment doesn’t solve the whole lack of clarity issue. We need the Congress and White House to step in. And I think investor protection, it’s a much debated topic among investors following the recent court rulings. How do you think about the protection of retail investors within current laws? And how would you like to see that to evolve longer term?
Alesia Haas
Absolutely. So we think that investor protection, consumer protection is incredibly important, and that’s why we’ve long advocated for regulations that help drive the crypto markets in the U.S. and also globally. We’ve done many things on our own platform to adapt best practices in order to have consumer protection.
So one of the reasons we even chose to go public, which was to make our financial statements transparent to the market, so people could see more transparently into our business and how we operate it. But we do believe there are incremental steps that can be taken to codify market structure rules, to provide standardized investor protection when it comes to interacting with this asset class. So we were really pleased to see the bipartisan crypto market structure bill Fit21, we think that this goes a long way to addressing those rules it would provide for the CFTC to oversee crypto spot that are commodities and provide those types of standard protections to investors that we think will be really beneficial and help this market evolve.
And this is our goal. Our goal is to have this regulatory clarity that protects consumers. We would note that these two court cases that we mentioned earlier, don’t achieve that. So while they did achieve some clarity on the fact that these tokens themselves are not securities, it didn’t go to the next step, which is to say, okay, great. They’re not securities, but what are they? And how do we get to consumer protection. So that’s why this legislation, we think is so critically important and why we’re continuing to push to hopefully drive this forward.
I would just say the second thing I would just comment on is this is what we are doing then with our stand with crypto initiatives, on our policy initiatives. And we’ve taken a good faith effort to engage with regulators and legislators and we encourage our customers to do so. We encourage the entire market to help see why these rules are so important to bring forward for crypto adoption and crypto protection in the United States.
Kwun Sum Lau
Got it. So last month, I think, only like two weeks ago, both the House Financial Services Committee and the agriculture committee voted to advance their Financial Innovation Technology Act for full vote, house vote later this year. So my question is if this bill is enacted into law without any additional amendments, I mean, which regulator will regulate Coinbase essentially? And how does it impact which tokens can be traded on Coinbase?
Alesia Haas
So I would assume out again here and say our hope and our goal with blockchain technology is that the technology will underpin all types of asset classes. Some of those assets will be securities, meaning we could tokenize coin-based stock, and we could have a coin security trading on the blockchain, 24/7, different types of underlying architecture. Today, most of those assets that we see in the market that have high market caps are commodities. We only list commodities on our platform. Those are going to be like the products I mentioned earlier. They are just assets. They are not tied to a security. But we also think the future is going to be part in the form of NFTs, we think it’s only things we’ve never heard of as assets that trade on blockchains.
Some of those are going to be securities and regulated by the SEC. Some of those will be commodities and regulated by the CFTC. Some of those, like stablecoins, we see could be outside of both the CFTC and SEC, but regulated by the banking environment or the Fed or some state-level banking authorities as we’ve seen proposed in the stablecoins deal that was also voted on last week.
So if this bill the Fit21 is passed, as you mentioned immediately because Coinbase lists commodities on our platform, we would be subject to CFTC regulation. But as we said, we also hope that this would then move us forward to say, what is the path to register security tokens? And then we would be excited about working with the SEC to some time offer security tokens on our platform in the future as well.
So we’re really grateful to see the progress here. We’re grateful for the bipartisan group of Republicans and Democrats who moved this forward. We would be thrilled to see this go on in advance and to come into law, and that would give us a new pathway, and we would then seek the registrations required to comport with the new laws.
Kwun Sum Lau
Got it. So there have also been many hearings related to digital assets over the past two, three months or so. You mentioned stablecoins bill, the new Lummis-Gillibrand bill and the Fit Bill, we just talked about. I guess my question is, when do you think this bills can be like enact into law and get the pass, get to vote from Senate and signed by President? Can it be done by 2024? Any prediction here?
Alesia Haas
I cannot predict how our political system works. It could be done. But more importantly, let me talk about the process and the next steps for transparency. So it’s come out of committee. The next step would be for it to go to a house vote. And that is at the lead of Chair McHenry for when he would decide to take that to the house vote.
If it passes the house, and it would go through further amendments to the house vote. It’s important to say that this is a journey. This is not a predictive timetable. There’s no set date that it has to do anything. But after it would pass through the house vote, then it could go on to the Senate.
And then we go through the same process, whether it would see amendments, goes for votes. This is why it’s so important to get involved. And this is why we have become involved. We’re trying to speak more transparently with our customers, with our partners in all forms to activate the community through grassroots efforts like stand with crypto to encourage everybody to help Congress, help the Senate see why it’s so important what the value of clear legislation can bring to the U.S.
So last week, for example, in New York, we hosted an in-person gathering with the representatives from offices of Senator Gillibrand, Mayor Adams, Governor Hochul and hundreds of crypto enthusiasts to have these conversations to make everybody aware of this process. So I’m optimistic, but it is not a set road and there’s a lot of work that needs to be done to ensure that we keep the momentum that we’ve recently built.
Kwun Sum Lau
Got it. So let’s switch gear to international expansion, which is a pretty important topic for Coinbase. I think digital assets are global phenomenon and Coinbase is aspired to be a global company. Last year, I think non-U.S. revenue accounted for 16% of total revenue for Coinbase. Do you have any target percentage of how high it can go?
Alesia Haas
It’s a really great question. And I don’t have like a perfect answer for you here, Owen, but I want to kind of share a couple of things, which is, one, our goal is to bring one billion people with the crypto, which means that we need to become a global company to get one billion people into crypto. Two, the way that we’ve approached crypto is to build the rail. So we need to be the on-ramp. We recognize that to get people excited about crypto, they have to be able to go back to Fiat, that requires getting local licenses in countries, building banking partner relationships, getting deep foundations in these countries to then build this new future.
So this is a long-term investment for Coinbase. We’re committed to serving this global customer base, but it is going to be a journey to get there. It’s not just a technology company where we can do translation, localization and just continue to grow. There’s deep investments that we need to make here. I think, though, over time, because of the nature of Crypto’s being global networks, we will see an increasing amount of non-U.S. revenue be part of our revenue streams. But it’s too hard to put a number on that at this point in time, and it’s early days in terms of our builds in that market.
Kwun Sum Lau
Got it. So in terms of another growth driver, I think it’s derivative. So in June, I think Coinbase launched the Bitcoin and Ether futures for institutional investors. Could you please talk about the traction for that product so far? I think your major competitor is CME – what is the plan to drive higher volume here?
Alesia Haas
Absolutely. So derivatives are a really important part of any market, and crypto is no exception to that. Today, it represents like roughly 75% of global volume. So Coinbase, historically, it’s been really a spot market. And so moving our product suite from spot to include derivatives is an important journey for us to capture more and more volume and more support our clients in their interest of trading and transacting in crypto assets.
So that is what our focus is. We are making steps to offer this to as many customers as we can. And so earlier this year, we had shared – or actually at the end of last year, we had shared that we had opened a derivatives exchange in the U.S., which allowed other brokers to trade on our derivatives in the exchange in the U.S. Now we’re opening that up to more customers in more markets. So we have an international offshore offering that we can expand that.
So it’s early, early days. We’re seeing good traction and adoption of just the notional trading volume on those platforms in the U.S. and outside the U.S. And we’re going to continue to build liquidity, add new assets, new contracts to each of those platforms. And over time, we hope to be able to offer those directly then to retail customers as well. So today, it’s institutional-only offering. But we’re also going to seek license insuring continue to build that out. So we think of this as we’re almost in beta stage today, we need to continue to expand. But we think that could be an important growth driver. And as we mentioned previously, it is a very large market being 75% of overall volume.
Kwun Sum Lau
Yes. So maybe a follow-up here is you just mentioned now you’re using, I think, the FCM, the futures commission merchant and offer that through that third party. So where are you in the process of getting your FCM license and offer your derivative products through Coinbase platform?
Alesia Haas
Right. So this is in the U.S. specifically. So we’re having productive conversations and we continue to work with the NFA. We’re optimistic that we can get approval soon, but this is the process that we’re in, it’s subject to regulatory approval. The products are built.
Kwun Sum Lau
Got it. So I think we have like only two, three minutes left. So final question, I think there’s still a lot of things going on, like we asked a lot of questions about Coinbase today. So what are you and the rest of the executive team most focused on and excited about Coinbase heading into the second half of this year?
Alesia Haas
Execution, Owen. There’s really three pillars that we’re focused on. One is just the financial discipline and efficiency that we think we can continue the momentum that we’ve built in the first half of the year. Two, is we’re continuing to drive product excellence. So we want to create more delightful customer experiences, really extend both the depth of our platform in terms of efficiency, but also the breadth of the product offering to each of our customer groups, consumers, institutions and developers. And the third pillar of this strategy is driving this regulatory clarity. So those are our focus areas. That is where you’re going to continue to see us talk and focus. But we’re excited by where we are, and we’re excited with what we can continue to drive on all three fronts.
Kwun Sum Lau
Sounds right, I think we have about time – thank you, Alesia, for your time and answer all of our questions. We appreciate your time. I know you’re busy as always. Thank you very much.
Alesia Haas
Thank you so much for having me.
Kwun Sum Lau
Thanks a lot.
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