Coin Metrics’ State of the Network: Issue 225

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By: Kyle Waters and Matías Andrade Cabieses

In the nascent digital belongings trade, Coinbase stands out with a legacy tracing again to 2012, with its roots as an early Bitcoin-focused platform which handed by the famend startup incubator, Y Combinator. Greater than a decade on, Coinbase is in the present day greatest often called an trade to purchase and promote crypto belongings, and has maintained its place as the high US-based trade by quantity. 

However current developments show Coinbase is working to diversify its attain past a buying and selling venue, stretching out throughout the full stack of blockchain know-how, from pockets infrastructure to staking providers and on-chain scaling options. Final month’s launch of Coinbase’s layer-2 (L2) rollup Base—a low-cost, Ethereum-compatible sensible contract surroundings—stands as an ideal instance. By the lens of Coin Metrics, a wealth of market and on-chain information permits us to construct new insights into Coinbase’s market stance. On this week’s subject of State of the Community, we spotlight pivotal information underscoring Coinbase’s present market place.

Unsurprisingly, one of Coinbase’s most vital sources of income relies on buying and selling exercise on their trade. Taking a look at the final quarterly earnings report during which Coinbase reported whole income of $707M, spot quantity remained the largest element of the enterprise, with transaction quantity on trade constituting $327M. In 2022, a share of over 77% of their whole income got here from buying and selling charges, down from 92% in 2021. For these causes, taking a detailed have a look at spot buying and selling quantity might be very useful to know Coinbase’s well being and the way their revenues are holding up in contrast with earlier years.

Sources: Coin Metrics Market Data Feed & Google Finance

As we will see from the chart above, Coinbase’s inventory value ($COIN) has tracked spot quantity very carefully since the firm’s April 2021 IPO. Though we will count on this correlation to weaken over time as Coinbase’s revenues detach purely from buying and selling charges, it ought to stay a helpful gauge of how their enterprise is performing. A tough risk-off surroundings for tech shares coupled with a difficult previous yr for digital belongings has led to a big hunch in Coinbase’s share value from its IPO at over $300 a share. Nonetheless, 2023 has delivered a decent rebound, with the refill 145% YTD.

Taking a look at the breakdown of quantity by asset, we will see that bitcoin (BTC) and ether (ETH) have constantly held a mixed share of practically half of all quantity by USD quantities on the trade. The share of quantity derived from buying and selling in Tether (USDT) has elevated as of late. 

Source: Coin Metrics Market Data Feed (see Coin Metrics’ State of the Market for extra)

We will additional study spot quantity tendencies at Coinbase by the distribution of quantity damaged down utilizing Coin Metrics’ datonomy™, which serves as a digital asset taxonomy and categorizes belongings primarily based on their performance. On this foundation, we took Coinbase’s traded quantity and measured the proportion attributed to every totally different asset sector as illustrated beneath. One noticeable reality is that by far the two most vital asset sectors consist of Worth Switch Cash and Sensible Contract Platforms, which embrace Bitcoin and Ethereum, respectively. One other noticeable pattern is a better proportion of buying and selling quantity for stablecoins. Since Coinbase buying and selling pairs are usually denominated in USD that is indicative of a better demand for stablecoins as a share of total digital belongings. An vital caveat to notice is that Coinbase not studies USDC to USD volumes, as they’re thought-about one in the same on the trade.

Source: Coin Metrics Market Data

As Coinbase’s trade enterprise has grown and extra belongings have been added to be traded, the relative significance of these belongings has modified over time. As we will see in the earlier chart, in direction of the finish of 2021 and into 2022, the Metaverse asset sector turned more and more fashionable as Fb rebranded into Meta and an enormous hype wave caught maintain of the market. As we will see in the chart beneath, Coinbase now trades over 600 asset pairs on the trade.

Source: Coin Metrics Market Data

Nonetheless, a minimum of so far as trade volumes go, earlier belongings stay the hottest, with an awesome majority of the quantity traded being attributed to belongings that had been listed earlier in Coinbase’s historical past, together with BTC and ETH. 

Source: Coin Metrics Market Data

This reveals that merely including new belongings isn’t a assured means of producing buying and selling charge revenues, even when new belongings are inclined to commerce closely proper after they’re listed on an vital trade like Coinbase. It seems there isn’t any magic bullet in terms of producing buying and selling charge revenues. Additional, the impending choices round a spot ETF in the US could have vital implications for the trade: would-be patrons of BTC could want to buy the ETF as a neater (and presumably cheaper and tax-efficient) means of gaining publicity. It’s an advanced equation although, as a result of Coinbase may stand to learn from an ETF launch as the custodian for the BTC held in the fund.

One other vital consideration is Coinbase’s place inside the US marketplace for crypto exchanges, which has increased currently amid Binance US’s ongoing contraction in buying and selling volumes. However buying and selling charges apart, Coinbase has been diversifying into totally different companies throughout the crypto ecosystem, together with staking and layer-2 networks, as we are going to see beneath. 

We will transcend “off-chain” market information and monitor Coinbase’s many actions on-chain. As an trade, Coinbase regularly handles deposits and withdrawals of crypto belongings from its customers. Nonetheless, from the vantage level of an on-chain information analyst, Coinbase has traditionally confirmed to be a tough entity to look at because it has taken sophisticated actions to safe person funds throughout many accounts. This could make monitoring down pockets addresses tough, particularly on Bitcoin the place change outputs muddy the image. To make sure, the trade is audited as a public company in the United States. However the full set of its pockets addresses just isn’t broadly publicized. Nonetheless, on sure blockchains like Ethereum, the place account re-use is extra frequent, we will study tendencies extra simply.

Utilizing an early model of Coin Metrics’ tagged addresses, we recognized a very energetic tackle that seems to be at present dealing with a big portion of exercise for Coinbase—labeled “Coinbase 10” on Etherscan. Beneath, we plotted the hourly change in ETH despatched and acquired by this account over the final week. With near 150K ETH despatched and acquired,, this account is one of the top accounts by ETH volume in that very same time interval.

Source: Coin Metrics ATLAS

That is only a small anecdote to assist corroborate the trade’s vital presence in the ecosystem. Monitoring trade exercise over an extended time-frame could assist make clear extra tendencies akin to person habits and their favored belongings. As Coinbase has expanded past a easy trade into staking and as an L2 rollup operator, we’re introduced with new alternatives to discover this exercise on-chain.

Staking is a elementary element of Proof-of-Stake blockchains and an more and more larger element of Coinbase’s enterprise. After Ethereum’s transfer to PoS with The Merge, the staking panorama has grown significantly and Coinbase has been concerned on this burgeoning house. By its liquid staking token, Coinbase Wrapped Staked ETH (cbETH), Coinbase permits ETH holders to lock their belongings in a sensible contract, receiving cbETH as a liquid illustration of their stake. Not like Lido’s stETH, which makes use of a aToken mannequin, cbETH employs a cToken mannequin primarily based on a floating conversion charge, thus representing possession of the underlying plus rewards accrued on the principal quantity (minus penalties like slashing). This ensures cbETH is ERC-20 compliant and broadly suitable with dApps, although not at a 1:1 ratio.

Source: Coin Metrics ATLAS

Regardless of dealing with SEC scrutiny earlier this yr by way of a Wells notice, Coinbase’s staking service has confirmed resilient. Following a short lived dip after withdrawals had been enabled, cbETH’s provide rose to beneath 1.3 million, primarily pushed by larger staked balances—together with a major improve in institutional staking adoption after the Shapella improve. Regardless of not being the largest liquid staking supplier in phrases of market share, Coinbase costs a comparatively larger staking fee of 25%, which contributed 13% to web income from “Blockchain Rewards” and 4% of reward adjusted web income as of Q2–2023 (after accounting for rewards handed to clients).

Coinbase has just lately ventured into native on-chain options, notably with the introduction of its Ethereum layer-2 (L2) community, named Base, which went reside simply final month after being introduced earlier this yr. A rollup is successfully a separate blockchain, however with some important added advantages and commerce offs. Broadly, rollups assist create the situations for cheaper transaction charges by shifting computation off-chain, but additionally with weaker ensures of decentralization. The Base community was constructed on the open supply OP Stack, the identical stack that powers the different Ethereum L2, Optimism.

Placing technical particulars apart, there are a variety of vital concerns stemming from the launch of Base. First, Base introduces a low-cost and acquainted surroundings for Ethereum sensible contract builders to construct purposes, and a simple on and off ramp from the Coinbase trade to maneuver funds to and from Base. Base may assist develop USDC adoption, and subsequently curiosity earnings, which has grown significantly for Coinbase with rising charges. Lastly, Base additionally represents a brand new potential income stream in its personal proper, which got here up in the most up-to-date earnings call:

“So, how will we monetize it [Base]? Well, the short answer is that Base will be monetized through what are called sequencer fees. These are—sequencer fees can be earned when any transaction is executed on Base and basically, Coinbase can run one of these sequencers as others can over time. Now indirectly, it helps us monetize as well because it helps us grow the size of the pit. It helps us grow the ecosystem.”

It’s vital to know the economics of a rollup operator, which consists of prices (primarily in the type of posting information on L1) and revenues from transaction/sequencer charges. We will monitor the Base Batch Sender address which sends a batch of compressed transactions from Base to Ethereum. This ensures information availability and integrity that transactions had been executed as anticipated on Base. However posting giant quantities of information to Ethereum is pricey, and as we will see beneath, this tackle has consumed a substantial quantity of fuel to date, at instances virtually hitting over 1% of all ETH charges paid per day.

Source: Coin Metrics ATLAS

Nonetheless, heightened exercise and costs on Base (primarily stemming from the fashionable socialFi utility have more than covered these information prices to date. Base remains to be very a lot in its infancy, and its position in Coinbase’s enterprise deserves shut commentary shifting ahead. How Coinbase plans to maximise decentralization on Base additionally stays an open query.

Regardless of a lingering high-profile regulatory battle with the SEC, the information above reveals that Coinbase has continued to take care of its sturdy place in the digital belongings trade. The adoption of cbETH and Base are proof of a dedication to an on-chain future past the trade, and different developments like an agreement with DeFi protocol Maker to custody USDC on behalf of the DAO, and push into derivatives additionally demand consideration. However issues have not been flawless alongside the means, as seen by the modest launch of Coinbase’s NFT platform. But, one of the most enjoyable elements of these new enterprise traces is the new methods during which we will use real-time information to look at a publicly-traded firm. This report solely touches on a couple of of the analyses that are made doable by the energy of on-chain information.

Source: Coin Metrics Network Data Pro

We noticed a rise in energetic addresses for Bitcoin and Ethereum at the same time as the value stayed largely flat, with a 6% and 24% improve, respectively. On-chain exercise stays constrained throughout the board after every week with little value change.

This week’s updates from the Coin Metrics group:

  • Try the newest subject of Coin Metrics’ State of the Market for extra market information on Coinbase and different exchanges.

  • Final week marked the one yr anniversary of Ethereum’s Merge. Try our analysis report Mapping out The Merge to know the significance of this occasion.

  • Discover the digital belongings ecosystem by our entire catalog of unique data-driven analysis.

As at all times, you probably have any suggestions or requests please let us know here.

Coin Metrics’ State of the Community, is an unbiased, weekly view of the crypto market knowledgeable by our personal community (on-chain) and market information.

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