COIN - NASDAQ

Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coinbase First Quarter 2024 Earnings Call. [Operator Instructions] Anil Gupta, Vice President, Investor Relations, you may begin your conference.

Good afternoon, and welcome to the Coinbase First Quarter 2024 Earnings Call. Joining me on today's call are Brian Armstrong, Co-Founder and CEO; Emilie Choi, President and COO; Alesia Haas, CFO; and Paul Grewal, Chief Legal Officer. I hope you've 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 these results to differ is included in our SEC filings. Our discussion today will also include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website. Non-GAAP financial measures should be considered in addition to, not as a substitute for GAAP measures. We are once again using the Say Technologies platform to enable our shareholders to ask questions, and in addition, we will take some live questions from our research analysts. With that, I'll turn it over to Brian for opening comments.

Thanks, Anil. Q1 was a very strong quarter. We generated more adjusted EBITDA than we did all of last year. Keeping our cost structure low while continuing to innovate is really paying off. To kick off today's call, I wanted to provide a progress update on the 2024 priorities that I shared on our Q4 call. As a refresher, they are first, driving revenue. We're doing this through improvements to our core simple trading experience; growth in stablecoins; winning in the derivatives space, both in the U.S. and abroad; and driving international growth by investing in key markets. Second, we're driving utility in crypto. We're doing this through Base, our low-cost Layer 2 solution and building a better payments experience on crypto rails. And third, we're driving regulatory clarity. We're doing this through the courts, through collaboration with policymakers around the world to pass sensible rules and most importantly, through activating the crypto voter base to elect procrypto candidates in this upcoming election. Let's start with driving revenue. In Q1, we capitalized on strong market conditions, and we saw many of our investments through this last downturn begin to pay off. Our institutional business continued to see meaningful growth in part driven by the excitement around Bitcoin ETFs, which drove new customer adoption across our product suite. Coinbase Prime reached all-time highs in trading volume and active clients and nearly 40% of our clients engaged with 3 or more products in Q1. Turning to derivatives. Both coin-based Financial Markets and Coinbase International Exchange have shown promising growth in their early stages. In Q1, Coinbase International Exchange added 15 new perpetual future listings. We've also increased the position limits across both products. USDC market cap increased over 30% year-to-date and is growing faster than major competitors. We see higher engagement from customers who hold USDC balances on our platform. So we've been investing in growing those platforms balances by unifying order books on advanced trading and offering competitive rewards. And while it's still early days, we're also seeing great traction with Coinbase One, our consumer subscription product, which surpassed 400,000 paid subscribers in Q1. Next, let's move on to utility. I'd like to spotlight our Layer 2 solution Base. As a reminder, Layer 2 solutions help blockchain scale, similar to when the Internet move from dial-up to broadband. And we believe this scaling will drive many new use cases in the crypto economy. Base has helped dramatically reduce transaction fees and confirmation times, getting us closer to our goal of having the average crypto transaction take less than 1 second and cost less than $0.01 anywhere in the world. Developer activity on Base increased eightfold in Q1. In the last 30 days, Base has processed over 2x as any transactions as the entire Ethereum network on Layer 1. Base is now the #1 Layer 2 solution by number of transactions processed, a huge accomplishment. We've made Base faster and cheaper to use with fee reduction by about 80% through protocol upgrades and our fees are now often below $0.01. We're also integrating USDC on Base across Coinbase products, creating nearly free instant global payments in a USD-denominated asset. This is a really, really big deal as we now have direct line of sight to update the global financial system by reducing the billions in payment fees paid by consumers and businesses each year. Finally, let's discuss regulatory clarity. Coinbase continues to invest heavily in driving clear rules and regulations around the world for crypto, and we're actively contributing to advancing procrypto candidates during this major election year. We're a large contributor to procrypto organizations like Fairshake, Super PAC, which already had a great impact in the market primaries in California, Texas and Alabama. We also continue to work with grassroots advocacy organizations like standwithcrypto.org, which now has over 400,000 crypto advocates who raised their hand indicating they want to elect procrypto candidates in November. We're also making steady progress in getting clarity through the courts in our litigation with the SEC. In Q1, the court ruled on our motion to dismiss, dismissing the SEC's claim regarding Coinbase wallet, which was a significant win for self-custodial wallets across the industry. This win provided clarity for us and developers to continue to drive our on-chain product growth, which we believe is an important element to fulfilling our mission of increasing economic freedom. The court denied the rest of the motion at this very early stage meaning the rest of our case is proceeding to discovery but we're fully prepared for an intensive discovery phase through the remainder of the year and remain confident in the strength of our legal arguments. 2024 is shaping up to be an important growth year for our industry and for our mission. Now I'll pass it over to Alesia, who will provide detailed insights into our financials.

Thanks, Brian, and good afternoon, everyone. Today, I'm going to cover 3 topics. First, comments on our Q1 financial performance; second, a review of the key transaction in an accounting change; and third, I'll touch on our Q2 outlook. You can find more details on all of these topics in our shareholder letter and our 10-Q. Let's start with Q1 financial performance. Q1 total revenue grew 72% quarter-over-quarter to $1.6 billion. We generated $1.2 billion in net income and adjusted EBITDA was $1 billion, as Brian said, more than we generated in all of 2023. We ended Q1 with a strong liquidity position, including $7.1 billion in USD resources and equally, if not more importantly, our customer safeguarded assets grew to $330 billion. We are proud to safely store over 12% of total crypto market cap on our platform. These results reflect our focused execution on product expansion, our ongoing operational discipline and strong crypto market conditions. Looking at transaction revenue. Transaction revenue grew 103% quarter-over-quarter to $1.1 billion. This is driven by higher crypto asset volatility as well as crypto asset prices, which both increased sharply in March. On the consumer side, trading volume growth was strong across both simple and advance, resulting in our consumer blended average fee being roughly flat quarter-over-quarter. We saw higher engagement from users acquired in 2023 and prior as well as new user growth. We also gained market share in spot trading on both the consumer and institutional trading platforms. Brian shared earlier in his opening comments that Coinbase Prime trading saw their all-time highs in the first quarter. I want to share that in the first quarter, we broke out Other transaction revenue, which consists of revenue from Base sequencer fees and payment-related revenue. These revenues were previously included in consumer transaction revenue. Our goal is to drive utility and experiment with payments, and this new revenue transparency helps provide investors insight into that addition. Our subscription and services revenue grew 36% quarter-over-quarter to $511 million. This growth was driven by higher crypto asset prices and native unit growth. I'd like to call out that the price of Ethereum was 60% higher when comparing March 31 to December 31, and was a key driver of the blockchain rewards revenue growth. On the native unit front, we did see inflows into both custody and staking. USDC market cap grew 32% to close Q1 at over $32 billion. I'd also like to note that in Q1, we renamed interest income to interest and finance fee income, and we reclassified Prime financing fees to this line, which was previously recorded in other subscription and services revenue. On the expense side, total expenses increased 5% sequentially to $877 million, and as we shared on our last call, the primary driver of quarter-over-quarter expense increase was higher stock-based compensation. All right. Second topic. There are 2 items to note today. One, in the first quarter, we issued a convertible note. This was an opportunistic capital raise that raised $1.1 billion in net proceeds and added to our cash balance. We plan to use proceeds from that capital raise to repay our outstanding debt at or prior to maturity depending on market prices. Second update, notable accounting change. We early adopted accounting standard 2023-08. As a result, we now account for all crypto assets that we hold on our platform at fair value as compared to historically, where we accounted for these assets that cost less impairments. In Q1, since crypto asset prices were higher on March 31 as compared to December 31, we recorded $737 million in pretax crypto asset mark-to-market gains. The majority of this was unrealized at quarter end, i.e., we had not sold the assets and realized this gain. You can see that in 2 new financial statement line items. First, $86 million in gains on crypto assets held for operations net and operating expense, which pertains to crypto held and used in our operations; second, $650 million recorded in gains on crypto assets held for investments net, which is below the line and pertains to our long-term investment portfolio. We will be adding back gains or losses on the crypto investments to adjusted EBITDA as we do not consider those assets to be part of our day-to-day operations. Last, I'd like to touch on our outlook. We shared in the letter that April transaction revenue was over $300 million, and that we anticipate subscription and services revenue to be in the range of $525 million to $600 million. This assumes crypto asset prices stay in the range we have seen year-to-date 2024. On the expense side, we expect technology and development, and general and administrative expenses to increase sequentially to $660 million to $710 million. This increase is primarily driven by higher variable expenses, notably customer support and certain infrastructure expenses related to higher trading volumes. I want to point out that on the customer support side, expenses typically lag revenue growth and trading volume growth as it takes us time to ramp up the resources to meet higher volumes. Last item I'll note on the outlook. We are investing in additional sales and marketing expense and expect these to increase to $150 million to $180 million. The primary driver in this growth is USDC rewards due to USDC on-platform growth. We ended Q1 with $5.5 billion in USDC on-platform, nearly double compared to our Q4 ending balance. And therefore, the reward payouts on these incremental balances will increase in Q2. We are pleased to see this growth in USDC and our incentive programs driving the broader adoption of our platform products and services. With that, Anil, back to you for questions.

Thanks. So let's turn to shareholder questions. We're taking the most up-voted questions as determined by the number of shares. Our first question is how profitable has the Base network been? And how will this drive value to shareholders? Alesia?

Thanks. As Brian shared earlier in his comments, we're seeing some really encouraging traction on Base. And I just mentioned that we have a new revenue line item called Other transaction revenue, it's a combination of the Base sequencer fees and payment-related revenues. Quarter-over-quarter in Q1, the growth that we saw was primarily driven by growth in Base sequencer fees. It's early days, however, and our primary focus is on growing developer activity, driving adoption, driving those transactions that we noted earlier. I want to point out that Base has really strong unit economics. So as we grow transaction volume, which is the key growth metric we are focused on, we believe that Base can become a material contributor to our revenue and profits over the long term.

So our second question is, have you done an analysis to determine the net revenue impact from the spot ETFs? Emilie?

Sure. As Brian mentioned, the ETFs unlocked a flywheel of customer engagement across our Coinbase Prime product suite, and we were excited to see 40% of institutional clients engage with 3 or more products in Q1. We saw both direct and indirect revenue impacts from the ETFs. The direct impact is clear in our financials. We saw native unit inflows as the custodian for 8 of 11 issuers. This supported growth in our assets under custody of 69% quarter-over-quarter to $171 billion as well as growth in our custodial fee revenue of 64% quarter-over-quarter to $32 million. We also saw strong growth in Prime Finance revenue, which contributed to interest and finance fee income being up 36% quarter-over-quarter. On an indirect basis, in addition to Coinbase Prime reaching all-time highs in trading volume and number of active clients, we saw elevated trading activity across the board in Q1. We saw broad-based consumer growth in advanced and simple with consumer trading volume up 93% quarter-over-quarter, outperforming the U.S. spot market. We've long said that the ETFs would benefit the entire ecosystem and we're thrilled to see that play out on our platform.

All right. And the final question we'll take from Say is, does Coinbase plan to offer any other products in the near term like banking or insurance products? Brian?

Yes. So we're not planning to build anything in the banking or insurance space at the moment. We feel like we have plenty to do in the crypto space, and we want to really focus on how crypto rails can be used to update the global financial system and make things faster, cheaper, more global. And things in crypto tend to have a 100% reserve ratio. You'd only need a banking license if you wanted to kind of do a fractional reserve or something like that, which we don't have any plans to do at the moment. We're also try not to preannounce anything on these calls. I kind of believe in, let's not announce vaporware, let's actually go build things. And if once they're live, we kind of announced them to everybody, including on these calls. But you can imagine that we're always looking at how we can provide more services for retail/insto and also on our developer platform. There's all kinds of things that crypto is really enabling at this point. And with Base coming online, there will be a lot of opportunities there. We're doing a lot of international expansion. We've got a whole on-chain economy to build. So good ideas can come from anywhere within Coinbase. Even bottoms up, we've had groups come pitch us on ideas and some of those have turned out to be the products that you see that are live today. So I suspect we will continue to do that and create a lot of innovative products over time.

All right. Great. Well with that, Sarah, let's switch and take live questions from the analysts, please.

Your first question comes from the line of Devin Ryan with Citizens JMP.

Great. First question, just 1 follow-up here on Base. And I appreciate the growth there is not going to be linear. But as we think about the rollout of, I think, the smart wallets later this quarter, which I believe are on testnet now, it would seem that it represent a pretty material catalyst for both a step function of activity on Base and also USDC growth and adoption. So I'd love to just maybe get your expectations there just based on the interest you're seeing around integration with smart wallets and particularly as you're kind of thinking about taking a step deeper into connectivity with Web3?

Yes, sure. I can take that. So thanks for calling out the smart wallet, and that's been a really exciting innovative product that we're working on. And it's very early days, so we have to kind of caveat everything we say here. We don't know exactly what the impact will be. But one thing we've been always thinking about at Coinbase is how do we make these tools easier to use. And onboarding to crypto-wallet has been a really big challenge in the past. You have to sometimes there's a 12-word phrase and you have to save it in a safe spot or use some kind of chrome extension. And how do -- we always think about how do we get this to 1 billion people, so they can benefit from the technology. Those kind of onboarding experiences are a little bit too technical for probably that size of an audience. So with the smart wallet, we've been utilizing this kind of creation of the pass keys, which is an interesting technology in its own right. You may have seen it kind of if you've done a biometric, push your fingerprint in various scenarios and different kinds of apps, this is allowing us to onboard people into the crypto economy in a much faster, simpler and actually more secure way where they're less likely to lose funds. So we have a developer preview out right now. It's only on testnet. We've got an incredible developer interest in it. And that's a really exciting thing because all that leads to basically more applications getting built. And goes back to that analogy I mentioned where Base is, I think, kind of going to be like the Internet moving from dial-up to broadband. If we can build better developer tools, we'll get more applications, and that's how we eventually get it to 1 billion people.

Okay. Terrific color. Just a follow-up, obviously, a big step-up in USDC resources from $5.5 billion to $7 billion. I know you benefited from the convert, as you guys mentioned, but also strong cash generation in the business. So if we think about just the level of growth you're seeing right now in all the areas that you're focusing on and the areas that need capital to grow and support their businesses versus ones that don't. I mean how are you thinking about kind of the capital needs, I guess, of the business now? And where does that leave you just with, what I would think it's just kind of building capital for capacity to do other things like more aggressive M&A or even potentially return capital to shareholders, just love an update there as well.

Thank. I'll take this one. So we are plowing a fair amount of capital into our Prime financing business. We ended the quarter with just over $700 million in loans, which is the majority of them came from assets on our owned balance sheet, whether that was fiat, USDC. We have a new footnote that discloses a lot of detail around that lending portfolio. So that business is using liquidity. I wouldn't say that it's using a lot of our capital today but we are bridging that product as we grow and develop the 2-sided marketplace for institutional lending. We also use capital for international expansion as we set up new licensed legal entities around the world. But overall, I would say, we have a very capital-efficient business where we have positive unit economics in our products, and we don't require significant capital, either in the form of CapEx or balance sheet to support them. So our balance sheet is intended to be bridge capital for a lot of these bootstrapping the products as well as opportunistic so that we can pursue M&A. And I'll pass over to Emilie to share what we're looking at on that front.

Sure. Well, we always look at a spectrum of buy, build, partner, invest activities. And so for example, sometimes we'll see really interesting opportunities that are kind of further out for us, that would be well suited for venture, whereas if we have something on the product road map that we think is incredibly important to the future of Coinbase, we're going to probably build or buy that. And we have done historically very well with M&A to bolster the product portfolio. You can think of things like Tagomi and Xapo, for example, that helps us build our institutional product platform. Right now, we happen to be shipping very well organically. We've got -- we launched in Canada, Brazil, Singapore, we have the international exchange. And so we're leaning a little bit more into our ventures arm but we're watching M&A opportunities all the time. We closed ORDAM in 2023, that's now Coinbase Asset Management. We are acquiring a MiFID license for the EU. We announced that in Q1, that should unlock derivatives in 20-plus EU markets. And we're just going to continue to use the strong balance sheet to drive growth where we see high-quality opportunities.

Your next question comes from the line of Ken Worthington with JPMorgan.

So 1Q '24 total revenue up 72%. 1Q '24 total expenses up 5%, that's amazing operating leverage. And your 2Q guidance suggests some higher costs but still a very high level of profitability. How are you thinking about the right level of investment in the context of what is a good cryptocurrency environment but acknowledging they can't sort of turn on and turn off investments as quickly as revenue might move around? Is there sort of a logical margin range that in these better cryptocurrency conditions, you feel is right over a longer time frame, balancing the need for future growth and current profitability.

Thanks, Ken, for your question. So I think it's important to note that our focus is on positive adjusted EBITDA. And our overarching goal is to generate positive adjusted EBITDA in all market conditions. You saw that in 2023, those adjusted EBITDA margins were in the 30%. Obviously, when we see strong crypto market conditions, we were able to deliver the Q1 performance that you see today in the 60% range. But the focus here is on learning the lessons from the past, and we learned in 2021 that we grew too quickly. So as we look at 2024, we are going to be making investments. We are planning to be prudent and modest to support the strong performance we've seen year-to-date and especially some of the early traction that we're seeing, for example, in Base, in USDC and some of these other products that are not as correlated with crypto market prices and volatility. For the outlook we provided for Q2, the majority of the increase, though, is coming from variable spends. As I noted in my comments, we see CX customer support and compliance operations typically lag trading volume. And so the spike that we saw in March, the expenses are really hitting in Q2. And then we also have some infra-related spend associated with scaling our infra to meet demand. So we are going to be prudent. We expect to see some modest headcount growth in Q2, but we plan to be able in strong marketing conditions to deliver to the bottom line.

Your next question comes from the line of Benjamin Budish with Barclays.

Maybe just a couple of sort of model-related questions. First, on the payment related revenues and the sequencer fees. On the payment side, could you talk a little bit more about what those are exactly? How should we think about modeling them? What are the key drivers?

Sure. so it's a broad category for everything on the platform that is payments related. It includes instant withdrawal fees, debit card fees, commerce fees and some of the more venture-type products that we have in the portfolio that are payments related. So I would say that Base, as I mentioned earlier, has been the biggest contributor to growth quarter-over-quarter, and that is the largest of these revenue streams at this time but the payment related are the ones that I named.

Got it. Helpful. And then just on the institutional client engagement, you talked about, I think, 40% of institutions seeing engagement with 3-plus products. Can you talk about where that is? And is it sort of -- you've got a client who started with trading and they add Prime and borrowing and, they're doing stuff with ETFs, can you maybe unpack that a little bit? Anywhere you're seeing particularly strong traction in particular types of products?

Sure, happy to. So I think it's really important to kind of zoom back and look at the last bull run, where our institutional offering in 2021 was really limited to like the custody platform. And over the last few years, we've built out a full Prime suite sleep. And -- so the Prime suite offers custody, trading to the Prime brokerage product. It offers financing now. We have staking. And so we're seeing customers engage across that product spectrum. I would say custody trading go hand-in-hand. And then you see depending on the type of client, whether they need financing business or whether they're in staking, tends to be a mix depending on the type of clients but we're seeing good adoption across each of those, which has led to the growth that you saw in the quarter.

Your next question comes from the line of Owen Lau with Oppenheimer.

Could you please add more color on your strategy for Lightning Network and payment? What is the traction on encouraging more merchants to use Lightning network? And what are the major pushback from them?

Yes, I can take that one. So as I mentioned in the opening remarks, one of our goals is to drive down the cost and the confirmation times of all payments in crypto, really all transactions in crypto, I should say. And Bitcoin is the largest network out there. And so Lightning was a big effort that we went on in partnership with Lightspark, by the way, to enable the Lightning Network on Coinbase. So -- this actually decreased the transaction times by over 99%. They essentially became instance on the Lightning network versus roughly a 10-minute block confirmation time on the Bitcoin Layer 1 and it also lowered fees, down about less than 0.01% from the previous fees. So this was a huge step toward getting to that sub-1-second $0.01. If we can do that across all the major chains and sort of make Layer 2 like Lightning Network a default within our apps and products, then I think the average transaction happening in crypto or at least on our products, will get under that 1 second, $0.01. And my excitement about that is that it allows us to really start to fulfill some of the long-term goals of crypto, which is how do we update the global financial system, how do we make it more fair and efficient and global? And really kind of reduce those payment fees, which are a shocking burden for a lot of consumers and businesses. I mean, it still boggles my mind that every time you swipe your credit card, the merchant is losing 2%. It's really just moving bits of data, kind of like sending a WhatsApp message, which is free. And so there's why does that still exist as a 2% tax on every transaction in the economy. I think we've seen in other technologies out there that as you reduce friction, you get more and more activity. And so I think it could lead to economic growth and all kinds of things, just lower fees that people are paying. So anyway, we're excited about having launched the Lightning integration with Lightspark. They were a great partner. And hopefully, we can do that across all the major chains that people are using.

Your next question comes from the line of Kyle Voigt with KBW.

Maybe just going back to the institutional business, just on the trading side, the fee rate came in better than expected and has increased the last 2 quarters despite volumes growing significantly over that time. I guess what's been driving that? And then I'm also just wondering whether the strong market share on the ETF custody side and more broadly, the competitive positioning across the U.S. institutional crypto ecosystem has given you some pricing power in the institutional business more broadly, so not just on trading. And should we think about maybe pricing or fee capture to increase over the medium term in that institutional business because of that?

Thanks, Kyle. So I want to start and just remind you that there's 2 products underneath the hood of the institutional transaction fee revenue. The first is the exchange where we have market makers trading directly on the exchange. And the second is our Coinbase Prime, which is the trading through the Prime brokerage platform. Fees on Coinbase Prime are higher than the fees on Exchange, largely due to the Exchange has been very high volume where our tiered pricing enables most of the clients participating in that to achieve very low fee levels. So when you see the fee go up, it's really driven by a mix shift and we're seeing more growth on Coinbase Prime than we saw on the Exchange. And as we grow Coinbase Prime, which I mentioned in my previous remarks or Brian did, that we saw all-time highs in engagement on Coinbase Prime, both in trading volume as well as number of active clients. And that is what drove that fee for the last 2 quarters. It's just continued engagement with the Coinbase Prime suite of products.

Your next question comes from the line of Joseph Vafi with Canaccord Genuity.

Nice results. Maybe we could just drill down into some of the user base metrics. Obviously, I'm sure you saw a lot more trading from existing users but just wondering how much perhaps new users contributed to the strong quarter. And then I have a quick follow-up.

We haven't broken it out but we saw growth, yes, from existing users, users that were acquired prior to 2023 that we engaged this quarter. We saw new users, and we also saw higher trading volume per user. So both of these -- or all 3 of these metrics really contributed to the growth but we have not attributed and provided that level of detail.

Got it. And then just secondly, I mean, the ETFs got a ton of press attention in the quarter. And I think that perhaps maybe underlying bitcoin spot trading was kind of, I guess, not mentioned as much in the press. Just wondering if you've got a feel kind of where if perhaps there was like a multiplier effect in the ETFs driving more Bitcoin trading, obviously, it was other color you'd have there is kind of a guiding metric relative to ETF activity.

I can take it if you want. I mean, yes, look, I think the ETFs got a lot of attention. But what we're seeing is that when there's a tension on crypto in general, I think it creates energy and interest across all kinds of products in the industry. So we mentioned in the opening comments that this excitement around Bitcoin ETF actually drove new customer adoption across our product suite, and we saw all-time highs in trading volume and active clients, for instance, in our institutional business. So I think it's a rising tide that lifts all boats.

Your next question comes from the line of Bo Pei with U.S. Tiger Securities.

Congrats on the strong results. I have 2 questions, if I may. So what is your view on the recent Wells notice received by Uniswap Labs. Do you think this will potentially impact the U.S. crypto industry and ultimately make crypto less accessible to U.S. users. And second question also on regulatory front. It seems that the USDC wants to classify Ether as a security. If Ether is classified as a security in the U.S., how does that impact Coinbase trading service and staking business. Does that mean Coinbase had to stop offering trading for Ether and other crypto currencies classified as securities.

This is Paul Grewal. I'm happy to address each of those questions. On the Uniswap-Wells notice, I think it's noteworthy that Uniswap responded publicly, transparently and made very clear their view that none of the claims that have been suggested or present to them have any merit whatsoever. I do think that is reflective of an emerging trend not just in this industry but more generally, companies taking their disagreements with the SEC publicly, always in a respectful tone, always in a constructive manner, but sharing with the wider public and certainly the wider market, why they believe their products and services are consistent with federal securities laws and why they ultimately will prevail any action that the SEC may bring. As for the Eth issue that has been presented in the consensus declaratory judgment action that was recently filed. What I think consensus has done in that particular case is, again, in a very transparent, productive, constructive manner, lay bare initiated has been somewhat confused if you look at SEC statements and positions of the commission over the last several years. The SEC has made very clear in the past that it is not a security. In fact, not only was that the position of senior officials at the SEC, the current chair of the SEC said that same exact thing prior to his appointment in the years that followed. So we're fully supportive of both Uniswap and consensus in their view. The court process, of course, will have to play out but we're confident that as Brian has always emphasized, one way or the other through these court processes we are going to get clarity for the market and certainly for Coinbase but unfortunately, the SEC has not been willing to provide in its own right.

Your next question comes from the line of Mike Colonnese with H.C. W.

Really great quarter here. So my question is around USDC. So the market cap has grown by over $8 billion since the start of the year. What do you consider the primary drivers supporting this rebound? And how are you thinking about growth over the coming quarters? And then as a quick follow-up to that, I saw that you mentioned in your shareholder letter that you've seen a step change from legislators in recent months. So I know these things are difficult to time. But when can we reasonably expect to see stablecoin legislation passed in the U.S.? And what would be the potential impacts for your USDC.

Why don't I take the first part and then Paul, I'll hand it over to you for the second part. So we're really pleased to see the broader USDC growth. As we mentioned, we saw USDC growth on our own platform where our own on-platform balance nearly doubled in the quarter, and we also saw growth in the overall ecosystem. I think there's been recognition that USDC is a highly trusted transparent stablecoin by many market participants, and that has been leading to broader adoption, largely through efforts of ourselves and other market participants. So we'll continue to offer incentives. We'll continue to work with the global ecosystem and make it an adopted product. And Paul, maybe you can offer comments on legislation.

Sure. On the legislation front. Look, we're pleased and encouraged that Congress is paying attention to this important issue, and there are now a number of proposals for legislation that are working their way through the Congress. While certain proposals, I think, could and ultimately will be improved, the fact that we're seeing Congress engage, I think, is the important thing. Coinbase has been pushing for sensible legislation as to stablecoins for some time. We think it is an important complement of or 2 regulation that we've been pushing for before the SEC and elsewhere. So regardless of sort of when we -- when any such legislation might pass, it's always difficult to predict how quickly Congress can be able to engage and muster the necessary support in order to move this from mere legislation is proposed to legislation that's enacted. We're encouraged by the fact that it does seem to be a priority, and we do expect to see legislation ultimately enacted that will [ prime ] standards for transparency, standards for reserves and other important requirements around stablecoins, so we think we'll continue to make the U.S. an attractive market.

Your next question comes from the line of John Todaro with Needham & Company.

Congrats on the quarter of good results here. I guess I have 2 here. One, on the $300 million outlook for the April transaction revenue, does that include the other transaction revenue base? And if so, how much is that? And then second, management has talked a lot about managing through the cycle here. I know you guys spent a lot of time thinking about that. So just kind of curious your thoughts on maybe where we are in the crypto cycle or any kind of thoughts you put around that?

So I'll answer the first part. The answer is yes, $300 million is the April total transaction revenue, which includes both consumer, institutional and other. And we haven't broken out the detail at this time to share with you. With regards to where we are in the cycle, it's one of our favorite questions, Brian, do you want to take the first shot at that?

Yes, sure. So look, I'll leave the predictions to you all investors out there. We just mostly want to focus on building great products and tools and everything like that. But I can share just a few thoughts with you from past cycles and things that we've observed. So the crypto market cap is up about 60% in Q1, and the volatility, though, is still below 2021 levels. So a couple of things have happened. Obviously, we had the ETFs in Bitcoin, there's a possibility for other ETFs like an Ethereum and things like that down the road in the future. We had the Bitcoin having as well, which kind of reduces the amount of supply being introduced into the market, every block really that's mined in Bitcoin. And so if you have the same amount of inflows but half as much supply being generated every day, then you can imagine what that does. And so people anticipated that and people speculate around those. But an interesting way to look at it is kind of in past cycles, what happens post halvings. And historically, it's taken about 12 to 18 months for Bitcoin to peak after halvings. So who knows if that will happen again, but it's just an interesting data point. Yes. So those are all kind of the things that we think about. And I actually think Layer 2 is probably the biggest piece that's coming down the pipe next. We talked about Base getting those transaction fees under 1 second and $0.01. And just -- not only is it really interesting for Global Payments, but it's interesting for lots of different applications that can be built on blockchains. In past cycles, people started building things like DeFi and NFTs, these are things which you might periodically do a transaction and it's okay -- you're okay paying kind of a higher fee for that because how often are you going to do a trade or a purchase and maybe the fee is about $10, $25 or whatever. For other types of applications, like if you want to make a decentralized social network and every upvote or like button is happening on-chain or you're in some sort of a game or like something that's more of a daily, hourly, by the minute use case, the cost and confirmation times have to come way down, and that's what we're seeing now with Layer 2. So that's really hard to predict exactly what's going to happen but I think it's pretty exciting.

We have 1 more question in the queue. It comes from the line of Pete Christiansen with Citi.

Congrats on the great results here. I am curious, so press reports are indicating potentially that Lummis, Gillibrand could hit before at some point next week. And part of that, bill, as you lucky probably know, is the dual banking system today and whether or not states can issue their own stablecoins independently of the government -- federal government. I'm just curious how you see state issued stablecoins kind of playing in the market. Is that potentially an opportunity for Coinbase? I'm just curious your thoughts around that dynamic.

I'm happy to take that one. I think the point that you're raising around the role of state governments, in particular, state chartered institutions in supporting the crypto ecosystem in a particular stablecoin is an important one. Whether that ultimately comes to pass in any final legislation that's enacted remains to be seen. But we do think it's very important that states continue to have an important role in supporting stablecoins and supporting crypto more generally. We do think the dual system serves consumer and investor interest reasonably well. And we're hopeful and confident that in any legislation that's finally passed, that will continue to be recognized.

All right. Well, that does it for today. Thank you all for your questions, and we look forward to talking to you next quarter.