In the first quarter of 2025, Coinbase's released financial report presented a challenging picture to investors: as one of the world's largest cryptocurrency exchange platforms, Coinbase faced issues such as a significant decline in net profit, shrinking trading volume, and loss of market share. The core business that once supported its market position was facing unprecedented pressure.

Image Source: the big whale

Facing this crisis, Coinbase also demonstrated its determination: rapid acquisitions, cross-sector business integration. Coinbase is focusing on the development of the Base chain and the expansion of institutional clients to drive its business restructuring. This has provided an inspiring direction for other Centralized Exchanges (CEXs) on how to break through the existing framework, seize future growth opportunities, in an increasingly competitive market.

"CEX Crisis" in the Financial Report

Despite still being one of the world's largest cryptocurrency exchanges, Coinbase's financial report for the first quarter of 2025 revealed its anxiety. Total revenue reached $2 billion, a year-on-year increase of 24.2%, but this growth rate clearly failed to alleviate the pressures it faced,

especially in the context of a significant 94% decline in net profit. The $66 million net profit was far below investor expectations,

Spot trading revenue, once Coinbase's main source of revenue, showed a significant downward trend in this year's financial report. Institutional trading revenue decreased by 30% year-on-year, and retail trading revenue also declined by 19%. The shrinking trading volume reflects that CEX's traditional profit model is facing a severe test.

Behind the decline in spot trading volume lies the cooling of the cryptocurrency market itself. Since January 2024, the price volatility of mainstream crypto assets such as Bitcoin and Ethereum has decreased. Compared to the past highly volatile market environment, investor activity has significantly declined, with both institutional investors and retail traders no longer trading as frequently as before.

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However, in addition to price performance, what truly triggered a butterfly effect was a series of intertwined factors that together drove the major reshuffle of CEX.

The rise of ETFs was undoubtedly a key factor. Apart from Bitcoin, mainstream coins with large market capitalization such as Ethereum, Solana, and XRP all went through ETFs in this round. These proportions once accounted for the vast majority of Coinbase's spot trading volume. In comparison to the 0.5% starting spot trading fee on CEX, the 0.1%-0.5% annual management fee led some investors to opt for ETFs instead.

The thriving on-chain and meme markets also exacerbated trader attrition. The wealth creation effect on-chain in this cycle has made both native crypto users and newcomers increasingly accustomed to on-chain trading. More users are starting to view CEX as a "cross-chain bridge" for deposits and a "wallet" for stablecoins.

Furthermore, decentralized derivative platforms such as Hyperliquid quickly emerged, attracting a large number of futures contract users from heavily regulated regions like the United States with a more flexible listing mechanism, higher leverage, and a more diverse range of trading pairs compared to compliant exchanges like Coinbase, accelerating user migration to on-chain.

To make matters worse, traditional brokers like Robinhood recently announced their foray into the crypto market, further challenging Coinbase's market share. Robinhood's primary customer base consists of young investors trading in traditional financial markets, a group that is already interested in the crypto market and is also an incremental market that platforms like Coinbase are vying for.

However, for this user group, brokerage platforms like Robinhood clearly provide a more familiar trading interface and lower fees. Their compliance may attract crypto whales interested in US stocks, which undoubtedly further compresses Coinbase's future growth space.

When Trading Platforms No Longer Rely on Trading Business

With the decrease in traffic and user attrition, Coinbase's competitors have realized deeply that relying solely on spot trading business is no longer enough to maintain market share.

OKX began laying the groundwork for the OKX Wallet infrastructure during the inscription period, attempting to become users' on-chain gateway through its convenient product experience and comprehensive services. In contrast, Binance attracted a large number of on-chain users to flow into BSC through the launch of the Alpha Trading Reward Program and deeply integrated the Alpha section into the main site to drive traffic back.

Unlike its competitors, Coinbase did not heavily invest in developing new products but used its own advantages in compliance and resources to "collude and connect." It rapidly promoted the construction of the Base Chain through acquisitions and business partnerships, focused on the institutional market, and built a new competitive landscape.

Buy, Buy, Buy!

Acquisitions, a common transformation tactic for Web2 companies facing intensified industry competition, have become Coinbase's primary measure to address market challenges and achieve transformation. In just six months, Coinbase has leveraged its robust cash flow as a trading platform to sequentially acquire four companies: Spindl, Iron Fish, Deribit, and Liquifi.

CEO Brian Amsterang also stated, "The company's balance sheet is strong, and as a publicly traded company, we have available cash for mergers and acquisitions. In the future, we will continue to focus on enterprises that can drive Coinbase's product development and growth."

It is worth noting that these four acquired companies are not directly related to Coinbase's past core business. Evidently, Coinbase is not simply using acquisitions to rescue or grow its spot trading business. Instead, these acquisitions are all about exploring new growth points.

Three of these acquisitions—Spindl, Iron Fish, and Liquifi—all service the same direction: the construction of the Base chain.

Although in the fierce competition of the on-chain ecosystem in recent years, the Base chain has never been able to surpass Solana, unlike Solana and BSC, which attract retail traders through meme creation, Base's growth has always emphasized a "Builder First" approach from the beginning. Jesse Pollak, the ecosystem lead, has publicly stated many times that he wants to create a developer-friendly development environment before attracting users.

The Spindl, Iron Fish, and Liquifi teams directly focus on empowering on-chain developers. These acquisitions provide developers with comprehensive tools and services, from marketing support and privacy technology to token management, reducing the difficulty and cost of developing on the Base chain.

For developers, promoting their developed apps to a wide range of users has always been a major challenge. Traditional advertising platforms cannot meet the decentralized ecosystem's model. Spindl, acquired by Coinbase in January of this year, is a company that provides on-chain advertising solutions founded by core members of the Facebook advertising team, including Antonio García Martínez.

Spindl has built an on-chain advertising technology stack through smart contracts, allowing developers to directly run advertisements and user acquisition on-chain without relying on centralized platforms or Twitter KOL promotions. This innovative advertising method provides on-chain developers with higher transparency, more control, and significantly lowers advertising costs.

In addition to advertising marketing, privacy protection is also one of the pain points for on-chain developers. Privacy issues are particularly valued by native crypto users, with many degen whales leaving CEX to come on-chain because on-chain transactions can better protect their privacy and anonymity. However, in practical development, developers face challenges such as the complexity of privacy protection technology and the difficulty of implementation.

In March, Coinbase acquired the Iron Fish team. Iron Fish was originally a privacy-focused chain built using zero-knowledge proofs (zk-SNARKs) technology to ensure the privacy of user transactions on-chain. The Iron Fish team has a unique advantage in helping developers build privacy-, security-, and compliance-focused privacy protection tools.

After being acquired by Coinbase, their team will build a new privacy module on Base and develop privacy protection primitives aimed at helping developers on Base smoothly develop secure, transparent, and privacy-enhanced applications.

At the same time, for crypto startups, token issuance and management is also a complex task involving aspects such as equity structure, airdrop design, token unlocking, tax compliance, and more. Most developers lack experience in this area, requiring them to invest a significant amount of time, effort, and cost in addressing various challenges related to token issuance and management in addition to project development.

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Liquifi, which Coinbase recently acquired in July, is a key platform designed to address this issue. Liquifi provides comprehensive token management services for on-chain developers, including equity structure management, vesting period arrangements, airdrop management, and tax compliance.

Some well-known projects such as Uniswap Foundation, Ethena, OP Labs have also used Liquifi to manage their tokens and airdrops.

Notably, Liquifi will also be integrated into Coinbase Prime, a platform designed specifically for institutional users by Coinbase.

Through this integration, the token management, equity structure design, and compliance services provided by Liquifi will also directly serve institutional clients. In the trend of Real World Assets (RWA) and the convergence of stocks and tokens, this feature will greatly facilitate traditional financial institutions and US stock companies issuing tokens on the blockchain.

In addition to acquiring products serving on-chain developers, Coinbase also spent $2.9 billion in May to acquire Deribit, enhancing its competitiveness in the derivatives trading market.

For trading platforms, contract trading is usually more stable and has higher profit potential compared to spot trading. Derivative instruments not only attract retail users enthusiastic about high-leverage trading but also serve as essential hedging and speculation tools for institutional investors. However, due to strict U.S. regulation of the futures market, Coinbase's performance in this area has lagged far behind offshore competitors.

With spot trading revenue unable to sustain financial pressure, acquiring Deribit became almost a necessary move for Coinbase. Despite the hefty price tag, Deribit's institutional user base and its leading position in the options market, coupled with Coinbase's strategic direction, provided an ideal springboard for its smooth entry into the derivatives market.

Following the completion of the acquisition, Coinbase promptly launched perpetual contract products compliant with the U.S. Commodity Futures Trading Commission (CFTC) regulation at the end of June. The product features, such as no quarterly expiration, 24/7 trading, and close tracking of spot prices, were developed based on Deribit's existing products.

「Crypto Amazon」

If the acquisition was Coinbase's violent breakthrough against the trading revenue ceiling, then the ongoing business integration and expansion are a more profound "identity reshaping."

It is redefining the underlying architecture of the crypto industry in the manner of traditional tech companies: not through incentives and traffic grabbing for price volatility but step by step delving into the stack of settlement networks, payment systems, and identity layer infrastructure.

This "heavy-lifting, behind-the-scenes" transformation is shaping a clear outline: building a closed-loop around stablecoin payments, social wallets, and on-chain transaction behavior, gradually positioning itself within a compliance framework to become a mix of Apple, Visa, and AWS in the Web3 world.

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The first pillar of this structure revolves around the stablecoin payment network based on USDC. While Coinbase does not have the issuing rights of USDC, the Centre Consortium established with Circle grants it an almost equivalent position to a "co-founder" in terms of technical governance, audit standards, and market expansion.

In this profit-sharing structure, Coinbase took over half of the significant spread of USDC's revenue: In 2023, Circle's interest income was $16 billion, with $9 billion going to Coinbase. However, it was this "earn while lounging in the protocol" model that also planted a structural risk—Circle was dissatisfied with Coinbase's minimal contribution yet maximum benefit, leading them to proactively adjust the profit-sharing rules starting in 2024.

Coinbase quickly realized the core issue: the future of USDC must run in a more robust environment and cannot solely rely on the exchange platform's bootstrapping.

Thus, it shifted from "taking profits" to "building scenarios." In the first quarter of 2024, Coinbase launched a USDC deposit subsidy activity, forcefully increasing the proportion of USDC inventory on the platform. Simultaneously, the more critical move was formally entering the Web2 merchant side: partnering with Shopify to introduce a USDC payment API, assisting merchants in completing the entire process of on-chain payments, off-chain settlements, and fiat reconciliation.

This was no longer a demonstration of "whether stablecoins can be used for payments" but directly transformed Coinbase into a payment processor with merchant settlement capabilities. It is attempting to embed a cryptographic financial settlement pipeline at real-world checkout counters and ERP systems.

This pipeline is not alone. In fact, the real driving force behind Coinbase is a16z.

a16z is not only Coinbase's earliest seed investor but also a long-time strong supporter of Circle (the issuer of USDC). In Centre's design, a16z played a strategic driving role, with its crypto team consistently promoting the core concept that "stablecoins are the TCP/IP of Internet finance."

In a16z's scope, Coinbase is the link between users and real-world fiat payment gateways, while USDC is the value protocol that can penetrate various economic systems. The combination of the two involves deep coordination in capital, governance, and product, representing a systemic restructuring attempt of the traditional financial clearing networks (Visa / Swift).

If payments are considered the gateway of funds, then wallets are the gateway of identity and traffic.

Recently, Coinbase made several updates on the wallet side that were not given much attention: Introducing "Smart Wallets," which are mnemonic-free and one-click creation; integrating on-chain identity markers, NFT displays, checkpoint tasks, among other features. It even joined the Lens social protocol, aiming to construct a wallet social network with interaction, personal branding, and stickiness.

And the latest version of Coinbase Wallet has pushed "accounts" to the forefront of on-chain social and creator economy: it not only integrates Farcaster's feed, short videos, and chat, but also embeds Mini Apps, AI Agents, and on-chain friend interaction modules, attempting to create a "crypto social circle" that carries out both transactions and social distribution.

In a Web3 that has always lacked a blockbuster social scene, Coinbase does not want to replicate another Lens, but rather turn traders into socializers, turn wallets into Feeds, and turn interactions into part of on-chain consumption. It is using the wallet to redefine the way on-chain users engage.

This is by no means a trivial feature optimization. The wallet is the user's first interface to the chain, and once captured by Coinbase, it means not only control over "funds" but also full access to the user's behavioral trajectory, on-chain identity, and social relationships.

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Its goal is obviously to form a closed loop with the Base chain.

In 2023, Coinbase will launch the Base public chain, which quickly attracts a large number of developers and dApps. However, what really retains users is not developer subsidies but the "built-in wallet access." By directly guiding users through the wallet to participate in minting, bridging, and interacting, and then through the identity system and NFT binding on-chain assets, this is a sustainable traffic model.

You can think of this model as the Web3 version of the "iOS ecosystem": Coinbase Wallet is the App Store, Base is iOS, USDC is Apple Pay. Once these three are in a closed loop, Coinbase can make money not relying on volatility and trading volume but by extracting a continuous "on-chain tax" in the flow of "identity + funds + transactions + social interactions."

Related Reading: Ahead of Twitter, the New Coinbase Wallet Evolves into WeChat

And the capital founder of this ecosystem also relies heavily on a16z — it is not only an advocate of the Wallet-as-Infrastructure model but also a promoter of the Base ecosystem.

As retail trading fees continue to decline and high-margin businesses come under pressure, Coinbase's institutional-facing Prime service is also serving as a "cash flow ballast."

Coinbase Prime is a set of trading, clearing, and custody platforms for institutional clients, serving over 500 hedge funds, market makers, and asset management firms, and is a major recipient of USDC custody.

While specific financial data for Prime has not been disclosed, it is widely estimated that its share in Circle interest income is significant, playing a key backend role in maintaining Coinbase's stable revenue structure. If future assets such as RWAs and STOs become a reality, Coinbase Prime could even expand to become the Goldman Sachs and BlackRock of the blockchain.

This is also the fundamental difference between Coinbase and many Web3 trading platforms: it does not rely on user sentiment swings, but rather seeks to control the user's infrastructure—whether it's asset onboarding and offboarding (USDC), account origination (Wallet), or trade settlement (Base). It aims to be an indispensable node in the on-chain financial system.

Thus, we see an extremely restrained yet highly imaginative path: not to roll fees, offer incentives, or introduce new currencies, but to build a compliant version of the Web3 core stack for liquidity, identity, and settlement.

Coinbase may not be the most lively trading platform, but it is becoming the most important "settlement layer company."

While other platforms are still chasing short-term fluctuations, it has already embarked on a slow-moving macro trend: turning crypto into infrastructure, transactions into settlements, and users into network nodes. This slow-moving trend may be the true capital story that can transcend regulation and market dynamics in the future.

From Crypto Exchange Trader to Financial Bedrock

Coinbase was once mired in anxiety about declining trading volume and profits. Spot revenue was unsustainable, ETFs eroded user mindshare, Robinhood kept a close eye, and on-chain users were shifting to native protocols like Hyperliquid, causing the accelerated disintegration of traditional CEX's "old order."

However, Coinbase's response path was not to raise fees or rush to add new coins; instead, it chose a deeper and heavier path: acquiring infrastructure, connecting institutional capital, and building an on-chain foundation.

The acquisitions of Spindl, Iron Fish, and Liquifi, focusing on on-chain marketing, privacy compliance, and token management, respectively, have built the core tool stack that developers need for Base. The hefty acquisition of Deribit has filled its long-standing gap in the derivatives sector, once again competing for high-net-worth users and institutional funds.

These seemingly scattered pieces of the puzzle ultimately point to a unified direction: Coinbase is no longer just an exchange platform, but is building a foundational infrastructure stack for an on-chain financial system. Base is its operating system, Wallet is the account layer, USDC is the fund channel, Prime is the institutional engine—it is constructing a composable, embeddable, institutionally trusted "Web3 middleware."

On top of this middleware, it no longer relies on fluctuating transaction volumes for revenue, but achieves sustained "protocol-level extraction" by building a closed-loop of on-chain activities such as identity, payments, transactions, and social interactions; it no longer caters to retail investor sentiment swings, but attracts developers, service providers, and bridges real-world interfaces with on-chain.

Its strategy has transcended the dimension where competitors like Binance, Robinhood are positioned—it is not about being another exchange platform, but defining who will build the next-generation financial system:

While others are still fighting price wars over transaction fees, Coinbase has already begun selling the entire crypto financial operating system.

This is not an exit, but a form of identity reshaping. And its ultimate rival may no longer be Binance, but traditional finance itself.

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