Coinbase strategy analysis: DEX will surpass CEX products and international expansion

Author: Kunal G, crypto analyst; translation: Jinse Finance xiaozou

The Coinbase Investor Relations team invited me and several analysts who are deeply involved in the crypto field to discuss the company's first quarter results. The addition of CEO Brian Armstrong and CFO Alesia Haas took the topic far beyond quarterly performance and delved into Coinbase's long-term strategy.

The following are the core points I have distilled for crypto investors. These interpretations are my personal opinions and are not official statements from Coinbase. Some information is quoted from Coinbase's public disclosure documents.

1,DEX will eventually surpassCEX

Coinbase firmly believes that the future belongs to the on-chain world. When I mentioned the growing competition in decentralized exchanges (DEX), Brian bluntly stated that he eventually expected DEX trading volume to exceed centralized exchanges (CEX). This view coincides with mine, but I was impressed by his frankness.

Coinbase's response strategy is to allow users to trade assets directly through the Coinbase wallet/front-end, so that they can still capture the value order flow when settling on the chain. This can be understood as Coinbase's practice of the "DeFi-CeFi hybrid model".

In addition, Coinbase has made a large investment in DEX through Coinbase Ventures. These investments deliberately avoid the form of acquisition to ensure that the underlying infrastructure remains decentralized.

It is worth mentioning that Coinbase's venture capital holdings are priced at cost, which is not yet fully recognized by the market. If the crypto field continues to grow, these investments may bring asymmetric returns-which traditional financial (TradFi) analysts often fail to understand.

2、Competition will make the industry pie bigger

Some analysts question: As regulation becomes clearer, will the entry of traditional financial giants such as Robinhood or Stripe threaten Coinbase's market dominance? Coinbase is negative, believing that traditional financial players are actually expanding the overall market size, which will benefit products such as USDC, Base and Coinbase Custody. For example, Stripe chose USDC as the settlement currency for its new crypto payment channel. The increase in USDC circulation means an increase in Coinbase's revenue, and Stripe has become a demand driver rather than a competitor.

In the field of direct competition, Coinbase believes that its focus on encryption and a more comprehensive product portfolio constitute a lasting advantage. Most traditional financial companies only test the waters with small teams and shrink their fronts in bear markets.

However, these traditional financial companies are generally more operationally capable than the competitors Coinbase has faced in the past, so the competition they bring will be extremely fierce.

3、Product and International Expansion

Coinbase has $10 billion in cash on its balance sheet and is currently investing heavily in expanding its product matrix. Coinbase announced the acquisition of Deribit, the leading cryptocurrency options exchange, which will not only enrich the product line, but CFO Alesia Haas also expects the transaction to increase adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

Several small acquisitions were also completed this quarter, among which the on-chain advertising platform Spindl is particularly noteworthy. Although the team has not yet made significant moves, it may help Coinbase realize wallet and front-end monetization more efficiently in the future.

Coinbase is working to launch perpetual contract products to US customers. The product is open to international users, but has not yet been approved by US regulators.

At the same time, Coinbase is also vigorously expanding its international market. The company recently not only obtained a full operating license in Argentina, but also completed its registration with the Indian Financial Intelligence Department. I personally look forward to their upcoming entry into the Indian market.