Coinbase: Is the "Water Seller" Really Set to Win on the Blockchain?

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The surge in cryptocurrency markets since 2022 has been fueled by a powerful mix of macroeconomic and regulatory forces: interest rate cut expectations, Bitcoin’s periodic halving, weakening dollar credibility, and a more crypto-friendly stance from the Trump administration.

As of June 23, the total crypto market cap has reached $3.3 trillion**—nearly triple its size since 2023. Bitcoin, the largest asset in the space, now trades above **$100,000, up from under $30,000 in mid-2023, contributing over 60% of total market value.

To put $3.3 trillion in perspective:

With this scale and momentum, crypto is no longer a niche asset class—it's becoming a core component of global portfolios. This shift brings new opportunities for infrastructure players like Coinbase, often dubbed the "water seller" in a gold rush.

👉 Discover how Coinbase is turning crypto growth into sustainable profits

Beyond the Exchange: Coinbase’s Evolving Role

At its core, Coinbase functions like a financial exchange—providing price discovery, order matching, and settlement for digital assets. Think of it as the Nasdaq or CME of crypto. But unlike traditional exchanges, Coinbase also acts as a broker, offering direct access to users through trading, lending, staking, custody, and withdrawals.

This dual role gives Coinbase a unique advantage: it doesn’t just facilitate trades—it owns the full user journey.

In 2019, Coinbase partnered with Visa to launch the Coinbase Card, enabling users to spend Bitcoin and other cryptos at physical and online merchants. However, adoption was slow—largely due to crypto’s extreme price volatility.

That’s changing. With the rise of regulated stablecoins like USDC, real-world crypto payments are becoming viable. Stable value = real utility.

But Coinbase isn’t stopping there. The company is actively pursuing approval to launch a stock token trading platform. If greenlit by the SEC, users could trade tokenized versions of equities—like Apple or Tesla—directly on Coinbase.

This signals a bold vision: transforming Coinbase into a comprehensive on-chain financial platform, not just a crypto exchange.

By expanding use cases—payments, investments, tokenized assets—Coinbase helps grow the entire crypto ecosystem. And as the market expands, so does its revenue potential.

The "Water Seller" Advantage

In any boom, infrastructure providers often outperform speculative assets. Coinbase, as a regulated gateway to crypto, benefits from every new user, transaction, and dollar invested.

Its compliance-first approach gives it an edge in an industry still navigating regulatory uncertainty. While smaller platforms struggle with legality, Coinbase operates with clear licenses and oversight—especially in the U.S., where it holds nationwide operating rights, a rare distinction.

This compliance moat helps Coinbase attract high-net-worth individuals and institutional investors who prioritize security and auditability. As regulation tightens globally, less compliant platforms may be forced out—consolidating market share among leaders like Coinbase.

Yet, despite its strong position, Coinbase’s profitability fluctuates with market cycles. Trading revenue—its largest income stream—rises and falls with crypto volatility.

Still, in stable periods, its operating margins range between 25% and 65%, rivaling mature financial institutions. In 2024, its margins align with low-cost brokers like Robinhood but lag behind pure-play exchanges—indicating room for improvement.

As crypto gains broader acceptance, Coinbase’s structural advantages—liquidity, trust, compliance—should allow it to capture higher margins over time.

Revenue Streams: From Trading to Value-Added Services

Coinbase generates income through three main channels:

  1. Transaction revenue (trading fees)
  2. Subscription revenue (custody, staking, lending)
  3. Other income (data services, stablecoins, investments)

Currently, transaction fees make up about 50% of revenue, heavily influenced by market activity. The rest comes from more stable, recurring services that help smooth earnings during downturns.

But a clear trend is emerging: Coinbase is reducing its reliance on trading fees.

👉 See how Coinbase is building long-term value beyond trading fees

1. Lowering Barriers to Entry

Historically, Coinbase faced criticism for high retail fees and limited derivative offerings. Compared to Binance or Bybit, its cost structure wasn’t competitive—especially for active traders.

But that’s changing.

In 2022, Coinbase launched Advanced Trade, slashing fees for high-volume users. Taker fees dropped from 1.49% to as low as 0.6%, with minimal hidden spreads. For institutions using Prime or VIP tiers, rates range from 0.03% to 0.18%.

It’s also expanding product offerings:

These moves aim to close the gap with global competitors and attract sophisticated traders.

Yet challenges remain. While Coinbase holds 12% of global crypto assets under custody (AUC), its share of total trading volume is only 5%—and even lower when derivatives are included.

Why? Low turnover rates.

Unlike typical crypto platforms known for speculative frenzy, Coinbase users trade less frequently. Why? Because they’re not day traders—they’re long-term investors and institutions seeking security and compliance.

This user base is less sensitive to price swings but highly sensitive to safety and regulatory clarity—exactly what Coinbase offers.

2. The Rise of Non-Transaction Revenue

As trading becomes more competitive—and fee compression inevitable—Coinbase is shifting focus to high-margin, recurring revenue streams.

(a) Institutional Custody: Trust as a Service

Custody services offer a stable ~0.1% annual fee for secure storage of digital assets. With 24/7 withdrawals, insurance, audits, and compliance reporting, Coinbase appeals to institutions wary of self-custody risks.

Growth here depends on institutional inflows—which are accelerating as regulations evolve.

However, traditional financial giants like Fidelity and BlackRock are entering the space. Their brand trust and multi-asset platforms could challenge Coinbase’s dominance—unless it continues innovating at the intersection of crypto-native features and institutional-grade security.

(b) Staking Rewards: Growth with Limits

Staking allows users to earn yield by locking up assets (e.g., ETH) to support blockchain networks. Coinbase takes a 25% cut of these rewards.

While profitable—once contributing nearly 13% of total revenue—staking has long-term ceilings:

As network inflation slows and validator saturation increases, staking returns will likely trend downward—capping this revenue stream’s upside.

(c) Stablecoins: The Real Growth Engine

Enter USDC, the regulated stablecoin co-founded by Circle and integrated deeply into Coinbase’s ecosystem.

Stablecoins solve crypto’s volatility problem—enabling real payments, savings, and on-chain finance. And Coinbase is positioned to benefit massively.

Despite holding only 17% of circulating USDC, Coinbase captures 55% of the revenue share from USDC-related activities—a testament to its privileged role in the ecosystem.

This includes:

But tensions exist. Circle, now independent post-2023 (after dissolving the Centre consortium), has its own growth ambitions. It’s launching products like Mint Wallet, offering rebates to keep USDC within its ecosystem—not Coinbase’s.

Even more concerning: Circle recently brought Binance, a direct competitor to Coinbase, into its USDC network—as a low-fee partner.

While the current revenue-sharing agreement lasts until 2030, the long-term power dynamic remains uncertain. Who controls the future of USDC? The issuer (Circle) or the platform (Coinbase)?

👉 Explore how stablecoins are reshaping crypto’s future—and who stands to gain most

FAQs

Q: Why is Coinbase considered a "water seller" in crypto?
A: Like vendors selling shovels during a gold rush, Coinbase profits from infrastructure rather than speculation. It earns fees from every trade, custody arrangement, and staking activity—regardless of price direction.

Q: How does regulation impact Coinbase’s business?
A: Regulation is a double-edged sword. While compliance costs are higher, they create barriers for competitors. As governments formalize crypto rules (e.g., U.S. Market Structure Act), compliant players like Coinbase gain legitimacy—and market share.

Q: Can Coinbase compete with Binance on fees?
A: Not yet on retail pricing—but it doesn’t need to. Coinbase targets different users: institutions and long-term holders who value security over low fees. That said, it’s actively reducing costs to stay competitive.

Q: What’s the biggest threat to Coinbase’s growth?
A: Incumbent financial firms (e.g., Fidelity, Robinhood) expanding into crypto—and Circle reducing its reliance on Coinbase for USDC distribution.

Q: Is stablecoin revenue sustainable for Coinbase?
A: In the short term, yes—the 55% revenue share is lucrative. But long-term sustainability depends on maintaining strategic control over USDC distribution channels amid growing competition.

Q: Will acquiring Deribit boost Coinbase’s institutional appeal?
A: Absolutely. Deribit dominates crypto options trading—a key product for professional traders. Integration will strengthen Coinbase’s derivatives offering and attract more high-volume clients.

Final Thoughts

Coinbase is evolving from a simple exchange into a full-stack financial platform anchored in compliance and innovation. While trading remains important, its future lies in expanding financial use cases on-chain: payments via stablecoins, institutional custody, staking-as-a-service, and tokenized assets.

As crypto becomes part of mainstream finance, infrastructure providers with trust, scale, and regulatory clarity will lead the next phase of growth.

And right now, few are better positioned than Coinbase.

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