Extracts from the Coinbase Q2 shareholder letter:

Q2 was a strong quarter of execution for Coinbase and marked continued progress in our journey to build a company that is increasingly efficient and financially disciplined. One year ago in Q2 2022, we started reducing our expense base to operate more efficiently. One year later, we’re proud to say that our quarterly recurring operating expenses have dropped nearly 50% Y/Y (defined as technology & development, general & administrative, and sales & marketing). This includes a 30%+ Y/Y reduction in headcount which, while painful, has paved the way for a more efficient environment where our teams are exhibiting stronger execution, and yielding results. In Q2, we again generated positive Adjusted EBITDA and increased our $USD Resources for the first time since late 2021, all while continuing to grow our product suite.

Our ambition remains unchanged: to build trusted and easy to use products and services to bring over 1 billion people into crypto. In Q2, we made further progress toward this bold goal such as expanded access to derivatives products to customers outside the US, being selected by many leading asset managers to provide critical infrastructure underpinning their proposed bitcoin spot ETF products, and more recently, made tangible steps to move our Base product from pilot to general availability. As we look ahead, we are expanding our focus towards crypto use cases beyond trading. As an example, Base is an investment in blockchain infrastructure which we expect will drive down transaction costs and increase transaction speed – key attributes we believe will unlock new use cases over time.

This quarter also represented progress for crypto regulation, both in the US and globally. In the US, we’re beginning to see a pathway for bipartisan legislation that could enshrine consumer protections and an equitable market structure framework, while also recognizing the importance of keeping crypto innovation in the US. Likewise, the EU saw the implementation of its long-planned Markets in Crypto-Assets Regulation (MiCA), which institutes uniform market rules for crypto in all 27 EU member states.

We are building a sustainable business to drive long-term growth; in Q2, our continued financial discipline resulted in $97 million of Net Loss and positive $194 million of Adjusted EBITDA. Total revenue was $708 million, down 8% Q/Q, and net revenue was $663 million, down 10% Q/Q. Transaction revenue performance underlying these results reflects multi-year lows in crypto volatility. Recurring operating expenses (technology & development, sales & marketing, and general & administrative) collectively declined 1% Q/Q to $664 million and were lower than our outlook range, driven by our continued focus on expense management. Net loss was $97 million and Adjusted EBITDA was $194 million. Our balance sheet strengthened to $5.5 billion in $USD resources which increased $156 million Q/Q.

Q2 institutional transaction revenue was $17 million, down 24% Q/Q. Institutional trading volume was $78 billion, down 37% compared to Q1. Our institutional trading volume decline was primarily driven by lower Markets volume (consisting of market maker volume on our trading platforms) given the low volatility environment. Meanwhile, we continued to see trading volume growth on Coinbase Prime, which helped support a higher blended average fee in Q2 compared to Q1. Our institutional clients remain committed to their long-term plans around digital innovation. Coinbase Prime trading volume growth was driven by continued elevated institutional onboarding, and ongoing recognition by our clients that Coinbase offers the high quality, trusted platform with a comprehensive suite of products from custody and trading to financing that they increasingly seek.

One of Coinbase’s highest priorities is achieving regulatory clarity for our industry. There are multiple ways to achieve this outcome that we are pursuing – ranging from direct dialogue and engagement with regulators, working with legislators, and the judicial process as well. Our preferred path in every country is comprehensive legislation that protects consumers while allowing the crypto industry to grow and thrive. We are encouraged by the progress in many countries and hope the US follows their lead.

Coinbase will be filing a motion to dismiss the SEC. case in its entirety, in particular because it is our view that none of the assets or services in the SEC’s complaint constitute investment contracts under longstanding securities law. In the state actions, Coinbase is engaging with all of the states and complying with orders issued by four of the states to restrict new staking by retail customers pending full proceedings on the merits. Although staking services contributed approximately 4% of our net revenue in Q2 (after adjusting for rewards passed to customers), Coinbase is committed to protecting access to staking in all of these states because staking is so fundamental to the operations and development of our industry overall.

The full letter can be read here.

Source: Coinbase

Coinbase's brief is fantastic — no surprise, given the strong arguments in their favor, and great lawyers (in-house and outside) working on it.

On one point, though — the Major Questions Doctrine — I think Coinbase actually *undersold* just how major a question this is. 1/ https://t.co/MFNI6tt50G

— Jason Gottlieb (@ohaiom) August 4, 2023