All Things Exchange

Preface

Over the years, Coinbase has been associated with many titles: a representative company for U.S. cryptocurrency regulation, the entry point for retail investors, and a crypto stock with dreamy upside potential. As I delved into its quarterly performance through September 30, 2025, I found that its greatest advantage is not in its trading itself but in the ecosystem it has built and the value flows it facilitates within that ecosystem.

Thirteen years after its initial launch to simplify Bitcoin buying and selling, the company has transformed its massive customer base, custodial assets, and compliance capabilities into a powerful distribution channel. Although cryptocurrency trading activity has shifted from retail to institutional over the past two years, Coinbase continues to expand its potential market size through a range of new products covering spot trading, derivatives, custody, and the Base application (TAM).

The company calls this vision the “Everything Exchange.” In today’s analysis, I will explore how Coinbase’s diversified business operates synergistically to realize this vision.

Now, let’s get to the main topic.

From Exchange to Ecosystem

Cryptocurrency trading revenue often diminishes during bear markets, but it has now become part of Coinbase’s continuously growing multi-product system.

In Q3 2025, the company’s net revenue reached $1.79 billion, up nearly 60% year-over-year. During the same period, trading revenue grew over 80% YoY due to a recovery in trading activity, while recurring subscription and service revenue increased by about one-third.

However, I am more interested not in how much Coinbase earned but in how it earned it.

Coinbase profits from every layer of the connected crypto ecosystem, including institutional asset custody fees, USDC balance yields, and derivatives spread clearing. Trading was once Coinbase’s core business, but now it serves as an entry point into its expanding range of services, including custody, stablecoins, payments, and derivatives.

The company referred to this new architecture as the “Everything Exchange” during its earnings call. When I first heard this term, I thought it sounded like a marketing gimmick. But the simple underlying idea is that distribution channels are Coinbase’s new moat.

This was particularly evident when Coinbase acquired Deribit, the world’s largest crypto options platform, for $1.2 billion in August.

This all-stock deal built a bridge for the largest U.S. crypto exchange to access the global derivatives market, which has long operated outside U.S. jurisdiction. For the first time, U.S.-listed companies can clear both spot and derivatives trades on the same platform.

The acquisition significantly boosted Coinbase’s institutional business. Within just six weeks of closing, the Dutch company contributed an additional $52 million to Coinbase’s quarterly revenue. This accounts for about 40% of institutional trading revenue, which grew from $55 million last year to over $135 million, more than doubling.

Stablecoin Play

Deribit expanded its toolset with options and futures, while USDC brought stable cash coverage.

With USDC circulation reaching a record high of $74 billion, Coinbase’s USDC holdings on its platform also hit a record $15 billion. Stablecoin revenue increased 44% YoY to $354 million, making it the largest single source of revenue within the subscription and services category.

Coinbase enables businesses to embed USDC deposits, payments, and fund flows directly into their applications through Base and its new payment API.

This entire stablecoin infrastructure and its capital flows have turned Coinbase into an on-chain clearing bank. The returns are substantial: stablecoin balances generate yields, expand through user adoption, and retain users through convenience. Unlike trading, which is volatile, USDC earnings grow with adoption. Each new developer using Base or merchant integrating USDC increases Coinbase’s circulation.

Trust Factor

Trust is the hardest asset to scale, but Coinbase has replicated the success of others in its custody business.

Last quarter, Coinbase’s assets under custody (AUC) reached $300 billion, up 60% YoY, mainly driven by strong ETF fund inflows and corporate holdings of digital assets (DAT). Currently, Coinbase provides custody for over 80% of BTC and ETH in U.S. spot ETFs. When institutions like BlackRock, Fidelity, and ARK Invest create or redeem shares, the assets are traded through Coinbase’s vault, and the fees are included in Coinbase’s revenue.

Custody accounts for less than 8% of Coinbase’s total revenue, but its strategic value is significant. Custody builds trust, which can expand distribution and retain users.

These custody clients are also more likely to try Coinbase’s new product suite, including derivatives and USDC payments. Coinbase’s latest acquisition, Echo, will benefit from this trust factor, as its clients can now issue, trade, and store tokens within the same compliant framework.

Custody creates stickiness. I believe it is an intangible barrier that makes the “Everything Exchange” vision possible.

Evolving Profitability

From a macro perspective, the changing structure of Coinbase’s revenue in both quantity and quality makes its progress toward the “Everything Exchange” vision more convincing.

In 2021, nearly 90% of Coinbase’s revenue came from trading spreads. Today, about 40% comes from recurring sources such as custody fees, stablecoin yields, and blockchain rewards. Although its revenue still heavily depends on market cycles, these cycles no longer determine its survival.

Every new product Coinbase launches recently adds additional revenue. This demonstrates the benefit of leveraging distribution channels to bring new business lines to enterprises.

I like the “Everything Exchange” vision because it doesn’t attempt to build a chaotic product portfolio—though that would be easier. I find it interesting because it treats cryptocurrency as a space where people are willing to stay, provided you offer a product ecosystem that naturally connects or creates value together.

Custody and stablecoins attract institutions and developers, while Base introduces the creator economy on-chain. Deribit provides leveraged markets. Together, they form an infrastructure network rather than just a trading platform, and Coinbase profits from different areas within the crypto capital structure through this network.

Coinbase’s extensive product network is everywhere, helping it become the distribution backbone of the entire crypto industry.

Looking ahead, Coinbase has indicated its intention to extend the “Everything Exchange” architecture beyond current assets.

In last week’s earnings call, CEO Brian Armstrong acknowledged that the company’s vision is at the core of what they are building—the “next piece” of the puzzle, including prediction markets and on-chain assets. We will have to wait until Coinbase’s product showcase in December for more details.

I see exciting potential for Coinbase here. If it can run prediction markets on the Base platform, outcomes could be tokenized, settled in USDC, and stored within Coinbase’s infrastructure—all within a reliable regulatory framework.

If executed well, this could help Coinbase evolve from a platform that once traded assets into a platform that trades information, further demonstrating its distribution capability.

What concerns me about Coinbase is that most of its revenue depends on a few volatile pillars. About 20% of its total revenue this quarter came from USDC yields, which are linked to short-term government bond rates. If that rate drops by one percentage point, it could reduce quarterly stablecoin revenue by approximately $70 million.

Coinbase claims its architecture is diversified, but the next few quarters will reveal whether this diversification can still be beneficial if key business segments fail to deliver satisfactory results.