Coinbase Revenue Shows Uneven Growth In Ethereum, Solana, And Cardano Staking

Posted on November 5, 2022 in Cryptocurrency

Coinbase has a long way to go before becoming the “#1 staking provider.”. When Coinbase reported its quarterly earnings in August, the company told its shareholders that it is prioritizing the development of its staking product and has a long-term goal to become the number one provider.

When users acquire crypto assets, they are loaned to validators on the blockchain network. Validators use the funds to secure the network and process transactions. In return, the user receives a portion of the validator reward. It became a popular Coinbase product with a 44% drop in trading revenue in the third quarter.

While reporting its Q3 earnings on Thursday, Coinbase (COIN) had mixed results for the “Blockchain Rewards” category. Quarterly revenue was $63 million, down 18% from $77 million in the same period last year. 

Keep in mind that there are few benevolent assets compared to this time last year when the cryptocurrency market crossed $3 trillion in market cap and Coinbase closed at $337.05. Since then, the global crypto market has lost two-thirds of its value and COIN has fallen 83% to close Friday at $58.82.

Comparing the first nine months of 2022 to the same period last year tells a different story. 

During the first three quarters of 2021, Coinbase generated $120 million in blockchain rewards. During the same period this year, the company increased 77% to $213 million.

In a letter to shareholders, the company wrote: “Achieving user growth was primarily driven by Solana, who started support in June.”

The cryptocurrency exchange also revealed that it added support for Cardano (ADA) in March. So, there are indications that Coinbase is gaining traction with some staking products, but not Ethereum.

“In Q3, we started institutional acquisitions of Ethereum globally, and adoption is still in its infancy, but we are optimistic about long-term opportunities,” the company wrote in its letter.

Before the merger, Coinbase acquired 15% of the 13.5 million ETH raised, according to blockchain analytics firm Nansen. By early October, the total had risen to 14 million, but Coinbase’s stake remained the same. However, over the past month, Coinbase has actually gone down and now accounts for 14% of the Ethereum stack. 

To be clear, this does not mean that Coinbase users have withdrawn ETH. No one will be able to withdraw the tied ETH until the developer implements the Shanghai upgrade of the network, which is expected to be released in September 2023. 

Instead, it is a sign that those who have wanted to participate in ETH over the past two weeks have opted to participate through a provider other than Coinbase.

However, Coinbase’s Ethereum staking business faces another potential problem. When asked if CEO Brian Armstrong would censor transactions on the Ethereum network or move away from ETH staking, he said he prefers to abort transactions.

The issue was raised after the U.S. Department of the Treasury’s Office of Foreign Assets Control added crypto wallet addresses related to the Ethereum Tornado Cash Mixer to its sanctions list. Traditional financial institutions such as banks face severe penalties if they do business with sanctioned individuals or entities. 

There are still no signs that federal regulators have pressured Coinbase or other crypto companies to exclude or blacklist approved wallet addresses. Still, Coinbase went on the offensive.

In September, the company announced that it was backing a lawsuit against the U.S. Treasury Department. The complaint described the administration’s punishment for the Ethereum Tornado Cash Mixer as “an unprecedented large-scale measure.”

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