How Does Coinbase Make Money? Revenue Model Explained

Crypto trading has gradually become the talk of the town over the past decade. This prominence brought Coinbase into the main picture as the most popular trading platform, which it is to date.

In 2021, Coinbase made about $7.8 billion, which is comparatively higher than the $1.3 billion it made in 2020.

But how does this giant platform generate substantial revenue?

This blog talks about Coinbase, its history, the digital currencies it’s compatible with, its business model, and all the jazz!

Let’s look into them!

What is Coinbase?

Coinbase is the most acclaimed of all the crypto exchange platforms globally. It is broadly used to trade and store a spectrum of cryptocurrencies, including Bitcoin and Ethereum, which reportedly amount to 83% of all assets on Coinbase. Being a user-friendly platform, Coinbase has attracted millions of users and offers more liquidity to users and investors.

In addition, it provides an extensive range of services, such as secure digital wallets, educational resources, and merchant solutions. It tops the list of crypto exchanges as it emphasizes regulatory compliance, user experience, and security.

The History of Coinbase Exchange

In 2012, Coinbase was established in San Francisco by Brian Armstrong and Fred Ehrsam. It was nothing short of a disruptive approach to digital currency exchange.

The very next year, in 2013, Coinbase obtained $30 million in funding to scale up its brand identity and thus became accessible to people.

The platform marked its first breakthrough by achieving 1M users within 2 years of its inception in 2014.

It witnessed great credibility and support from investors in 2015. This was the year when Coinbase received a huge $75 million investment, which ignited its future plans.

In 2016, it went through a rebranding and emerged as the Global Digital Asset Exchange, implying its expansion far and wide.

The crypto exchange, in 2017, received licensing to trade Ethereum and Litecoin, through which users got more options for investments.

Then the Global Digital Asset Exchange platform experienced rebranding as CoinbasePro in 2018. This shift made the platform easier to navigate for users.

Coinbase Pro brought enhanced trading features, lower fees, and improved performance, serving exclusively professional traders and investors. At the same time, Coinbase launched another platform named CoinbasePrime, which offered customized services.

In the year 2019, Coinbase apparently generated 153 million euros outside the US. From this, it was evident that Coinbase was widely adopted, and by offering services that aligned with local needs, following local rules, and working with local partners, this platform attracted more users.

In 2020, it introduced the Coinbase Visa Debit Card, which allowed users to spend cryptocurrencies directly from their accounts. This literally incorporated the use of digital currencies into traditional financial transactions.

On April 14, 2021, Coinbase identified itself as a publicly traded company. It made an entry in the Nasdaq stock exchange under the symbol COIN. This was the first time a leading cryptocurrency exchange became public.

In the following years, 2022 and 2023, Coinbase made its way into the global market by expanding its services to over 100 countries. It clearly showed that it was a step towards making digital currencies available to people worldwide.

Also Read:- Crypto Exchange Market Trends and Analysis (2023-2030)

What Digital Currencies Does Coinbase Support?

• Bitcoin (BTC)
• Ethereum (ETH)
• Litecoin (LTC)
• Bitcoin Cash (BCH)
• Ethereum Classic (ETC)
• Basic Attention Token (BAT)
• Chainlink (LINK)
• Stellar Lumens (XLM)
• Ripple (XRP)
• USD Coin (USDC)
• Dai (DAI)
• Tezos (XTZ)
• Cosmos (ATOM)
• Algorand (ALGO)
• Zcash (ZEC)
• Compound (COMP)
• Uniswap (UNI)
• Yearn. finance (YFI)
• Aave (AAVE)

The Role of Cryptocurrency Exchanges

Cryptocurrency exchanges like Coinbase play a crucial role in the digital asset ecosystem by:

Facilitating Trades: It provides a platform for users to buy, sell, or various cryptocurrencies.

Price Discovery: It evaluates the price of cryptocurrencies by matching buy and sell orders.

Liquidity Provision: It largely attracts buyers and sellers and ensures the availability of enough orders, so users can trade seamlessly.

Security and Custody: It offers secure storage solutions to protect users' assets from theft or loss.

Regulation and Compliance: It follows regulatory standards to ensure legal compliance and protect users’ interests.

About Tiered Fee Structures

Tiered fee structures are a pricing model in which transaction fees tend to be low in the case of high trading volume. This structure encourages users to trade more by offering lower fees. Typically, fees are set in tiers based on monthly trading volume.

Maker Trades vs Taker Trades

Maker Trades: These are orders that add liquidity to the order book. When a user places an order that is not immediately matched with an existing order, it stays on the order book and is considered a maker order. Makers typically pay lower fees as they provide liquidity to the market.

Taker Trades: These are orders that remove liquidity from the order book. When a user places an order that is immediately matched with an existing order, it is considered a taker order. Takers usually pay higher fees because they reduce the market liquidity.

Coinbase's Unique Approach to Crypto Trading

User-Friendly Interface: It’s designed to be intuitive and accessible for beginners, making it easy for new users to enter the crypto market.

Regulatory Compliance: It emphasizes following regulatory requirements, ensuring legal operation, and building trust among users.

Security Measures:  It Implements robust security protocols to protect users' funds and personal information.

Educational Resources: It provides extensive educational content to help users understand cryptocurrencies and trading.

Coinbase’s Customer Segments

Retail Investors: Individual users looking to buy, sell, or hold cryptocurrencies.

Professional Traders: Users seeking advanced trading features and tools available on Coinbase Pro.

Institutional Investors: Large entities like hedge funds, family offices, and financial institutions needing secure and efficient trading and custody solutions.

Developers and Businesses: Companies integrating crypto transactions into their services or developing blockchain applications.

The Value Propositions of Coinbase

Ease of Use: A simple, user-friendly platform ideal for beginners.

Security: High-level security features to protect user funds and data.

Regulatory Compliance: Commitment to following regulations, and providing a trustworthy environment.

Wide Range of Cryptocurrencies: Offering a broad selection of digital assets for trading.

Educational Content: Resources to help users understand and navigate the crypto space.

Coinbase’s Customer Relationships

Customer Support: Assisting various channels like email, chat, and phone.

Educational Resources: Offering guides, articles, and tutorials to help users understand and utilize the platform.

Community Engagement: Active participation in the crypto community through events, webinars, and social media.

Regular Updates: Keeping users informed with updates on new features, security measures, and regulatory compliance.

How Coinbase Makes Money? Revenue Model

Coinbase earns money through staking, transaction fees on trades, and spreads when converting digital currencies to cash. It also generates revenue from staking and other services for big investors.

Fees on Transactions

The income that Coinbase generates mainly comes from the charges incurred to trade cryptocurrencies. The fees may differ on the basis of a tiered commission system, which means lower fees for high-volume transactions and higher fees for low-volume transactions.

Credit Transactions

Coinbase or the organizations associated with it provide loans in USD. In return, Coinbase is credited with a fee and sells any bitcoin used as collateral for the loan.

• Users are supposed to pay a uniform fee of 2% of the loan amount to Coinbase for the services provided.

Interest from Personal Loans

Coinbase makes income through its financial lending services too. With the Bitcoin in their accounts as collateral, Users can take out up to $100,000 at an 8% annual interest.

Coinbase Prime and Pro

Coinbase Prime and Pro are trading platforms particularly crafted for traders who have prior experience. They offer an array of features:

• Real-time market data and trading algorithm development tools
• Thorough filtering options and a full trade history API
• Digital asset protection with insurance coverage up to $250,000 in case of hacking
• Committed assistance for Prime members in-app installation

While these tools are free to access, users have to pay fees when buying and selling different cryptocurrencies. Coinbase adopts a strategy called a maker-taker fee model to evaluate these trading costs.

Other Revenue

In addition, Coinbase also generates income from:

• Selling cryptocurrency assets
• Corporate interest
• Miscellaneous sources

In 2021, these activities brought in roughly $484.6 million, up from $136.3 million in 2020.

Final Thoughts

Coinbase is the most sought-after and talked-about exchange for various reasons. But the platform, being easier to navigate for beginners and professional traders, positioned itself in the leading position.

Other than cryptocurrencies, Coinbase is bound to expand its realm by exploring DeFi, NFTs, and other digital assets.

A strong collaboration with institutions and the elevation of technology would further strengthen its placement in the best exchanges list. Coinbase is all set for an extension in digital finance.

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