American cryptocurrency exchange Coinbase aims to increase subscription revenue over the long term to counter potential profit margin compression.
The firm’s founder and CEO Brian Armstrong delved into the long-term prospects of the American cryptocurrency exchange in an extensive interview with CNBC’s Crypto World on August 23. An important takeaway was the potential for future revenue from fees and how the company plans to address this possibility.
Armstrong highlighted his belief that profit margin compression is bound to happen in the future as more exchanges and competitors launch similar products and services that can compete for market share:
“That’s why we’re investing so much in subscription and services revenue today and we’re realizing that trade fees will still be a big part of our business in 10 or 20 years. But I want to move to a place where we’re going. where over 50% of our revenue comes from subscriptions and services.”
Armstrong said the company had been focused on this change for the past three years, which resulted in subscriptions and services accounting for 18% of the company’s revenue stream. According to Armstrong, this was up from a 4% contribution to revenue in 2020.
The Coinbase CEO noted that its stake offering and USDC custody services were the primary drivers of subscription and services revenue, while the development of Coinbase Cloud and other projects in the pipeline will further drive the growth of these revenue streams.
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The growth of Coinbase’s staking product also depends on the scalability of the underlying blockchain powering the service, as Armstrong explained, adding that the upcoming transition to Ethereum’s proof-of-stake consensus algorithm is set to address this issue.
The rapidly growing non-fungible token (NFT) space and Coinbase’s proprietary NFT market were also a topic of discussion. After launching the beta release of its NFT marketplace in April 2022, the CEO stated that the company remains committed to NFTs and believes it will be a big business:
“It’s still super early in the NFT space. We saw a big run-up last year, with boring apps and people trading all kinds of different things gaining traction. But I think that’s what NFTs are going to become. It is the first step in its long journey.
Armstrong highlighted his belief that NFTs will change how people use social media, how the music industry operates and how creative talent interacts with audiences. Integrating Coinbase NFTs seamlessly into the various platforms people use was another method that Armstrong discovered.
“We are in the process of aggregating all the different places people can bid and ask on NFTs into one place. There’s really no shortage.”
The exchange is currently testing a beta version of its Coinbase One subscription product that gives members access to zero-fee trading, $1 million account protection, and automated tax services. The monthly subscription to the service is $29.99.
