The Evolution of Coinbase

Founding Sparks (2012–2014)

Coinbase begins like many Silicon Valley stories: one engineer, one big friction point. In 2012, Brian Armstrong—then a software engineer—built a simple way to buy and hold bitcoin. Y Combinator accepted the fledgling idea, and by spring 2012 Armstrong was openly searching for a co-founder; former Goldman Sachs trader Fred Ehrsam soon joined. The company incorporated that year. Coinbase’s own S-1 would later codify the ambition: create “an open financial system,” starting with an easy, trusted on-ramp for digital assets.

Capital arrived quickly. In May 2013, Union Square Ventures led a $5 million round—then the largest single investment in a Bitcoin startup—after Coinbase showed early traction with a clean consumer product. By January 2015, the company had raised a landmark $75 million Series C from DFJ Growth, the NYSE, USAA, BBVA, and others—a syndicate that signaled mainstream finance was paying attention.

The product, meanwhile, was turning crypto’s arcane tooling into a consumer-grade experience. Coinbase handled the messy parts—keys, cold storage, fraud controls, bank links—behind a simple “buy/sell” button. In January 2015, it launched what Wired billed as the first licensed U.S. bitcoin exchange, another attempt to wrap crypto in familiar, regulated rails.

Building Rails For A New Asset Class (2015–2017)

As volumes rose and new assets emerged, Coinbase added a proper order-book exchange—first Coinbase Exchange, then GDAX (Global Digital Asset Exchange). The goal: segment sophisticated traders and institutions from the retail app. Coinbase would later retire GDAX in favor of “Pro,” and ultimately consolidate advanced trading into a single interface, but the direction of travel was clear: broaden the funnel, deepen the moat.

Fundraising kept pace. In 2017, amid the first big crypto bull run, Coinbase raised $100 million at a reported $1.6 billion valuation, arming itself for the next phase: custody and institutions. That step changed the company’s trajectory—and, arguably, the industry’s.

The Institutional Turn (2018–2020)

Starting in 2018, Coinbase announced a full “institutional suite”: Coinbase Prime for execution, a formal custody business, and upgraded exchange infrastructure. The custody arm obtained a New York limited-purpose trust charter, while in Europe it layered e-money permissions and, later, full-fledged crypto custody licenses. Germany’s BaFin granted Coinbase the first such license in the EU in 2021. These badges mattered: an asset manager could point to recognizable regulators, audited controls, and segregated cold storage.

Product expansion continued on the retail side. Coinbase Earn (launched in late 2018) paid users small amounts of tokens for completing educational modules—an elegant growth and marketing loop that also seeded on-chain familiarity. Coinbase Wallet spun out into a standalone self-custody app (and later a browser extension) as DeFi and NFTs took off. The company even became a Visa principal member, paving the way for Coinbase-branded cards and crypto rewards.

The S-1: How Coinbase Makes Money

When Coinbase filed its S-1 in early 2021, it put hard numbers behind a simple business model: earn “transaction revenue” on spot trading (retail and institutional), then grow a second engine—“subscription and services”—that includes custodial fees, staking rewards, interest income, USDC stablecoin revenue, and other services (e.g., Coinbase One, developer infrastructure). The S-1 framed Coinbase as both a transaction marketplace and an infrastructure company—a blend that would prove crucial in navigating the next crypto cycle.

A Watershed Direct Listing (April 2021)

Coinbase didn’t do a traditional IPO—it chose a direct listing. On April 14, 2021, Nasdaq set a $250 reference price; shares opened at $381 and briefly implied a valuation north of $100 billion before closing at $328, with an $86 billion fully diluted value. For traditional markets, it was a tipping point: a crypto-native company had entered the same mainstream index universe as exchanges and banks.

The symbolism was almost more important than the price action. Listing on Nasdaq meant Coinbase had survived regulator exams, external audits, and years of AML/KYC build-out. It also meant the company’s fortunes would be yoked—visibly—to crypto’s gyrations. As Reuters wrote that week, Coinbase’s revenues tended to “surge in lock-step” with bitcoin volatility. The first day’s numbers just made that link tradable.

Boom, Bust, And The Second Engine (2021–2024)

The boom: 2021 delivered $7.4 billion of total net revenue as volumes and prices soared. The bust: 2022 saw prices and activity slump, followed by a retrenchment—layoffs, product consolidation, and a sharp focus on cost discipline. In January 2023, Coinbase cut about 20% of staff, a painful but decisive reset.

The surprise of this period was the “subscription and services” engine. As the Federal Reserve hiked rates, interest income and stablecoin revenue (principally tied to USDC) rose. Staking and custodial fees built recurring layers on top. By 2023, subscriptions and services had grown to ~$1.41 billion, up 78% year-over-year, even as transaction revenue fell with lower volumes—proof the mix was diversifying.

Then came 2024, when the second engine complemented a return of trading. Coinbase’s 2024 shareholder letter reported revenue more than doubled to $6.6 billion, with $4.0 billion from transactions and $2.3 billion from subscriptions and services; net income hit $2.6 billion. Bitcoin ETF launches in the U.S. and a broadening of institutional activity were tailwinds.

Regulatory Crosswinds—And A Turn In The Tide (2021–2025)

No single risk loomed larger than U.S. regulation. After declining to bless Coinbase’s proposed “Lend” product in 2021, the SEC escalated: a Wells notice in March 2023 and, in June, a civil action alleging Coinbase operated as an unregistered exchange, broker, and clearing agency, and that aspects of staking were investment contracts. Coinbase fought back, arguing that Congress—not enforcement—should settle crypto’s perimeter.

The legal battle defined 2024—and then, in 2025, the ground shifted. In April, multiple state actions concerning staking were dropped, and in May the SEC itself dismissed its case against Coinbase. The Commission’s press release acknowledging the dismissal (without prejudice) marked a dramatic de-escalation and cleared a cloud that had hung over the stock since 2023.

Coinbase’s regulatory strategy was never purely domestic. It built licensed entities in the U.K. and Ireland for e-money services, obtained a New York trust charter for custody, secured Germany’s first crypto custody license, and in 2023 won a Major Payment Institution license in Singapore. In Bermuda, it launched an international derivatives exchange—perpetual futures for non-U.S. customers—under a Class F Digital Asset Business license, with later approval to extend to non-U.S. retail. In 2025, Coinbase secured a MiCA license in the EU (via Luxembourg), enabling a pan-European footprint under a single regime.

Product Flywheel: From Spot To Subscriptions, Stablecoins, And Derivatives

If spot trading is the storefront, the warehouse sits behind it: custody, payments, staking, developer tools, and increasingly, derivatives. Coinbase Earn seeded user education at scale, while Wallet (mobile + extension) responded to the migration of activity on-chain. The company became a Visa principal member in 2020, pushing “crypto-to-card” bridges into everyday spending. Each component deepened engagement and diversified revenue.

On the institutional side, Coinbase’s prime brokerage and custody stack became a default for funds and issuers, especially visible with the 2024 launch of U.S. spot Bitcoin ETFs, where Coinbase served as custodian for many products and saw assets under custody climb. The revenue line items tell the story: by 2023, stablecoin revenue (~$694 million) and interest income (~$174 million) were meaningful pillars, alongside blockchain rewards and custodial fees—forming the “second engine” that hums regardless of retail trading frenzies. In 2024, those subscription lines expanded further to $2.3 billion.

Derivatives are the newest growth lane. After acquiring FairX in 2022, Coinbase built out Coinbase Derivatives Exchange and, offshore, the Bermuda-based International Exchange offering USDC-settled perpetuals. Derivatives matter because they attract professional liquidity, improve price discovery, and can smooth volumes across cycles—while also demanding top-tier risk controls and regulatory sophistication.

Cycles, Strategy, And Unit Economics

Coinbase is, by design, cyclical. Volatility and prices goose retail volumes; quiet markets compress fees and thin retail activity. The company’s approach to that reality has been two-fold:

1. Operate conservatively with customer assets: Coinbase emphasizes segregation of customer assets, robust cold storage, and a strongly sign-posted risk posture in filings—an ethos that distinguished it during the 2022 industry meltdowns.

2. Shift the revenue mix: As the 10-K makes explicit, subscription and services revenue is less directly tied to trading volumes; when interest rates rose, USDC revenue and interest income became shock absorbers. As staking participation grows, blockchain rewards and related fees add recurring layers—though they also carry regulatory scrutiny.

That mix shift showed in margins: transaction expenses as a share of revenue fall when interest and stablecoin revenues rise (no matching “transaction” costs), and rise when blockchain rewards dominate (where most protocol rewards are passed through to users). Managing that blend—while keeping tech, security, and compliance spend efficient—has been central to Coinbase’s post-2022 discipline.

The Road To Legitimacy: IPO To S&P 500

If the 2021 listing was the industry’s coming-out party, 2025 brought institutional normalization. In May 2025, S&P Dow Jones Indices added Coinbase to the S&P 500—arguably the U.S. market’s most iconic club—after the SEC dismissal. A few weeks later, with crypto markets buoyant, COIN pushed back toward a $100 billion market cap. The symbolism was clear: a crypto-native company had met the benchmarks of scale, profitability, governance, and liquidity demanded by passive index funds and blue-chip allocators.

Why The Nasdaq Listing Mattered (And Still Does)

Coinbase’s direct listing did more than enrich early investors. It put audited crypto financials into the hands of every analyst, forced clarity on a volatile revenue model, and ushered a class of institutions—ETFs, pensions, family offices—into crypto’s cap table via a familiar public-equity wrapper.

It also created a feedback loop:

• Price & Volatility → Volumes: Rising crypto prices lift trading and, via AUM, custody fees.

• Volumes → Profitability & Cash: Strong quarters finance R&D, compliance, and lobbying.

• Compliance & Infrastructure → Institutional Trust: Licenses, audits, and custody drive big-ticket business.

• Trust → Broader Capital Access: Index inclusion and mainstream coverage deepen liquidity and resilience.

This flywheel doesn’t immunize Coinbase from downturns—2022 proved that—but it does make the company sturdier across cycles than a pure-play retail brokerage.

Coinbase’s Place In The Financial System

A decade ago, the idea that an American crypto exchange would be:

• A New York trust-chartered custodian,

• A BaFin-licensed crypto firm in Germany,

• A Singapore MPI-licensed provider,

• A Bermuda-licensed derivatives venue, and

• A pan-EU MiCA-licensed platform

…would have sounded fanciful. Yet that’s exactly the scaffolding Coinbase has built—painfully at times—around a product that began as a two-button app. As global regimes converge (MiCA in Europe) and U.S. policy edges toward clarity, Coinbase stands as both a commercial winner and a political proof point: regulated crypto markets can be built within the existing financial system.

What To Watch Next

1. Derivatives Share: Offshore perpetuals dominate crypto volumes. Coinbase’s ability to win institutional and (where licensed) retail derivative flows—without compromising risk standards—will shape its competitive position.

2. Stablecoin Economics: USDC revenue was a vital buffer in 2023–24; as rates normalize and new ecosystem participants emerge, unit economics may shift. Coinbase’s 2024 letter points to deeper USDC integration as a counterweight.

3. Custody As Keystone: ETF-driven AUC growth channels new fee streams and cross-sell into Prime financing and services. That custodial centrality also reinforces institutional trust.

4. Policy Lock-In: The SEC dismissal removed a major overhang, but lasting clarity will come from legislation and rulemaking. Coinbase’s multijurisdictional licensing remains a strategic hedge.

Epilogue: From Hackers To Index Funds

Coinbase’s arc maps neatly onto crypto’s maturation: from hacker circles to seed checks, from scrappy exchange to licensed custodian, from private unicorn to public company—and, finally, to the S&P 500. The company bet that if it built trust—with regulators, institutions, and everyday users—capital would follow. A dozen years on, the market has rendered its verdict: crypto can live inside the mainstream. And Coinbase is one of the reasons why.