Coinbase

Coinbase operates at the intersection of compliance-grade infrastructure and mass-market access.

Moat components and our assessment: 1) Intangible assets and brand 85: trusted US custodian to the largest spot Bitcoin and Ethereum ETFs and SOC-audited custody create reputational and regulatory capital that is hard to replicate. 2) Switching costs 78: institutional Prime custody, financing, and ETF operational roles integrate into client workflows and policies, raising migration friction, although not insurmountable for larger asset managers. 3) Network effects 83: liquidity attracts liquidity on the core exchange; Base Layer 2 benefits from developer and app density, and USDC grows with distribution footprint and payment integrations. 4) Cost advantages 72: scale lowers unit risk and compliance cost per dollar of volume, but retail take rates face competitive pressure. 5) Efficient scale 80: regulated exchange and trust charters limit credible US entrants and create advantages in ETF custody and US dollar banking rails.

Durability considerations: trading fees can compress, crypto cycles are volatile, and Base’s long term economics depend on design and governance choices. Overall, multiple moats reinforce each other and are strengthening with derivatives and payments.

Historically strong retail take rates show pricing power, but long term pressure exists from competitors, ETFs that disintermediate direct trading, and subscription offerings like Coinbase One that trade price per trade for lifetime value.

Counterweights include rising high-margin USDC revenue sharing, staking and custody fees, and Base sequencer economics. In Q3 2025 subscription and services revenue was 747 million dollars with 355 million dollars from stablecoins, evidencing latent pricing power outside trading.

Derivatives can add fee breadth with lower cyclicality versus spot-only. Net: meaningful but mixed pricing power that needs continued shift toward services and payments to sustain.

The business is still tied to crypto cycles, though mix-shift is improving visibility. TTM net revenue about 7.37 billion dollars comes from both transactions and subscriptions; subscription and services represent about 37 percent TTM, providing more recurring elements such as USDC interest sharing, custody, and staking.

However, stablecoin revenue is interest-rate sensitive and staking is subject to policy shifts. Base and derivatives broaden the opportunity set but also add new-cycle dynamics. We view medium predictability with improving trajectory, not yet comparable to classic toll-road payments networks.

As of September 30, 2025, Coinbase reported about 11.9 billion dollars in USD resources consisting of money market funds, cash, and USDC, vs about 7.2 billion dollars of long-term debt, leaving about 4.7 billion dollars net USD resources.

Including about 2.6 billion dollars of corporate crypto investments lifts total available resources to about 15.5 billion dollars. Liquidity supports operations through cycles and large regulatory capital demands. Convertible maturities are laddered, and risk management for collateralized lending is conservative with overcollateralization policies.

Cash flow statements are volatile due to USDC working capital mechanics; underlying cash generation remains strong after adjusting for those flows.

Management is leaning into high-ROIC infrastructure: derivatives expansion via Deribit (cash plus stock consideration), Base investment, and USDC ecosystem growth with Circle.

A 2.0 billion dollar authorization exists to repurchase equity and now a portion of debt, though the company disclosed no repurchases through Q3 2025. Stock-based compensation remains meaningful at 222 million dollars in Q3 2025; dilution should be monitored.

Convertible issuance of about 3.0 billion dollars in August 2025 bolstered resources ahead of acquisitions and investment. We view the Deribit acquisition as strategically sound to diversify revenues and deepen institutional penetration, but we will track integration execution and capital returns discipline through the cycle.

Founder-CEO Brian Armstrong and leadership have navigated major external shocks and regulatory shifts while shipping products at pace. As of March 31, 2025, Armstrong controlled about 50 percent of total voting power through Class B, aligning long term decision making with strategic focus.

The team secured MiCA authorization in the EU, helped anchor ETF custody at scale, launched and scaled Base, expanded US regulated derivatives, and obtained dismissal of the SEC lawsuit in 2025. Communication quality via detailed shareholder letters and operating KPIs is strong.

Key watch items are continued execution on cost discipline, dilution moderation, and risk management as the firm scales credit, derivatives, and L2.