Coinbase, the cryptocurrency trading platform, which gained fame for its impressive valuation at its IPO in 2021, is currently facing legal challenges and is expanding its business in various directions, attempting to transform its single-source revenue model into a diversified financial ecosystem. What legal challenges does it face, how does it respond to allegations of securities law violations, and what new areas of the cryptocurrency market has it entered to maintain its leadership position?
In a world where terms like “cryptocurrencies” and “blockchain” are becoming increasingly common, Coinbase can be recognized by many, even if their knowledge of the subject does not extend beyond mainstream news. Since its loud stock market debut (IPO) in 2021, where it was valued at nearly $100 billion, Coinbase has continuously strengthened its position in the market. This is a story about a company that not only boldly entered the turbulent waters of cryptocurrencies but also about its adaptation and evolution in the face of a changing regulatory and market landscape.
Legal actions by the Securities and Exchange Commission (SEC) in June 2023, accusing Coinbase of operating as an unregistered securities exchange and violating American law, began another chapter in the company’s history. The dispute focused on Coinbase’s staking services, which was a hallmark for the entire industry – the verdict in this case was to have far-reaching consequences not just for Coinbase, but for the entire cryptocurrency ecosystem.
Coinbase boldly confronts the accusations, defending its position in recent court filings and appealing to the District Court in New York to dismiss the SEC’s lawsuit. Their argument is clear and consistent: they claim that the tokens listed on their platform do not qualify as securities, which undermines the SEC’s jurisdiction in this matter.
The company’s initial initiative, which aimed primarily at transaction fees constituting 96-97% of total revenue, proved to be unsustainable over time. In response, Coinbase shifted towards a more diversified revenue model, thereby ensuring a more stable business structure.
An essential element of this transformation was the partnership with Circle, creators of the digital currency USD Coin[USDC]. This collaboration significantly expanded when Coinbase moved from a consortium to a direct partnership with Circle, consequently increasing its stakes in Circle, and the revenue-sharing model changed to a simpler and fairer one, with equal participation in revenues.
In the pursuit of diversification, Coinbase also focused on Ethereum[ETH] staking, creating CBETH – a commitment that can be exchanged for Ether on the platform. As a result, Coinbase entered the burgeoning market for Ethereum staking, offering users an annual return rate of 3.5%, with the platform itself retaining 25% of that dividend.
A critically important step for Coinbase was the introduction of Base, a layer 2 solution with significant growth potential. Base, despite lacking its own token, has attracted users and developers due to Coinbase’s reputation, user-friendly interface, and robust security measures. It is not just a technological solution but also a channel that increases the use of USDC – a stablecoin that positively impacts Coinbase’s financial results.
Through diversifying income sources, forging strategic partnerships, and developing new ventures like Base, Coinbase has solidified its position as an important player in the ever-evolving digital asset market. Now, it’s up to the SEC to respond to Coinbase’s argumentation for the court to dismiss the lawsuit.
