Coinbase is now planning to list on Nasdaq through a direct listing. Its prospectus S1 is now public. We can use this prospectus to see the development of Coinbase in the past few years, and judge the development trend of the encrypted digital asset industry from this.
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The Development of Encrypted Digital Asset Industry
Regarding the development of the industry, the prospectus has the following statement, "The overall market value of encrypted digital assets has grown from less than US$500 million on December 31, 2012 to US$782 billion on December 31, 2020. Actual This is a compound annual growth rate of more than 150%.
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Changes in the number and composition of users
Regarding user growth, the prospectus stated the following, "During the same historical period (December 31, 2012 to December 31, 2020), our retail subscribers grew from approximately 13,000 to 43 million. Recently, We have seen a significant increase in the number of institutional users on our platform, from over 1,000 on December 31, 2017 to 7,000 on December 31, 2020."
The change in the number of users and composition of Coinbase is also consistent with the development of the industry. So far, the participants in the encrypted digital asset industry are mainly retail users. However, starting from the first quarter of 2020, the number of institutional users began to increase significantly. This is due to the monetary easing policy implemented by the Federal Reserve to relieve the epidemic, which led to a large increase in the issuance of US dollars in the market. The resulting inflation and dollar depreciation are inevitable. Therefore, institutional clients have a stronger incentive to seek safe-haven assets against inflation. Some institutional clients were the first to realize the value of Bitcoin and began to buy Bitcoin. Due to Coinbase's compliance status in the US market and the various related services it can provide to institutional users, Coinbase has become the first choice for institutional customers to buy and hold Bitcoin. This has consequently led to a significant increase in institutional users of Coinbase. Judging from the development trend since 2021, the trend of institutions buying and holding Bitcoin is still increasing. In 2021, more institutional clients, including listed companies, will buy and hold Bitcoin.
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Emergence of more types of encrypted digital financial services
Coinbase's main business is to provide trading services for encrypted digital currencies. Its main source of income is commissions generated from transactions. But this way of income will change drastically with the ups and downs of the encrypted digital asset market. In order to ensure the stability of income and take advantage of the trends brought about by more industry developments, Coinbase began to provide more financial services. The types of these financial services are shown in the figure below.
We can see from this figure that the encrypted digital financial services provided by Coinbase are no longer limited to trading services, but have begun to provide traditional banking services, such as savings, loans and payments. The development of such a business trend is also in line with the development trend of encrypted digital finance.
Encrypted digital finance is built on blockchain technology. The financial market infrastructure based on blockchain technology can support various financial activities in the current banking and securities industries. In such an ecology, there will be digital currency as a medium of exchange. Various types of digital assets can be generated, circulated, stored and traded. The transaction method is through digital currency, using the DVP model to complete directly between transaction users. This transaction process does not require the current third-party financial intermediary, so the transaction efficiency and cost are much improved compared to the current transaction method. Since these financial businesses are all completed on the basis of common financial market infrastructure support, there will no longer be the current distinction between the banking industry and the securities industry.
This trend has been seen in the market at present, so different development paths are being adopted to work in this direction. For example, the Swiss Digital Asset Exchange began to carry out digital asset trading business on such a financial market infrastructure. It currently conducts these transactions using a Swiss franc-based token. DBS Bank, the largest commercial bank in Singapore, is carrying out STO business. The Diem Association is about to launch a fiat-based stablecoin. These stablecoins run and circulate on the support of the Diem blockchain. In such an ecology, exchanges between various digital stable coins and various digital assets will also appear, so the trading business in the traditional securities industry will also be carried out in the Diem ecology. The above efforts are all in the direction of a unified encrypted digital financial ecology.
Coinbase is a business supported by a centralized system. But it has now started encrypted digital financial business on different blockchains. This is why it combines its own technical and business characteristics to carry out encrypted digital financial services. In its financial business in this aspect, it mainly uses USDC, a stable currency of the U.S. dollar, to carry out. USDC's recent substantial growth in market volume is inseparable from the use of Coinbase. In a word, the Gary digital financial business currently conducted by Coinbase is fully in line with the development trend of technology and business. Although these businesses cannot generate much profit at present, these businesses are laying the foundation for its long-term development, and will also usher in the explosive growth of the market in the future.
