Crypto Fundamentals #64

🌞 Coinbase FY 2023 earnings smash analyst expectations

Coinbase delivered strong FY 2023 earnings this week, posting its first quarterly profit in two years, surpassing analyst expectations. The company reported net income of $273 million in the Q4 2023, with net revenue of $905 million, 50% greater than that of the previous year. Revenue is largely driven by a renewed interest in cryptocurrencies spurred by excitement around the approval of the first spot Bitcoin ETFs. This had the knock-on effect of increasing transaction revenues on the Coinbase platform (CNBC). Coinbase saw their balance sheet strengthen as they reduced debt by $413 million and grew total $USD resources by ~4%.

According to a tweet by Coinbase CEO Brian Armstrong, the company cut costs by 45% y/y while accelerating product velocity. The company also launched various initiatives including Coinbase International Exchange derivatives, the Base L2 blockchain, and currently serve as custodians for 8 of 11 ETF issuers. Additionally, Armstrong noted that Coinbase custodies 90% of the ~$37B in BTC ETFs. Armstrong explained that in 2024 they hope to grow trading fee revenue with international expansion and derivatives, while driving utility in crypto payments. Finally, he wants Coinbase to continue being the foremost driver of regulatory clarity for crypto (Brian Armstrong/X).

Coinbase quarterly retail trading volume has already reached $39 billion in 1Q24, up from $29 billion in all of 4Q23. Vincent Jow of Modular Capital notes that in the prior bull cycle retail trading volume rose 35x from trough to peak, and that thus far retail trading has only 3xed from this past bear market’s low of $11 billion in 3Q23.

Read the full shareholder letter here.

This infographic of their earnings and 2023 performance is available to mint as an NFT here.

💫 Citigroup explores tokenization of private equity fund on Avalanche

Citigroup Inc. conducted a simulation demonstrating the tokenization of a private equity fund on a blockchain, potentially opening doors for broader adoption of distributed ledger technology within Wall Street. Collaborating with Wellington Management and WisdomTree, the bank executed a Proof of Concept, as stated in a Wednesday announcement. The initiative showcased the feasibility of issuing and safeguarding tokenized versions of private equity funds for clients within a controlled environment while ensuring compatibility with existing bank systems.

Such simulations could streamline the integration of blockchain technology into institutional frameworks while maintaining compliance with financial regulations, according to Puneet Singhvi, Citi's Managing Director and Head of Digital Assets. For years, banks like Citi and JPMorgan Chase & Co. have been exploring blockchain technology's potential to enhance infrastructure, attracted by its transparency and ability to facilitate instant transaction settlements. Citi intends to leverage the simulation results to assess the viability of offering services in this domain, with decisions expected in the coming weeks, Singhvi explained. This initiative follows Citi's September launch of a digital asset service for institutional clients, enabling the transformation of customer deposits into tokens for seamless global transfers.

Amidst a resurgence of interest in the cryptocurrency market, fueled by demand from recently approved exchange-traded funds propelling Bitcoin prices to levels unseen since December 2021, banks like Citi are actively engaging in innovative projects. The simulation conducted by Citi tokenized and safeguarded a theoretical private equity fund issued by Wellington, leveraging blockchain technology provided by the smart contract platform Avalanche. They used Avalanche’s Spruce Subnet, part of the Evergreen Subnets suite targeted at financial institutions. The distribution rules of the fund were encoded into the underlying smart contract, automating token allocation and transfers to simulated WisdomTree clients. Furthermore, the project explored the potential use of a private fund token as collateral within an automated lending contract with the Depository Trust & Clearing Corp.'s digital assets unit, Singhvi added.

Sources: Bloomberg, Citi, Coindesk

🌞 StarkNet launches largest-ever airdrop, reaching a record number of wallets

This week Starknet announced that roughly 1.3 million wallets will be eligible to receive its native token, STRK, on Feb 20, the day of its airdrop. There was a substantial emphasis on rewarding open source devs, Starknet devs, and Ethereum devs (unless you contributed to Ethereum before 2018). While the team was lauded for this decision for aligning incentives with the Ethereum community, other community members (i.e. users) were upset. One of the criteria for eligibility was to have held 0.005 ETH on Nov 15, 2023. This left out many users of Starknet who, for a variety of reasons, did not have that amount of ETH on that exact day.

Data from Artemis reveals that protocol revenue has been steadily decreasing since the airdrop was announced in early December. This decrease in revenue could be caused by higher costs to post data to Ethereum as gas costs have risen due to higher network demand. The market cap of all stablecoins on StarkNet has also steadily declined from its November highs of almost $3.25m to around $2m today. This appears to align with the timeline when the snapshot was taken and when liquidity subsequently left the ecosystem.

In spite of this, there has been a spike in Daily Active Addresses and Transactions in the wake of this weeks announcement as users prepare to claim their airdrops.

In regards to STRK price discovery, Aevo STRK perpetual futures markets depict the pre-debut price of STRK hovering around $1.80. At this valuation, the token is poised to launch with a market cap of approximately $1.2 billion and a fully diluted valuation (FDV) of $18 billion. This FDV propels Starknet's value above that of leading competing Layer 2 solutions, including Optimism ($15 billion) and Polygon ($9.4 billion), potentially positioning Starknet as yet another behemoth in the ecosystem.

Detailed dashboard for people who love more numbers in smaller font:

Note: Revenue represents fees that go to the protocol’s treasury or are returned to tokenholders via a burn mechanism (source: Token Terminal). Weekly commits and weekly dev activity as of 2/3/24.

The content is for informational purposes. None of the content is meant to be investment advice. Use your own discretion and independent decision regarding investments.