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Vitalik Chinese Community Conversation: Ethereum Needs a New Narrative and New Users; Internal EF Reform Underway
On the evening of February 19th, invited by FSL Chief Revenue Officer Mable Jiang, Ethereum founder Vitalik Buterin participated in a special flash text AMA in the "Flash Interview Circle" within the Tako App. The interview had collected anonymous questions from the community in advance, aiming to address the community's concerns and confusion about Ethereum's future development.
The interview covered topics such as ETH's future adoption and ultimate narrative, how to view the relationship between L2 and the Ethereum main chain, MegaETH's centralized sequencer solution, and more. Vitalik even answered a community user's question about whether he is a communist. It is worth noting that this is also the first time Vitalik has conducted an AMA in Chinese in recent years.
Below is a summary of the content of this AMA:
Q1: In your view, should today's Ethereum be closer to Bitcoin's existence or to that of a world computer? In a previous X post, you mentioned that many of those who hold negative views on ETH are actually short-term speculators, and their frustration is almost of no constructive help to the ETH community. However, within the OG ETH-Maxi camp, there are also many people who loudly promote the idea that "ETH is money" (such as Bankless, the largest ETH Maxi media) and compare ETH to BTC, considering it another competitive form of digital currency (possibly even a better form of money). For the future adoption of ETH, what is the ultimate narrative you envision?
Vitalik: Is Ethereum a world computer or money? I think these two ways of thinking are compatible with each other.
If you need to distinguish which blockchains are "truly decentralized," you can use a relatively simple test: if their foundation disappeared, could the chain survive? I have a feeling that only Bitcoin and Ethereum can answer this question clearly: of course, they could. The majority of Ethereum's development is outside the foundation, client teams have independent business models, many researchers are no longer within the foundation, and almost all activities except Devcon are independent. It is hard to reach this stage, 5 years ago Ethereum was not like this.
Abandoning these advantages in pursuit of TPS is a big mistake because there will always be new chains coming out with suddenly higher TPS than you. But decentralization and resilience are valuable, qualities that few blockchains possess.
These characteristics are conducive to creating a long-term valuable digital currency and also beneficial for a good world computer. However, the world computer also needs to address the scalability issue. The concept of the "world computer" does not mean a "computer that can simultaneously support every application worldwide," but rather "a place where applications worldwide can interact with each other." High-performance computing can be placed in Layer 2 without any issues. However, this beauty still requires Layer 1 to have sufficient scale. For specific details, please refer to an article I recently wrote: "Vitalik's New Article: Substantial Expansion of L1 Still Has Value, Making App Development Easier and Safer"
ETH is the world's application (including finance and others like ENS) and is a digital asset suitable for interoperability between them. ETH does not need every transaction to be placed on L1 but requires enough throughput to allow anyone who wants to use L1 occasionally to do so. Therefore, these two directions are also compatible: helping Ethereum achieve the characteristics of a better world computer is also the feature of making ETH a better digital currency.
Q2: Today, we have seen the emergence of many L2 solutions, primarily based on the OP stack, with some attempts at zk-rollups. I would love to hear your assessment of the rollups roadmap over the past few years, hoping for a relatively objective review: What areas do you think have been done well, where did it deviate from the original vision, and do rollups, on the whole, benefit Ethereum or are they parasites (I recently saw you calling for these L2 solutions to give back to Ethereum)? Does ETH really need these L2 solutions?
Vitalik: Ethereum needs a hybrid L1 + L2. Until now, our scaling approach can be understood as a hybrid L1 + L2, but I don't think anyone has clearly defined which transactions should be on L1 and which should be on L2.
The answer of "put everything on L2" is somewhat hard to accept because:
* This makes it easy to lose the position of ETH as a medium of exchange, store of value, etc. If you are concerned about L2 stealing L1 users and not giving back to L1, this issue would be more severe in a scenario where "L1 does almost nothing."
* Cross-L2 operations still require L1. If an L2 has issues, users still need a way to move to another L2. So there are some use cases that are very hard to avoid using L1. I wrote an article on this topic here: "Vitalik's New Article: Significantly Expanding L1 Still Has Value, Making App Development Easier and Safer"
The answer of "put everything on L1" is also somewhat hard to accept because:
* If L1 supports a lot of transactions, it could become centralized, even when using technologies like ZK-EVM
* The world's demand for on-chain transactions is limitless. No matter how high L1's TPS is, there will always be an application that needs 10 times more TPS (e.g., AI, micro-payments, micro-prediction markets, etc.)
* L2 does not only do scaling but can also provide faster confirmation speeds through preconfirmations and can address the MEV issue through sequencers
So we need a hybrid L1 + L2 solution. I think the role of L2 will continue to evolve. For example, right now, it seems like an evm-equivalent L2 is already sufficient. We may see more privacy-focused L2 solutions (such as Aztec, zkSync, etc.), or more application-specific L2 solutions (if an application wants to control its MEV situation, etc.). So in the short term, I think we should continue to improve L1's capacity, increase blobs to give L2 more space, promote cross-L2 interoperability, and then the market will decide which scaling solution is suitable for which application.
Q3: The rollup roadmap has been proposed for quite some time. Do you think that Arbitrum / Optimism-PBC / StarkWare's current centralized sequencers pose a significant challenge for future regulation as they cannot be truly censorship-resistant? Do you think they will move towards a decentralized sequencer solution? If your answer to the previous question is yes, how do you view MegaETH's centralized sequencer solution?
Vitalik: Regarding centralized sequencers, centralized sequencers actually have many advantages:
* A centralized sequencer can ensure that users' funds are not stolen through frontrunning or similar methods
* instant preconfirmations
* It is very easy to turn a traditional application into a blockchain application because the server directly becomes the sequencer
The decentralized nature of blockchain can be used to mitigate the risks of a centralized sequencer: mechanisms like forced inclusion prevent sequencers from censoring users, while optimistic or zk proof mechanisms prevent sequencers from changing or violating the application's rules (e.g., suddenly inflating a token or NFT collection)
However, there are still risks with a centralized sequencer, so we cannot rely solely on a centralized sequencer to solve the problem. The ability to use a rollup-based solution or conduct transactions directly on Layer 1 is also important. Therefore, I support driving both parts of the ecosystem simultaneously with these two approaches, and then we can see which approach is more suitable for which application. Maintaining the ability for regular users to make censorship-resistant transactions is, of course, crucial.
Vitalik responding to a comment "My point was actually that the US regulatory authorities might go after them, though perhaps the probability of that is not very high": Anticensorship solution and attempt for a single sequencer. If this were to happen, there are two possibilities:
1. The DAO will choose a sequencer and a backup sequencer, and we will keep moving to a new sequencer
2. We will use based rollups
I think the first option is worth exploring, and I know some L2 teams have thought about it. The second is a backup, and there may be other reasons why we prefer based rollups and start using them more. The advantage of Ethereum is that we can try several directions at the same time.
Q4: The technical roadmap for ETH 3.0, the goals it hopes to achieve, and the differences between the goals of the rollup era and the goals of the rollup era announced at Devcon in November last year. Has the 3.0 design proposed at Devcon taken into account the fact that rollups have not truly provided practical value to the Ethereum mainnet?
Vitalik: The relationship between value capture between L2 and L1. There is currently nothing called ETH 3.0. Some might say that Justin Drake's 5-year plan is, but that plan is only for the consensus layer, not the execution layer, so it is only a part of the future of the Ethereum blockchain.
The relationship and balance between L1 and L2 is an execution layer issue. Here is another roadmap: strengthening L1 capabilities (increasing gas limit, adding stateless verification (such as Verkle), and other features, etc.), improving cross-L2 interoperability, enhancing blobs, etc. I also think the question of whether L2 is paying enough transaction fees to L1 cannot be viewed solely from a short-term perspective. For example:
* Prior to 4844, everyone's complaint was the opposite: Is L1 sucking blood from L2?
* Now, the blob fee in the last 30 days is 500 ETH
* If the blob target is increased from 3 to 128, according to our plan, with the same blob gas price, it will burn 21,333 ETH per month, and 256,000 per year
So the narrative can easily change rapidly, and now we need to strengthen L1, so that what should happen on L1 can happen on L1, increase blobs, and then maintain the adaptability of our community.
Q5: You have decided to step up as the leader of the EF. I believe this decision was made after much consideration and is a courageous leap into the unknown. I admire it greatly. Would you mind sharing with us today your entire thought process? At the same time, I am curious if you endorse Chinese socialism? The starting point of my question is related to the "proper board" mentioned in your discussion with Ameen: Before stepping onto the right path of development, do you think an organization needs strong leaders to guide and correct its direction?
Vitalik: "Decentralization" does not mean "doing nothing."
I think the blockchain community, and the world as a whole, are in a rather precarious state. Many things with no long-term value, or even malicious intent, are happening. These things and the people behind them are getting a lot of attention. But we cannot just shout against these things and not offer a better alternative. So our goal should be to do this alternative well, to demonstrate proof that a stable, brighter future is possible.
Here, I'll say both within the blockchain community (if a memecoin that crashes 97% in a day is not our future, what is?) and on a macro societal level: Many people now believe that democracy is impossible, and things can only be done by a strong leader. But at Devcon, a political scientist told me that he respects Ethereum a lot because we are a genuinely open and decentralized ecosystem, and we have succeeded at our current scale, which gives him hope. So if we can succeed in this way, the positive impact on the world could be significant, providing many people with a bright and successful example to follow.
However, "decentralization" does not mean "doing nothing." The Ethereum Foundation's philosophy of subtraction does not mean "reduce the Foundation to 0," but rather a way to maintain ecosystem balance. If there is an imbalance in an ecosystem (e.g., a part of the ecosystem is too centralized, or there is an important but unattended public good), we can help counterbalance. Once this issue is resolved, the Foundation can retreat from that area. If a new imbalance arises elsewhere, we can move resources there, and so on.
In Chinese culture, the way we pursue may be most similar to the thinking of the Tao Te Ching, but following this path requires intelligence and the Foundation's ability to elevate in certain areas—it's not a matter of "doing nothing and succeeding." So, in the short term, more effort may be needed to make some important pivots.
Q6: I am not part of the core Ethereum circle, so I am not very clear on some detailed political issues. From your perspective, what do you understand to be the main reasons why some ETH Maxis OGs have left the Ethereum community? When Shuyao and I recorded the podcast, she mentioned an interesting point: Ethereum needs to go to zero before it can rebuild (half-jokingly). In the current stage of Ethereum, do you believe that there is indeed a major reshuffle of existing holders and community members needed to pave its unique path?
Vitalik: Ethereum needs a new story and new users.
There are many different people with different stories. For example, many people in the blockchain community would have said 10 years ago that the goal of blockchain is to create a globally neutral system, protect individual freedom, counterbalance government hegemony; now, if a president mints a memecoin, they would say, "Wow, this is real-world adoption, so good," but why didn't it happen on our chain? If we can be a bit friendlier to those politicians, next time it will happen on our chain! Personally, I think these people have gone astray. Of course, they would say I am too idealistic, not realistic, and so on. Every party has its own story.
Some people may also say that Ethereum's ecosystem is too OG-controlled and doesn't leave enough room for new blood. However, this criticism comes from another direction, with different groups making these arguments.
I believe there is only one right path to get us out of these predicaments: we need newer stories to explain why Ethereum is what it is, what the ETH coin is for, what L1 and L2 are for, etc.? It is no longer the era of infra; it is the era of applications, so these stories cannot be abstract "freedom, openness, anti-censorship, cypherpunk public goods, etc."; we need some clear application layer answers. I plan to support more in the near future: info finance (which also serves as the direction of AI + crypto), privacy protection, high-quality public goods financing methods, and continue to do well in building a world-class open finance platform, which must also include real-world assets. There are many things here that are valuable to many users at the same time and in line with the values we have always had. We need to re-support this direction so that new people have more opportunities to join.
Q7: Do you think Ethereum needs a more corporate type of management? Do you believe that the current difference between ETH and SOL is fundamentally an efficiency difference between different "organizational forms," as well as a difference in goals? What are the respective goals?
Vitalik: Turning Ethereum into a company would lose most of its meaning
I think Ethereum is a decentralized ecosystem, not a company. If Ethereum were to become a company, we would lose most of the meaning of Ethereum's existence. Running a company is the role of a company. In fact, the Ethereum ecosystem has many large companies: ConsenSys, various client teams (Nethermind, Nimbus, and others), Coinbase, L2 teams (including, for example, Aztec and Matter Labs, whose privacy technologies are very interesting and underestimated by many).
The best way is to find ways to give these companies more opportunities to realize the advantages of a company, with the foundation acting as a coordinating role.
Q8: You have always been focused on the application of ZK technology in the web3 space. Besides ZK applications in asset transaction scenarios, in a social media network, what scenarios do you think can introduce ZK to achieve privacy protection?
Vitalik: I am very interested in many non-financial ZK use cases, such as:
* Anti-Sybil verification. Many services require you to log in with KYC not because they want to know who you are, they just want to know you are not a bot, or if you are banned, you cannot come back with 100,000 new accounts. To achieve this use case, only a ZK proof of personhood or proof of reputation is needed, and sometimes proof of tokens is also sufficient, like AnonWorld.
* Privacy-protecting AI applications using cryptographic means. Here, ZK may not necessarily be the most suitable technology; FHE may be. Recently, FHE has also made significant progress, and if we can further reduce the overhead of FHE, there may be an opportunity.
* Wrapping any web2 account with zk-SNARKs for use in web3. ZKEmail, Anon Aadhaar, ZKPassport, ZKTLS, and so on are good examples.
I believe this technology has many opportunities to address a wide range of security, governance, and other issues in social and other areas in a way that protects individual freedom and privacy.
Q9: Do you encourage more developers to join Ethereum, incentivize and retain existing developers (compared to some new L1 or even L2 more generous developer incentives, Ethereum certainly has a more complex situation), is this currently a priority? Accelerating network decentralization, improving scalability, exploring more application scenarios (Apps), in these three aspects, which one do you think is the highest priority for Ethereum?
Vitalik: The alignment of the Ethereum community is not a social game but a technical game. Here we actually need to find a way to simultaneously solve three problems:
1. Attracting more developers
2. Encouraging developers to develop applications that are more open-source, secure, compliant with public standards, have long-term value, etc.
3. In the process of addressing (2), avoiding the ecosystem becoming a closed circle ("We are aligned because we are good friends of developers")
So I recently said Ethereum alignment should be a technical game, not a social game. I want to emphasize this issue because I think that right now, in terms of decentralization, the most pressing centralization issues are often not at the L1 level, but at the L2 or wallet or application level. So the entire ecosystem needs to work together to simultaneously expand and attract new developers and progress in these decentralized and trustless aspects.
There are several ways we can help achieve this situation:
1. Education, making it easier for developers to understand what blockchain is about, what should be on-chain, what should not be on-chain, what matters in the blockchain space, etc.
2. If some of the blockchain's unique technical aspects are too difficult for application developers, the foundation can do them themselves, making it easier for developers to integrate. For example, zk programming languages, as well as a16z's helios, etc.
3. Provide clear standards to developers. For example, if you are developing an Ethereum client, there are many tests that you can run to see if your client can pass. If you are working on L2, there are frameworks like l2beat's stage 1, stage 2, etc. This should also apply to zk applications, wallets, etc.
Q10: Today, in the context of the evolution of AI acceleration technologies, you previously mentioned the concept of d/acc (decentralized defensive acceleration / or defense against accelerationism). Now, looking at the effective acceleration process regarding the dispersal/decentralization of technology rights, does it meet your expectations? Do you have any concerns in this regard? Personally, I feel somewhat powerless as I know "The Beijing Folding" may be a kind of future. From a humanistic perspective, I do not want it to happen, but I feel it is getting closer to us.
Vitalik: Here I need to make an important correction: d/acc does not mean de-acceleration; it stands for decentralized defensive acceleration. This is important because in this world, some people do indeed support deceleration, degrowth, and so on, but I believe this direction is wrong. In a peaceful world, it would delay crucial advancements in healthcare and infrastructure, causing more harm. In the current more dangerous world, if we do not accelerate, we will be overtaken by those willing to accelerate.
Decentralized and defensive technology need to compete with other technologies. If the sword progresses rapidly but the shield does not, the world will become increasingly dangerous. If centralized technology advances quickly but decentralized technology does not, the world will become more centralized. Therefore, we need to counterbalance these trends. Blockchain is part of this story, but only a part. There is decentralization beyond blockchain (such as P2P networks), software and hardware security (the "shield" of the digital world), many things in the biological field, and so on.
Q11: Do all Ethereum Foundation employees, including the leadership team, have KPI/OKR or similar performance evaluation mechanisms? Non-profit organizations generally face issues of inefficiency. Do you believe the EF has such issues? If so, how are they addressed? Can you systematically elaborate on all aspects of accelerating Ethereum's development? With Ethereum being ten years old and updates happening once a year, the development progress seems a bit slow and requires significant acceleration.
Vitalik: The Ethereum Foundation has recently undergone many internal reforms, so any answer I can provide now will quickly become outdated. This question may be better revisited in 6 months.
Q12: How do you understand Crypto as a countercultural infrastructure and its role in achieving DeGenCommunism? Do you think current Memecoins (more referring to rapid launches on Solana) represent a "beneficial chaos" for achieving DeGenCommunism? (This term is derived from your blog) Couldn't find the anonymity feature, so I'm sending it directly. Also, I highly recommend you play "Disco Elysium"; I believe you will enjoy it.
Vitalik: DeGenCommunism's core is to improve the "rules of the game." Chaos is not necessarily beneficial or bad; it depends on the situation. An interesting question is, how can we create "rules of the game" that lead to the naturally occurring chaos in the community having a positive effect?
For example, civil wars have a negative effect unless it's to rid oneself of a tyrannical regime. But market chaos often has a positive effect, eliminating old inefficient companies, giving new companies a chance to emerge. However, sometimes the market can also lead to the issues we see in the blockchain community. So, this is actually very complex.
So how can we create better rules? I think current Memecoins are far from ideal. I wrote an article last year to explore if there are better directions "Vitalik on memes: Is there still room for meme coins?"
Q13: You should be aware of the "This Art is Always on Sale" Harberger Tax experiment by Simon de la Rouviere (sponsoring art as an asset class - patronage as an asset class). Do you think such experiments could lead to new developments in decentralized social networks in the future? Are there any mechanisms you are looking forward to seeing used for experimentation in decentralized social networks?
Vitalik: Yes, I think decentralized social media is a great opportunity to try many new mechanisms. Harberger tax is an example, and there are some other examples like:
* Mechanisms similar to community notes: https://vitalik.eth.limo/general/2023/08/16/communitynotes.html
* Creator Payouts, similar to Twitter and YouTube but more fair and transparent. You can try retro funding, deep funding, quadratic funding, etc.
* Combining social media with DAO governance
Q14: How do you view the fact that despite being part of a group of people in the crypto world, we still heavily rely on centralized social apps like Telegram and Twitter for communication and collaboration? Building decentralized social media and truly encrypted communication tools does not seem to have received as much attention and recognition. So far, does their development meet your expectations? What advice do you have for teams exploring construction in this field?
Vitalik: This is also a concern of mine. Personally, over the past 2 years, I have been trying to move most of my conversations from Telegram to Signal. However, Signal is not perfect either. Although it is secure, it is still centralized, lacks interoperability, requires a phone number for login, exposes a lot of metadata to the server, and so on.
But creating a higher-quality messenger is difficult. I try Status every year. They are working hard to be fully decentralized, and they are doing well, but they still have some reliability issues. In fact, there are various small teams now creating their own messengers, but they are not united, making it easy for each one to fall short of excellence.
I recently started using Fileverse for my various documents, and I find that the user experience is already good enough, with many people in the Foundation using it. If a decentralized, encrypted, and so on messenger can achieve this quality, I will definitely work hard to help the community move to that messenger.
Q15: I have heard people in the Milady community mention reasons why you may have chosen Milady, but I am still curious to hear how you would personally explain your sense of belonging to Milady?
Vitalik: I think Milady can attract a lot of people because this Internet community has achieved two things at the same time:
1. Not boring
2. Not malicious
If you look at the mainstream world today, you will find that it is difficult to meet both of these conditions at the same time, milady is one of the most successful examples.
Q16: Are you a communist?
Vitalik: No, I am not a communist, nor am I a capitalist. Both are ideologies of the 20th century. (These words have been extended and abused to the point of meaninglessness: remember, in the 1990s, Microsoft called Linux "communism": https://www.theregister.com/2000/07/31/ms_ballmer_linux_is_communism/)
I support freedom, global equal opportunity, kindness and cooperation, human welfare and progress. These are eternal principles. The question is how to use our existing tools to achieve these values in the context of the 21st century. I have elaborated on various mechanisms that I personally support, but I absolutely do not believe that I am the only source of good ideas. I believe that finding the best way is a collective project that requires both thought and increasingly realistic world experiments.
Q17: Can you systematically explain how to accelerate Ethereum's development from all aspects? Ethereum has been around for ten years, with updates once a year. It feels like development is slow and needs to be greatly accelerated. eth/acc
Vitalik: Ethereum's current core development focus is on increasing the number of blobs. The main goal now is to increase the number of blobs, here are the details:
* Pectra, increase blob target from 3 to 6
* Fusaka, add peerdas, further increase blob target
* Continue optimizing peerdas in 2026 and 2027
* Add 2D data availability sampling, further increase blob target
There is also a roadmap to increase the L1 gas limit, but this is more complex, involving delayed execution, statelessness, and so on.
Q18: These days, Vitalik has grown golden claws and silver scales, transforming from a dragon-slaying youth into a dragon. During the Ethereum mining era, it was a democratic consensus, but now, in V's governance system, it operates as a dictatorial management model. After transitioning to PoS, it has gone from a democracy to a republic with representatives. Are you secretly joining a party behind everyone's back?
Vitalik: POS in Ethereum is not a governance mechanism. PoW can only be democratic in the short term. Because of economies of scale, larger miners are more efficient, leading to increasing centralization over time.
I think the reason we didn't have ASICs before PoS is likely because everyone knew we had plans to move to PoS, so no one created ASICs. If we had declared from day one that we were always going to be PoW, it's very likely that ASICs would have emerged between 2016 and 2019, unless we had done a hard fork to change the hashing algorithm every year, but that would also lead to centralization.
So I believe our approach, spending 7 years using PoW for distribution and then transitioning to PoS, is the best. PoS has its own fairness: if you have 10 times more money, you can produce 10 times more blocks. In ASIC PoW, there are economies of scale, so having 10 times more money might result in producing 11 times more blocks. Another point is: PoS is not a governance mechanism in Ethereum. Ether holders do not have the right to choose which EIPs go into the next fork, etc. If we used PoS to make these decisions, it would indeed be too plutocratic.
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$COIN Joins S&P 500, but Coinbase Isn't Celebrating
On May 13, S&P Dow Jones Indices announced that Coinbase would officially replace Discover Financial Services in the S&P 500 on May 19. While other companies like Block and MicroStrategy, closely tied to Bitcoin, were already part of the S&P 500, Coinbase became the first cryptocurrency exchange whose primary business is in the index. This also signifies that cryptocurrency is gradually moving from the fringes to the mainstream in the U.S.
On the day of the announcement, Coinbase's stock price surged by 23%, surpassing the $250 mark. However, just 3 days later, Coinbase was hit by two consecutive events: a hack where employees were bribed to steal customer data and a demand for a $20 million ransom, and an investigation by the U.S. Securities and Exchange Commission (SEC) into the authenticity of its claim of having over 100 million "verified users" in its securities filings and marketing materials. These two events acted as mini-bombs, and at the time of writing, Coinbase's stock had already dropped by over 7.3%.
Coincidentally, Discover Financial Services, being replaced by Coinbase, can also be considered the "Coinbase" of the previous payment era. Discover is a U.S.-based digital banking and payment services company headquartered in Illinois, founded in 1960. Its payment network, Discover Network, is the fourth largest payment network apart from Visa, Mastercard, and American Express.
In April, after the approval of the acquisition of Discover by the sixth-largest U.S. bank, Capital One, this well-established digital banking company of over 60 years smoothly handed over its S&P 500 "seat" to this emerging cryptocurrency "bank." This unexpected coincidence also portrayed the handover between the new and old eras in Coinbase's entry into the S&P 500, resembling a relay race scene. However, this relay baton also brought Coinbase's accumulated "external troubles and internal strife" to a tipping point.
Over the past decade, cryptocurrency exchanges have been the most stable "profit machines." They play a role in providing liquidity to the entire industry and rely on trading fees to sustain their operations. However, with the comprehensive rollout of ETF products in the U.S. market, this profit model is facing unprecedented challenges. As the leader in the "American stack," with over 80% of its business coming from the U.S., Coinbase is most affected by this.
Starting from the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has significantly onboarded users and funds that originally belonged to exchanges in a more cost-effective, compliant, and transparent manner. The transaction fee revenue of cryptocurrency exchanges has started to decline, and this trend may further intensify in the coming months.
According to Coinbase's 2024 Q4 financial report, the platform's total trading revenue was $417 million, a 45% year-on-year decrease. The contribution of BTC and ETH's trading revenue dropped from 65% in the same period last year to less than 50%.
This decline is not a result of a decrease in market enthusiasm. In fact, since the approval of the Bitcoin ETF in January 2024, the inflow of BTC into the U.S. market has continued to reach new highs, with asset management giants like BlackRock and Fidelity rapidly expanding their management scale. Data shows that BlackRock's iShares Bitcoin ETF (IBIT) alone has surpassed $17 billion in assets under management. As of mid-May 2025, the cumulative net inflow of 11 major institutional Bitcoin spot ETFs on the market has exceeded $41.5 billion, with a total net asset value of $1214.69 billion, accounting for approximately 5.91% of the total Bitcoin market capitalization.
Institutional investors and some retail investors are shifting towards ETF products, partly due to compliance and tax considerations. On one hand, ETFs have much lower trading costs compared to cryptocurrency exchanges. While Coinbase's spot trading fee rate varies annually in a tiered manner but averages around 1.49%, for example, the management fee for IBIT ETF is only 0.25%, and the majority of ETF institution fees fluctuate around 0.15% to 0.25%.
In other words, the more rational users are, the more likely they are to move from exchanges to ETF products, especially for investors aiming for long-term holdings.
According to multiple sources, several institutions, including VanEck and Grayscale, have submitted applications to the SEC for a Solana (SOL) ETF, with some institutions also planning to submit an XRP ETF proposal. Once approved, this may trigger a new round of fund migration. According to a report submitted by Coinbase to the SEC, as of April, the platform's trading revenue from XRP and Solana accounted for 18% and 10%, nearly one-third of the platform's fee revenue.
However, the Bitcoin and Ethereum ETFs passed in 2024 also reduced the fees for these two tokens on Coinbase from 30% and 15% to 26% and 10%, respectively. If the SOL and XRP ETFs are approved, it will further undermine the core fee revenue of exchanges like Coinbase.
The expansion of ETF products is gradually weakening the financial intermediary status of cryptocurrency exchanges. From their original roles as matchmakers and clearers to now gradually becoming mere "on-ramps and off-ramps" for funds, exchanges are seeing their marginal value squeezed by ETFs.
On May 12, 2025, SEC Chairman Paul S. Atkins gave a keynote speech at the Tokenization and Cryptocurrency Working Group roundtable. The theme of his speech revolved around "It is a new day at the SEC," where he indicated that the SEC would not approach enforcement and regulation the same way as before but would instead pave the way for cryptocurrency assets in the U.S. market.
With signs of cryptocurrency compliance such as the SEC's "NEW DAY" declaration, an increasing number of traditional brokerages are attempting to enter the cryptocurrency industry. One of the most representative cases is the well-known U.S. brokerage Robinhood, which began expanding its crypto business in 2018. By the time of its IPO in 2021, Robinhood's crypto business revenue accounted for over 50% of the company, with a significant boost from the Dogecoin "moonshot" promoted by Musk.
In Q1 2025 earnings report, Robinhood showcased strong growth, especially in revenue from cryptocurrency and options trading. Fueled by Trump's Memecoin, cryptocurrency-related revenue reached $250 million, nearly doubling year-over-year. Consequently, Robinhood Gold subscription users reached 3.5 million, a 90% increase from the previous year, with the rapid growth of Robinhood Gold providing the company with a stable source of income.
Meanwhile, RobinHood is actively pursuing acquisitions in the cryptocurrency space. In 2024, it announced a $2 billion acquisition of the long-standing European cryptocurrency exchange Bitstamp. Additionally, Canada's largest cryptocurrency CEX, WonderFi, which recently went public on the Toronto Stock Exchange, also announced its integration with RobinHood Crypto. After obtaining virtual asset licenses in the UK, Canada, Singapore, and other markets, RobinHood has taken a proactive approach in the compliant cryptocurrency trading market.
Furthermore, an increasing number of brokerage firms are exploring the same path. Futu Securities, Tiger Brokers, and others are also dipping their toes into cryptocurrency trading, with some having applied for or obtained the VA license from the Hong Kong SFC. Although their user bases are currently small, traditional brokerages have a natural advantage in user trust, regulatory licenses, and low fee structures. This could pose a threat to native cryptocurrency platforms in the future.
In April 2025, security researchers discovered that some Coinbase user data was leaked on the dark web. While the platform initially responded by attributing it to a "technical misinformation," it still raised concerns among users regarding its security and privacy protection. Just two days before Dow Jones Indexes announced Coinbase's addition to the S&P 500 Index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to have obtained customer account information and internal documents, demanding a $20 million ransom to keep the data private. Subsequent investigations confirmed the data breach.
Cybercriminals obtained the data by bribing overseas customer service agents and support staff, mainly in "non-U.S. regions such as India." These agents abused their access to Coinbase's internal customer support system and stole customer data. As early as February this year, blockchain detective ZachXBT revealed on X platform that between December 2024 and January 2025, Coinbase users lost over $65 million to social engineering scams, with the actual amount potentially higher.
Among the victims was a well-known figure, 67-year-old Ed Suman, an established artist in the art world for nearly two decades, having been involved in the creation of artworks such as Jeff Koons' "Balloon Dog" sculpture. Earlier this year, he fell victim to an impersonation scam involving fake Coinbase customer support, resulting in a loss of over $2 million in cryptocurrency. ZachXBT critiqued Coinbase for its inadequate handling of such scams, noting that other major exchanges have not faced similar issues and recommending Coinbase to enhance its security measures.
Amidst a series of ongoing social engineering incidents, although there has not been any impact on user assets at the technical level so far, it has raised concerns among many retail and institutional investors. Especially institutions holding massive assets on Coinbase. Just considering the U.S. BTC ETF institutions, as of mid-May 2025, they collectively hold nearly 840,000 BTC, and 75% of these are custodied by Coinbase. If we price BTC at $100,000, this amount reaches a staggering $63 billion, which is equivalent to the nominal GDP of two Iceland in the year 2024.
In addition, Coinbase Custody also serves over 300 institutional clients, including hedge funds, family offices, pension funds, and endowments. As of the Q1 2025 financial report, Coinbase's total assets under management (including institutional and retail clients) reached $404 billion. The specific amount of institutional custodied assets was not explicitly disclosed in the latest report, but it should still be over 50% based on the Q4 2024 report.
Once this security barrier is breached, not only could the rate of user attrition far exceed expectations, but more importantly, institutional trust in it would undermine the foundation of its business. Therefore, after a hacking event, Coinbase's stock price plummeted significantly.
Facing a decline in spot trading fee revenue, Coinbase is also accelerating its transformation, attempting to find growth opportunities in derivatives and emerging assets. Coinbase acquired a stake in the options platform Deribit at the end of 2024 and announced the official launch of perpetual contract products in 2025. This acquisition fills in Coinbase's gap in options trading and its relatively small global market share.
Deribit has a strong presence in non-U.S. markets, especially in Asia and Europe. The acquisition has enabled Coinbase to gain a dominant position in bitcoin and ethereum options trading on Deribit, accounting for approximately 80% of the global options trading volume, with daily trading volume remaining above $2 billion.
Meanwhile, 80-90% of Deribit's customer base consists of institutional investors, with their professionalism and liquidity in the Bitcoin and Ethereum options market highly favored by institutions. Coinbase's compliance advantage, coupled with its already robust institutional ecosystem, makes it even more suitable. By using institutions as an entry point, it can face the squeeze from giants like Binance and OKX in the derivatives market.
Facing a similar dilemma is Kraken, which is attempting to replicate Binance Futures' model in non-U.S. markets. Since the derivatives market relies more on professional users, fee rates are relatively higher and stickiness is stronger, making it a significant source of revenue for exchanges. In the first half of 2025, Kraken completed the acquisition of TradeStation Crypto and a futures exchange, aiming to build a complete derivatives trading ecosystem to hedge the risk of declining spot transaction fee income.
With the surge of Memecoin in 2024, Binance, OKX, and various CEX platforms began massively listing small-market-cap, highly volatile tokens to activate active trading users. Due to the wealth effect and trading activity of Memecoins, Coinbase was also forced to join the battle, successively listing popular tokens from the Solana ecosystem such as BOOK OF MEME and Dogwifhat. Although these coins are controversial, they are frequently traded, with fee rates several times higher than mainstream coins, serving as a "blood-boosting" method for spot trading.
However, due to its status as a publicly traded company, this practice is a riskier endeavor for Coinbase. Even in the current crypto-friendly environment, the SEC is still investigating whether tokens like SOL, ADA, and SAND constitute securities.
In addition to the forced transformation strategies carried out by the aforementioned CEXs, they are also starting to lay out RWAs and the most talked-about stablecoin payment fields, such as the PYUSD launched through a collaboration between Coinbase and Paypal, Coinbase's support for the Euro stablecoin EURC by Circle that complies with EU MiCA regulatory requirements, or the USD1 launched through a collaboration between Binance and WIFL. In the increasingly crowded trading field, many CEXs have shifted their focus from just the trading market to the application field.
The golden age of transaction fees has quietly ended, and the second half of the crypto exchange platform game has silently begun.
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1.Binance Alpha Launches HIPPO, BLUE, and Other Tokens
2.Believe Ecosystem Tokens See General Rise, LAUNCHCOIN Surges Over 250% in 24 Hours
3.Tiger Securities Introduces Cryptocurrency Deposit and Withdrawal Service, Supports Mainstream Cryptocurrencies such as BTC and ETH
4.Current Bitcoin Rally Possibly Driven by Institutions, Retail Traders Yet to Join
5.Binance Wallet's New TGE Privasea AI Participation Requires a 198 Point Threshold, with a Point Consumption of 15
Source: Overheard on CT (tg: @overheardonct), Kaito
PUMP: Today's discussions about PUMP focus on its new creator revenue-sharing model: the platform will allocate 50% of PumpSwap revenue to token creators, sparking varied reactions from users. Some criticize the move as insufficient or even misleading, while others view it as a positive step the platform is taking to reward creators. Meanwhile, PUMP faces market pressure from emerging competitors like LetsBONKfun and Raydium, which are rapidly gaining market share. Users also express concerns about PUMP's sustainability and potential regulatory risks in the U.S., with discussions extending to the platform's impact on the entire memecoin ecosystem.
COINBASE: Today, Coinbase became the first crypto company to join the S&P 500 Index, replacing Discover Financial Services, sparking widespread industry attention. The entire crypto community views this milestone as a significant development, signaling that crypto assets are further integrating into the mainstream financial system. The news has sparked lively discussions on Twitter, with many users pointing out that this may attract more institutional investors to enter the Bitcoin and other cryptocurrency markets.
XRP: XRP became the focal point of today's crypto discussion, with its significant market movements and strategic advances drawing attention. XRP has surpassed USDT to become the third-largest cryptocurrency by market capitalization, sparking market excitement and discussions about its future potential. The surge in market capitalization and price is believed to be related to increasing institutional interest, deepening strategic partnerships, and its role in the crypto ecosystem. Additionally, XRP's integration into multiple financial systems and its potential as a macro asset class are also seen as key factors driving the current market sentiment.
DYDX: Today's discussions about DYDX mainly focused on the dYdX Yapper Leaderboard launched by KaitoAI. The leaderboard aims to identify the most active community participants, with a total of $150,000 in rewards to be distributed over the first three seasons. This initiative has sparked broad community participation, with many users discussing the potential rewards and the incentive effect on the DYDX ecosystem. Meanwhile, progress on the ethDYDX to dYdX native chain migration and historical airdrop events have also been topics of discussion.
1. "What Is 'ICM'? Holding Up the $4 Billion Market Cap Solana's New Narrative"
Overnight, the hottest narrative in the crypto space has become "Internet Capital Markets," with a host of crypto projects and founders, led by the Solana ecosystem's new Launchpad platform Believe, releasing this phrase. Together with "Believe in something," it has become the new slogan heralding the onset of a bull market. What exactly is the so-called "Internet Capital Market," will it become a short-lived hype phrase like the Base ecosystem's previous Content Coin, and what related targets are available for selection?2.《LaunchCoin Surges 20x in One Day, How Did Believe Create a $200M Market Cap Shiba Inu After Going to Zero?｜100x Retrospective》
LAUNCHCOIN broke through a $200 million market cap today, with the long-lost liquidity and such a high market cap "Memecoin" almost bringing half of the on-chain crypto community CT into the fray. The community is crazily discussing this token, with half of it being FOMO and the other half being FUD. This token, originally issued by Believe founder Ben Pasternak under his personal identity, transformed into a new platform token after a renaming. From once going to zero to a $200 million market cap, what happened in between?May 14 On-chain Fund Flow
Within 24 hours, GOONC's market cap soared to 70 million, could GOONC be the next billion-dollar dog on the Believe platform?
Bitcoin has broken $100,000, Ethereum has surpassed 2500, and is Solana's hot streak about to make a comeback?
The current market is in a state of macro euphoria, with GOONC riding the wave today, skyrocketing 10x in just a few hours, reaching a market cap of tens of millions of dollars, trading volume soaring past 50 million, and rumors swirling that the developer may be from OpenAI (unconfirmed but intriguing enough).
A ludicrous and absurd Solana meme that some actually buy into.
GOONC is a meme coin that has sprouted from the "gooning" subculture, offering no technological innovation or practical use, its sole function being speculation.
It takes inspiration from an NSFW term "gooning," which refers to a person being deeply immersed in certain content (you know what), eventually entering a nearly religious-like trance.
In Reddit (such as r/GOONED, r/GoonCaves) and some counterculture media outlets (such as MEL Magazine in 2020), "gooning" has gradually transitioned from an adult label to a meme-addicted, digital content and virtual self-indulgence synonym, arguably the epitome of Degen spirit.
GOONC is playing around with this concept, packaging the addictive nature, uselessness, and irony of gooning into a tradable financial product. The project team has made it clear: "We do not solve blockchain problems, we only trade absurdity." Blunt but oddly genuine.
GOONC launched on May 13, 2025, using the meme coin launch platform Believe App's LaunchCoin module on Solana. This tool is highly Degen: zero technical barriers, a few clicks to create a coin, perfect for projects like GOONC that can come up with ideas out of the blue.
The mastermind behind GOONC is also quite something and is the most talked-about, with KOL @basedalexandoor on X platform (alias "Pata van Goon") personally involved. His profile even caught the attention of Marc Andreessen, co-founder of a16z, making onlookers unable to resist speculating if GOONC has a hint of OpenAI lineage.
While this 'OpenAI Endorsement' is currently just community speculation, it is definitely a good card to play to fuel hype. Saying "we are pure speculation" on one hand, while tagging a few "AI + a16z" on the other.
GOONC took off as soon as it launched. After its launch on May 13, 2025, its market capitalization skyrocketed to $22 million within 4 hours, with a trading volume exceeding $25.6 million in 24 hours. According to platform data, the first day of trading saw an astonishing +41,100% surge, soaring from $0.0000001 to $0.02, becoming a "missed-the-boat" situation.
GOONC quickly formed an active trading community post-launch, with a lot of discussion and trading signals appearing on X platform (such as the 292x return signal provided by DeBot). Liquidity pools on exchanges like Raydium and Meteora grew rapidly, supporting high trading volumes and price increases.
The real climax occurred between May 13 and May 14, with the market cap rising to $5.5 million in the morning and directly surpassing $55 million in the afternoon. By the 14th, it briefly approached a $70 million market cap, with the trading volume soaring to $59 million. Some community members even posted screenshots claiming an increase of +85,000%, creating a new myth out of the ruins.
As of 1:30 pm on May 14, the price stabilized around $0.039, with a total market cap and FDV both around $39.6 million, and a 24-hour trading volume of $5.43 million. Active platforms include XT.COM, LBank, Meteora, and others.
Although there was a slight pullback from the peak ($0.07), the coin's popularity remains strong. For a coin that relies purely on "irony + community + X post" to thrive, this performance is already at a stellar level.
Currently, the background of the token's development team is not transparent, increasing the potential risk of a rug pull. Rugcheck.xyz warns that the creator of the GOONC contract may have permission to modify the contract (e.g., change fees or mint additional tokens), posing certain security risks.
Community members speculate that the meteoric rise of GOONC may be the "last hurrah".
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After Surging 40%, Has Ethereum Price Peaked Upon Exiting the Craze?
Whether you are an insider or an outsider, these days you must be familiar with the news about Ethereum. The reason is simple, causing Ethereum enthusiasts to sigh with emotion and almost throwing off-guard those who defend Ethereum, Ethereum, with a "3-day surge of 40%," climbed to the top of the Douyin Hot List.
As we all know, Ethereum launched the Pectra upgrade on May 7th. This most significant network upgrade since early 2024 integrates the Prague execution layer hard fork and the Electra consensus layer upgrade, significantly improving Ethereum's performance through 11 improvement proposals. The account abstraction feature (EIP-7702) allows users to flexibly manage wallets through social media accounts or multi-signature schemes, reducing the user threshold, attracting more users and developers. The staking mechanism optimization increases the validator ETH cap from 32ETH to 2048ETH and introduces a flexible withdrawal method, making it easier for institutions and individuals to participate in network security, enhancing the market's confidence in Ethereum's long-term value.
At the same time, Pectra optimized the interaction efficiency of Layer 2 networks such as Arbitrum and Optimism, making transactions faster and cheaper, leading to a surge in on-chain activity. As a crucial step for Ethereum's transition from "2G" to "5G," the Pectra upgrade not only enhances network vitality but also "recharges confidence" in the market, directly driving the price increase.
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It's not just Ethereum itself, as Wall Street also brought important bullish news.
The world's largest asset management company, BlackRock, proposed to the SEC allowing Ethereum ETFs for staking. This proposal is expected to elevate Ethereum ETFs from a mere investment tool to a bond-like "interest-bearing asset," bringing investors both capital appreciation and passive income, igniting market optimism about Ethereum's future potential.
Specifically, BlackRock has proposed to amend its S-1 filing to allow investors to create and redeem ETF shares directly with Ethereum instead of the U.S. dollar (i.e., in-kind redemption). This move, combined with its $2.9 billion BUIDL Fund launched in March 2024, aims to deepen the integration of traditional finance with blockchain. The BUIDL Fund is a tokenized fund operating on the Ethereum network, investing in traditional assets such as U.S. Treasury bonds. This setup is highly attractive to institutional investors, as they can not only benefit from Ethereum's price appreciation but also earn stable cash flow through staking.
Robert Mitchnick, BlackRock's Head of Digital Assets, stated in a CNBC interview in March 2025 that the addition of staking functionality will significantly enhance the appeal of the Ethereum ETF. He admitted that when the Ethereum spot ETF was launched in July 2024 without staking functionality, the market demand was lackluster, and staking could be the key to reversing this trend.
Meanwhile, the SEC's shifting stance on cryptocurrency regulation has also fueled this upward trend. During the tenure of the previous SEC chairman, the regulatory approach was tough, and staking was strictly viewed through the Howey test as a potential unregistered security. Therefore, when approving the Ethereum spot ETF in May 2024, staking functionality was explicitly prohibited.
However, with Trump back in the White House and Paul Atkins taking over the SEC, there has been a noticeable relaxation in crypto regulation. Apart from BlackRock, ETF issuers such as Invesco Galaxy, VanEck, WisdomTree, and 21Shares have also submitted applications for similar staking and in-kind redemption.
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If staking ETFs are approved, the benefits are likely to go beyond price appreciation. The introduction of staking functionality could redefine the role of crypto assets, making them more similar to traditional financial products that provide returns and value appreciation, thereby driving Ethereum closer to mainstream finance.
Currently, the SEC still needs to address several decisions related to crypto ETFs, including whether to approve ETFs for Solana, XRP, Litecoin, and even Dogecoin. With the calls for an "altcoin season" growing louder, Ethereum's strong performance may just be the beginning of a larger crypto market frenzy.
In addition, the Trump family-related DeFi project WLFI is also bullish on this wave of rise, with frequent on-chain activities. According to on-chain data analyst @ai_9684xtpa's monitoring, a WLFI-related address is currently borrowing coins to go long on ETH, borrowing 4 million U from Aave to buy 1590 ETH at an average price of $2515 per ETH.
For this epic surge of Ethereum after half a year of silence, the community has indeed gained more confidence and hope, which has also led to a revival of the entire altcoin market. However, amidst the joy, there are also voices of pessimism. Below is a summary conducted by BlockBeats based on community discussions.
The optimists point out that the current market structure is similar to the eve of the bull markets in 2016 and 2020, predicting a life-changing surge in the next 3-6 months, where some altcoins may even achieve astonishing single-day gains of up to 40%.
@liuwei16602825 stated that this surge signifies the return of the bull market as a sure thing. There is no need to worry about a pullback. The driving force behind the surge uses a high-cost isolated operation, fearing a drop more than any retail investor and will definitely do everything to support the price.
Related Reading: "Ethereum Leads the Surge Triggering the 'Altcoin Season' Speculation, How Do Traders View the Future Market?"
The bears mainly believe that this surge is different from the bull market of 2021, as the current market lacks the confidence of large-scale retail investors entering and holding positions for the long term, with funds rotating too quickly.
@market_beggar observed that a Bitfinex E/B whale has started to close positions and believes that if this whale maintains its high-speed position-closing operation for the next few days, it can be inferred that the whale no longer sees the upside potential of ETH, preparing to take profits and exit. The closing time will be a key focus going forward.
@FLS_OTC stated that there are still many uncertainties at the macro level, and the liquidity cannot support a major bull market. At this stage, it is a "last hurrah," not a complete reversal, and will continue to remain in a short position.
@off_thetarget believes that after ETH transitioned from POW to POS, it lost the "gold standard" of mining machine power cost support. The staking economic model led to a breakdown in value anchoring. Additionally, the L2 ecosystem (such as Starknet, zkSync, etc.) suffered from liquidity fragmentation, failing to establish an effective capital inflow mechanism, causing the collapse of the split disc pattern. Furthermore, the ETH community's excessive pursuit of technical narratives divorced from real-world needs resulted in a weak ecosystem growth. Therefore, he believes that ETH's intrinsic value system has crumbled, and the price is bound to plummet to the 800-1200 range, with a decisive short position at 1800.
@Airdrop_Guard, based on the core logic of the "High Probability Trading Strategy," where three sets of underlying logic different trading systems (such as volume depletion, price supply-demand, long/short position funding rate, etc.) simultaneously issue a short signal at the same point (2580), creating a high-probability trading opportunity. He emphasizes that these systems must be based on different algorithms and logics (rather than mere technical indicator overlays). The current ETH trend aligns with the short conditions in multiple independent dimensions of his trading system, hence the decision to short.
Overall, Bitcoin still maintains over 54% market dominance, and institutional funds' continued preference for it may limit the altcoin's upward potential. The market's future direction will depend on multiple factors, such as Bitcoin's price trend, global macroeconomic conditions, and whether funds can effectively rotate from Bitcoin to the altcoin sector.
Although Ethereum's recent leadership in the market has brought about optimistic sentiment, investors still need to remain rational as different sectors of altcoins are likely to show divergence in trends. Whether this round of Ethereum's rise will usher in a true altcoin frenzy may require more time and conducive conditions.
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$COIN Joins S&P 500, but Coinbase Isn't Celebrating
On May 13, S&P Dow Jones Indices announced that Coinbase would officially replace Discover Financial Services in the S&P 500 on May 19. While other companies like Block and MicroStrategy, closely tied to Bitcoin, were already part of the S&P 500, Coinbase became the first cryptocurrency exchange whose primary business is in the index. This also signifies that cryptocurrency is gradually moving from the fringes to the mainstream in the U.S.
On the day of the announcement, Coinbase's stock price surged by 23%, surpassing the $250 mark. However, just 3 days later, Coinbase was hit by two consecutive events: a hack where employees were bribed to steal customer data and a demand for a $20 million ransom, and an investigation by the U.S. Securities and Exchange Commission (SEC) into the authenticity of its claim of having over 100 million "verified users" in its securities filings and marketing materials. These two events acted as mini-bombs, and at the time of writing, Coinbase's stock had already dropped by over 7.3%.
Coincidentally, Discover Financial Services, being replaced by Coinbase, can also be considered the "Coinbase" of the previous payment era. Discover is a U.S.-based digital banking and payment services company headquartered in Illinois, founded in 1960. Its payment network, Discover Network, is the fourth largest payment network apart from Visa, Mastercard, and American Express.
In April, after the approval of the acquisition of Discover by the sixth-largest U.S. bank, Capital One, this well-established digital banking company of over 60 years smoothly handed over its S&P 500 "seat" to this emerging cryptocurrency "bank." This unexpected coincidence also portrayed the handover between the new and old eras in Coinbase's entry into the S&P 500, resembling a relay race scene. However, this relay baton also brought Coinbase's accumulated "external troubles and internal strife" to a tipping point.
Over the past decade, cryptocurrency exchanges have been the most stable "profit machines." They play a role in providing liquidity to the entire industry and rely on trading fees to sustain their operations. However, with the comprehensive rollout of ETF products in the U.S. market, this profit model is facing unprecedented challenges. As the leader in the "American stack," with over 80% of its business coming from the U.S., Coinbase is most affected by this.
Starting from the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has significantly onboarded users and funds that originally belonged to exchanges in a more cost-effective, compliant, and transparent manner. The transaction fee revenue of cryptocurrency exchanges has started to decline, and this trend may further intensify in the coming months.
According to Coinbase's 2024 Q4 financial report, the platform's total trading revenue was $417 million, a 45% year-on-year decrease. The contribution of BTC and ETH's trading revenue dropped from 65% in the same period last year to less than 50%.
This decline is not a result of a decrease in market enthusiasm. In fact, since the approval of the Bitcoin ETF in January 2024, the inflow of BTC into the U.S. market has continued to reach new highs, with asset management giants like BlackRock and Fidelity rapidly expanding their management scale. Data shows that BlackRock's iShares Bitcoin ETF (IBIT) alone has surpassed $17 billion in assets under management. As of mid-May 2025, the cumulative net inflow of 11 major institutional Bitcoin spot ETFs on the market has exceeded $41.5 billion, with a total net asset value of $1214.69 billion, accounting for approximately 5.91% of the total Bitcoin market capitalization.
Institutional investors and some retail investors are shifting towards ETF products, partly due to compliance and tax considerations. On one hand, ETFs have much lower trading costs compared to cryptocurrency exchanges. While Coinbase's spot trading fee rate varies annually in a tiered manner but averages around 1.49%, for example, the management fee for IBIT ETF is only 0.25%, and the majority of ETF institution fees fluctuate around 0.15% to 0.25%.
In other words, the more rational users are, the more likely they are to move from exchanges to ETF products, especially for investors aiming for long-term holdings.
According to multiple sources, several institutions, including VanEck and Grayscale, have submitted applications to the SEC for a Solana (SOL) ETF, with some institutions also planning to submit an XRP ETF proposal. Once approved, this may trigger a new round of fund migration. According to a report submitted by Coinbase to the SEC, as of April, the platform's trading revenue from XRP and Solana accounted for 18% and 10%, nearly one-third of the platform's fee revenue.
However, the Bitcoin and Ethereum ETFs passed in 2024 also reduced the fees for these two tokens on Coinbase from 30% and 15% to 26% and 10%, respectively. If the SOL and XRP ETFs are approved, it will further undermine the core fee revenue of exchanges like Coinbase.
The expansion of ETF products is gradually weakening the financial intermediary status of cryptocurrency exchanges. From their original roles as matchmakers and clearers to now gradually becoming mere "on-ramps and off-ramps" for funds, exchanges are seeing their marginal value squeezed by ETFs.
On May 12, 2025, SEC Chairman Paul S. Atkins gave a keynote speech at the Tokenization and Cryptocurrency Working Group roundtable. The theme of his speech revolved around "It is a new day at the SEC," where he indicated that the SEC would not approach enforcement and regulation the same way as before but would instead pave the way for cryptocurrency assets in the U.S. market.
With signs of cryptocurrency compliance such as the SEC's "NEW DAY" declaration, an increasing number of traditional brokerages are attempting to enter the cryptocurrency industry. One of the most representative cases is the well-known U.S. brokerage Robinhood, which began expanding its crypto business in 2018. By the time of its IPO in 2021, Robinhood's crypto business revenue accounted for over 50% of the company, with a significant boost from the Dogecoin "moonshot" promoted by Musk.
In Q1 2025 earnings report, Robinhood showcased strong growth, especially in revenue from cryptocurrency and options trading. Fueled by Trump's Memecoin, cryptocurrency-related revenue reached $250 million, nearly doubling year-over-year. Consequently, Robinhood Gold subscription users reached 3.5 million, a 90% increase from the previous year, with the rapid growth of Robinhood Gold providing the company with a stable source of income.
Meanwhile, RobinHood is actively pursuing acquisitions in the cryptocurrency space. In 2024, it announced a $2 billion acquisition of the long-standing European cryptocurrency exchange Bitstamp. Additionally, Canada's largest cryptocurrency CEX, WonderFi, which recently went public on the Toronto Stock Exchange, also announced its integration with RobinHood Crypto. After obtaining virtual asset licenses in the UK, Canada, Singapore, and other markets, RobinHood has taken a proactive approach in the compliant cryptocurrency trading market.
Furthermore, an increasing number of brokerage firms are exploring the same path. Futu Securities, Tiger Brokers, and others are also dipping their toes into cryptocurrency trading, with some having applied for or obtained the VA license from the Hong Kong SFC. Although their user bases are currently small, traditional brokerages have a natural advantage in user trust, regulatory licenses, and low fee structures. This could pose a threat to native cryptocurrency platforms in the future.
In April 2025, security researchers discovered that some Coinbase user data was leaked on the dark web. While the platform initially responded by attributing it to a "technical misinformation," it still raised concerns among users regarding its security and privacy protection. Just two days before Dow Jones Indexes announced Coinbase's addition to the S&P 500 Index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to have obtained customer account information and internal documents, demanding a $20 million ransom to keep the data private. Subsequent investigations confirmed the data breach.
Cybercriminals obtained the data by bribing overseas customer service agents and support staff, mainly in "non-U.S. regions such as India." These agents abused their access to Coinbase's internal customer support system and stole customer data. As early as February this year, blockchain detective ZachXBT revealed on X platform that between December 2024 and January 2025, Coinbase users lost over $65 million to social engineering scams, with the actual amount potentially higher.
Among the victims was a well-known figure, 67-year-old Ed Suman, an established artist in the art world for nearly two decades, having been involved in the creation of artworks such as Jeff Koons' "Balloon Dog" sculpture. Earlier this year, he fell victim to an impersonation scam involving fake Coinbase customer support, resulting in a loss of over $2 million in cryptocurrency. ZachXBT critiqued Coinbase for its inadequate handling of such scams, noting that other major exchanges have not faced similar issues and recommending Coinbase to enhance its security measures.
Amidst a series of ongoing social engineering incidents, although there has not been any impact on user assets at the technical level so far, it has raised concerns among many retail and institutional investors. Especially institutions holding massive assets on Coinbase. Just considering the U.S. BTC ETF institutions, as of mid-May 2025, they collectively hold nearly 840,000 BTC, and 75% of these are custodied by Coinbase. If we price BTC at $100,000, this amount reaches a staggering $63 billion, which is equivalent to the nominal GDP of two Iceland in the year 2024.
In addition, Coinbase Custody also serves over 300 institutional clients, including hedge funds, family offices, pension funds, and endowments. As of the Q1 2025 financial report, Coinbase's total assets under management (including institutional and retail clients) reached $404 billion. The specific amount of institutional custodied assets was not explicitly disclosed in the latest report, but it should still be over 50% based on the Q4 2024 report.
Once this security barrier is breached, not only could the rate of user attrition far exceed expectations, but more importantly, institutional trust in it would undermine the foundation of its business. Therefore, after a hacking event, Coinbase's stock price plummeted significantly.
Facing a decline in spot trading fee revenue, Coinbase is also accelerating its transformation, attempting to find growth opportunities in derivatives and emerging assets. Coinbase acquired a stake in the options platform Deribit at the end of 2024 and announced the official launch of perpetual contract products in 2025. This acquisition fills in Coinbase's gap in options trading and its relatively small global market share.
Deribit has a strong presence in non-U.S. markets, especially in Asia and Europe. The acquisition has enabled Coinbase to gain a dominant position in bitcoin and ethereum options trading on Deribit, accounting for approximately 80% of the global options trading volume, with daily trading volume remaining above $2 billion.
Meanwhile, 80-90% of Deribit's customer base consists of institutional investors, with their professionalism and liquidity in the Bitcoin and Ethereum options market highly favored by institutions. Coinbase's compliance advantage, coupled with its already robust institutional ecosystem, makes it even more suitable. By using institutions as an entry point, it can face the squeeze from giants like Binance and OKX in the derivatives market.
Facing a similar dilemma is Kraken, which is attempting to replicate Binance Futures' model in non-U.S. markets. Since the derivatives market relies more on professional users, fee rates are relatively higher and stickiness is stronger, making it a significant source of revenue for exchanges. In the first half of 2025, Kraken completed the acquisition of TradeStation Crypto and a futures exchange, aiming to build a complete derivatives trading ecosystem to hedge the risk of declining spot transaction fee income.
With the surge of Memecoin in 2024, Binance, OKX, and various CEX platforms began massively listing small-market-cap, highly volatile tokens to activate active trading users. Due to the wealth effect and trading activity of Memecoins, Coinbase was also forced to join the battle, successively listing popular tokens from the Solana ecosystem such as BOOK OF MEME and Dogwifhat. Although these coins are controversial, they are frequently traded, with fee rates several times higher than mainstream coins, serving as a "blood-boosting" method for spot trading.
However, due to its status as a publicly traded company, this practice is a riskier endeavor for Coinbase. Even in the current crypto-friendly environment, the SEC is still investigating whether tokens like SOL, ADA, and SAND constitute securities.
In addition to the forced transformation strategies carried out by the aforementioned CEXs, they are also starting to lay out RWAs and the most talked-about stablecoin payment fields, such as the PYUSD launched through a collaboration between Coinbase and Paypal, Coinbase's support for the Euro stablecoin EURC by Circle that complies with EU MiCA regulatory requirements, or the USD1 launched through a collaboration between Binance and WIFL. In the increasingly crowded trading field, many CEXs have shifted their focus from just the trading market to the application field.
The golden age of transaction fees has quietly ended, and the second half of the crypto exchange platform game has silently begun.
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