- Buy Crypto
- Markets
- Futures
- Spot
- Copy Trade
Earn- More
Multicoin's Latest Investment Thesis: Solana Aims for the Internet-native Capital Market
Original Title: The Solana Thesis: Internet Capital Markets
Original Author: Kyle Samani, Founder of Multicoin Capital;
Original Translation: Golden Finance
Multicoin Capital participated in the Solana seed round financing in May 2018, and since then, Multicoin Capital has been investing in Solana's native asset SOL and the broader Solana ecosystem. We have previously published four investment theses on Solana. The first two versions were released approximately nine months before the production of the mainnet's first block in March 2020. As the Solana network has evolved, our reference framework for thinking about the Solana network and the SOL asset has also evolved.
Now that Solana has become a $100 billion asset, the fastest growing developer ecosystem, and has surpassed Ethereum's key on-chain metrics (transaction volume, daily active addresses, revenue, total economic value TEV, DeFi payments, etc.), we want to share our thoughts on why we have been subscribing to SOL to achieve strong returns, even as Solana's market capitalization exceeds $100 billion.
This article is the fifth in our evolving series of Solana theses. The first four were: 1. Time and state separation; 2. The world computer should be centralized in logic; 3. Technical scalability creates social scalability; 4. Implicit costs of a modular system.
In this article, I will argue that Solana is the leading public blockchain supporting Internet capital markets. Furthermore, I believe that Solana as a technology can outperform major traditional finance (TradFi) participants on core performance metrics such as latency, including financial market entities like NYSE, NASDAQ, CME, JPMorgan, Goldman Sachs, and Morgan Stanley, as well as payment entities like Visa and Mastercard, while retaining core blockchain attributes never offered by TradFi (atomic composability and permissionless access for users, developers, and validators). Most importantly, I believe the Solana ecosystem can achieve both of the following seemingly contradictory goals simultaneously:
1. Reduce the cost of end-user financial services by 90-99%
2. Attain a higher total market value than existing Traditional Finance (TradFi) enterprises
While traditional financial participants such as the NYSE and Nasdaq only provide a small portion of value in the financial stack, Solana has already supported a superset of these systems' functionalities through unique DeFi protocols built on Solana over the years. Solana not only expands the Total Addressable Market (TAM) of transactions by increasing throughput and performance but also captures value from more layers of the financial stack.
Broadly speaking, all financial services can be categorized into two major groups: payments and finance. I will first explain how payments have become the loss leader of blockchain products; thereafter, the majority of this article will focus on the core infrastructure of Wall Street finance.
Delivering the Best Global Payment Experience
There are various ways to move funds. Apple Pay offers a great user experience. Using a physical credit card is great. Venmo, PayPal, or Square Cash are also good options. Other methods are mediocre at best, or worse—ACH, Wires, Zelle, Bill Pay, wire transfers, etc.
However, even with these traditional systems providing a good user experience, their costs are exorbitant. Wire transfer fees are $25, and credit card fees can exceed 2%. Updating ledger entries comes at such a high cost for both consumers and businesses; it's insane. This defies basic common sense, directly contradicting the natural intuition that electronic transactions should be cheaper than analog ones.
Solana has streamlined the payment process, making the user experience great. Furthermore, the fees are almost negligible. Watch the video (https://youtu.be/LaNwHW_NBIs), Sling Money is built entirely on Solana. This is the future of money flow.
The market cap of global payment companies is around $1.4 trillion. Solana aims to reduce this cost by 90%. The only fee Solana itself charges users is gas, which is approximately $0.1 per transaction or $0.001 per transaction. Even if the Solana network processes an average of 50,000 transactions per second throughout the year, this would only amount to a total of $1.5 billion for users. In comparison, Visa sustains thousands of transactions per second.
Payments are the loss leader of blockchain. Payments are crucial for driving adoption, providing real utility to users and companies, but they are not the primary revenue source for blockchain or its ecosystem.
However, payments are crucial for the development of blockchain. The beauty of payments is that it is inherently viral. When Alice sends money to Bob, who then sends money to Carol, this naturally drives wallet adoption.
The primary source of revenue for blockchain is not payments; in fact, payments are essentially $0. Instead, the primary source of revenue for blockchain is the natural volatility between asset prices, which manifests in the form of Maximum Extractable Value (MEV). My co-founder Tushar has further elaborated on this in his 2022 Multicoin Summit talk.
The rest of this article will focus on how and why Solana is able to outperform TradFi on traditional performance metrics and how this will enable SOL and the Solana ecosystem to capture value.
Market Efficiency of CeFi and DeFi
Solana is a decentralized network of thousands of nodes that achieves consensus on a series of financial transactions at a speed of 400 milliseconds (with a goal to reduce it to 120ms in the coming years).
The correct way to measure market efficiency is not through transaction latency but through the spread provided by Market Makers (MM). Ultimately, buyers and sellers experience the price. Human users (non-bots) cannot experience the difference between 50 milliseconds, 100 milliseconds, and 200 milliseconds of financial transactions. For context, the average human blink lasts 100-150 milliseconds.
The market-making in Centralized Finance (CeFi) is almost deterministic. Most market makers' servers are in the same location as CeFi exchanges, with each market maker having a fiber-optic cable of the exact same length connecting their server to the exchange. Exchanges execute trades in microseconds, allowing market makers to know their risk exposure in real-time with high precision.
On the other hand, decentralized finance (DeFi) exchanges like Drift, Phoenix, Clearpools, Raydium, and Orca have much lower determinism compared to CeFi exchanges because:
1. Solana's network leader is constantly rotating
2. The eventual finality time increases due to the need for validators worldwide to reach consensus
Therefore, the market maker cannot have the same level of real-time understanding of its risk exposure. In many cases, the market maker may leave stale prices on the blockchain order book, which others may take advantage of.
As a result, DeFi spreads are typically larger than CeFi spreads.
Let's take a look at how these systems are evolving to bring a better experience to makers and takers.
Maker — Narrowing the Spread Through Conditional Liquidity
Things are changing. DFlow has just quietly introduced Conditional Liquidity (CL) on Solana. As the name suggests, conditional liquidity refers to liquidity that is only available when the taker's order meets certain predefined conditions. In this context, the critical condition is the toxic vs. non-toxic order flow.
How does CL work? CL specifies that liquidity can only be extracted when the taker is endorsed by a known front-end application. These wallets include: Phantom, Backpack, Solflare, and Fuse, as well as front-ends like Drift, Kamino, Jupitar, and DFlow's own front-end. This mechanism ensures that bots cannot consume CL, as bot orders do not have an endorser. This is a significant advancement for market makers, as it effectively guarantees that even if their quotes are delayed by a few seconds, they will not be front-run.
While CL is a novel concept in its mechanics, it is directly inspired by practices widely adopted in TradFi. Robinhood is a pioneer in this regard. Robinhood has always provided customers with better prices than the National Best Bid and Offer (NBBO) on the NYSE and Nasdaq. Over the past decade, they have validated this pricing improvement through trillions of dollars in trading. This makes sense, as market makers have ample statistical reason to believe that the average toxicity of Robinhood users is lower than trading directly on the NYSE or Nasdaq. In essence, in a trade, who would you rather face: Joe watching YouTube videos or Citadel?
CL lets market makers know they are not facing a well-known Citadel.
For more background on how order flow segmentation brings more favorable prices to retail traders, you can read more here.
The advantage of DFlow's Conditional Liquidity (CL) is that it combines the strengths of TradFi and cryptocurrency. It can provide tighter spreads for retail clients like Robinhood and offer blockchain's real-time permissionless access and open auditability.
CL is a nascent concept. However, we expect it to become the dominant paradigm for on-chain liquidity quoting in the next few years as market makers dislike being deceived by stale quotes. Market-making is fundamentally based on pricing with the maximum available information. Market makers (both passive and active) have no reason not to incorporate more information (i.e., conditional liquidity) into their pricing.
DFlow's CL implementation on Solana is currently 100% open source and does not charge any fees or taxes. Here is the GitHub repository.
Since Uniswap introduced the Automated Market Maker (AMM) with XYK in late 2018, conditional liquidity has been the most significant functional improvement in DeFi. With its adoption, it will reshape all discussions in DeFi regarding UX, spreads, MEV, etc.
To reiterate, CL will enable market makers to offer tighter quotes to retail users. We hope this is beneficial for market makers, users, SOL, and the Solana ecosystem.
Takers — Harnessing Alpha through Latency Reduction
Financial markets should incorporate all public information into asset pricing. They usually do. However, price discovery for most assets occurs on one server in one location, while the information affecting prices is generated worldwide.
TradFi market microstructure is designed around low-latency traders hoping to colocate with exchange matching engines.
If you, as a retail trader, observe an event in Singapore that will impact TSLA's price, you still have to send the information to the market maker next to you in New Jersey. This is fundamentally unfair to the taker and unnecessary for the market maker.
The first correct perspective on this issue is that the observer of this information should be able to place an order with validators in Singapore, not New Jersey, based on that new information. Market participants should gain that alpha for observing the information first and adding the order to the global order book at the fastest speed.
Today, Solana, like other leading blockchains, has only one Leader at any given time. However, this situation is soon to change as Solana is moving towards Multiple Concurrent Leaders (MCL).
Under MCL, there will not be just two Leaders at any given time, but several dozen. With MCL, participants observing real-world information can and will incorporate this information into asset pricing more quickly.
The key to optimizing price discovery is not to reduce the latency of a single matching engine by a nanosecond but to push price discovery to the edge, enabling people worldwide to access updated price information.
Contrary to intuition, decentralization allows recipients to minimize transaction time latency, thereby maximizing the spread of information in financial markets.
By definition, decentralized price discovery is superior to centralized price discovery. The world is vast and diverse.
Scalable TAM...
From the London Stock Exchange to the Chicago Mercantile Exchange to the Tokyo Stock Exchange, most major exchanges globally trade in a single asset (e.g., stocks or commodities). However, blockchain has revealed a reality: all units of value (currency, commodities, stocks, derivative positions, debt, meme coins, governance tokens, utility tokens, NFTs, etc.) can be represented on a permissionless blockchain as standardized tokens.
Today, most assets traded on the blockchain are native to the blockchain. This means they are created and issued natively on-chain. This includes DeFi tokens, DePIN tokens, NFTs, and more. But an increasing number of assets are being issued on-chain, representing TradFi assets like U.S. stocks, bonds, real estate, Treasury securities, mezzanine debt, etc.
Ultimately, almost all assets will trade on inherently global and permissionless systems like Solana. This does not necessarily mean people will stop trading on the NYSE, Nasdaq, and CME, but rather that more and more trading volume will occur on-chain rather than in TradFi venues. This is natural as blockchains are inherently global, permissionless, and 24/7, making them more accessible to retail traders and easier for developers to integrate compared to TradFi.
Integrating private keys and tokens into any application is a breeze, whether that application is a Telegram bot, a lightweight Android app, or a WeChat mini-program. The difficulty of interfacing with the plethora of heterogeneous systems representing the global TradFi system increases exponentially. Their APIs are much more complex, settlement times are slow and non-uniform, and in many cases, TradFi institutions do not even cater to retail traders.
Since blockchain is public and permissionless, it significantly enhances the participation in various forms of financial markets. Ultimately, the asset issuer does not care about where its asset trades. The asset issuer only wants to ensure that anyone looking to buy its asset can do so. Today, most company CEOs do not believe that issuing stock on-chain would expand their potential shareholder base, but as the global cryptocurrency user base grows from around 500 million to several billion, this will change in the coming years.
We not only believe that cryptocurrency will underpin all TradFi assets, but we also expect it to support many new assets that were previously impossible. One of my favorite examples is Parcl, a company that offers perpetual contracts with a 30-day period referencing the average price per square foot of completed real estate transactions in a specific market. Parcl allows you to go long on Austin, short on San Francisco, and use the equity value of one position to collateralize another!
There are even teams developing products issuing NFTs to on-chain represent single bottles of whiskey, wine, and watches!
Solana's TAM is expanding in all directions. Wall Street is slowly moving on-chain, developers are building various new financial markets on-chain.
...and extract value from innovation
So far, all the content in this article has considered Solana as a matching engine. But with DeFi protocols like Drift, Jupiter, Kamino, marginfi, the Solana ecosystem can provide:
1. Every imaginable financial service
2. For everyone in the world
3. Increased transparency and auditability, significantly reducing systemic risk
4. Higher capital efficiency compared to TradFi.
Today, the major DeFi primitives on Solana are 1) spot trading, 2) lending, and 3) perpetual futures trading. These roughly equate to 1) NYSE/Nasdaq, 2) large banks offering consumer and prime loans and FCM, and 3) the Chicago Mercantile Exchange. These are only applicable to the US. Solana is aiming to provide financial services for everyone in the world.
Although many Solana supporters including Anatoly (Co-founder and CEO of Solana Labs) and I have referred to Solana as the decentralized Nasdaq, Solana, and its ecosystem's TAM are much larger than Nasdaq. Solana is attempting to power all global financial services; it is much more than just a matching engine.
The incredible thing about Solana is that all these different financial tools can be natively and atomically composited without the explicit approval or support of application developers. The concept of using existing smart contracts as LEGO building blocks to create more useful services is what most in the industry refer to as composability. This enables faster experimentation and growth, as developers can build on a set of foundational contracts, integrations, and liquidity that all contribute value in a virtuous cycle for stakeholders in the Solana ecosystem. This means Solana-based products can innovate faster and provide a better consumer experience.
Solana itself does not offer financial services. However, the stack created by Solana supports hundreds (soon to be thousands) of financial services that facilitate tens of trillions of dollars in risk transfer annually. Despite gas costs approaching 0 and trending downward, Solana profits directly from the growth of these financial services through Maximum Extractable Value (MEV).
As my colleague Tushar mentioned in 2022 and 2024 at the Multicoin Summit, asset ledgers like Solana can be valued based on the MEV they capture. Each new financial service generates incremental MEV, of which Solana can capture a portion. Today, individual applications on Solana have generated over $100 million in MEV, and this is all still early days beyond the revenue of those specific applications.
By the fourth quarter of 2024, the Solana network garnered over $800 million in REV (excluding SOL inflation), representing an annualized rate of around $3.2 billion, up from basically $0 just a year ago. Despite the almost non-existent issuance of TradFi assets on Solana and the relative immaturity of the major DeFi protocols on Solana, most of which have only been around for a few years, the situation persists.
Solana's TAM is growing in three dimensions:
1. DeFi protocols continue to mature, adding new features and functionalities and creating more MEV opportunities.
2. Entrepreneurs are building new types of financial markets on-chain, such as computing, telecommunications, energy markets, and Blockchain-Enabled Collectibles Marketplaces (BECMs).
3. From memecoins to U.S. stocks, an increasing number of assets are being issued on-chain.
This not only increases Solana's TAM but also reinforces each other. For example, the more assets are issued, the more collateral available for lending.
Solana's compounding speed is increasing.
Internet Capital Markets
The Solana ecosystem is fully committed to realizing the vision of Internet Capital Markets. Solana simultaneously improves execution for market makers through conditional liquidity and enhances throughput by having multiple concurrent leaders. Additionally, the Solana ecosystem is horizontally expanding its TAM (by supporting a broader range of TradFi and crypto-native assets) and vertically expanding its TAM (by capturing some MEV from the numerous financial services built on Solana).
This is a prime opportunity to create a global, permissionless financial system:
1. Allowing informationally advantaged individuals to capture alpha across every asset class
2. Simultaneously bridging the smallest spreads
3. And enjoying the lowest fees
4. Having leverage sourced globally, transparent, and auditable in real-time
5. Achieving maximum capital efficiency through cross-position and cross-protocol atomic composability.
This is the vision of Internet Capital Markets. This is the vision of Solana.
You may also like
a16z Leads $18M Seed Round for Catena Labs, Crypto Industry Bets on Stablecoin AI Payment
$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.
Arthur Hayes: Why I'm Betting on ETH While the Market Is Obsessed with SOL
Deconstructing Binance Alpha2.0's New "Asia-Led Liquidity Mining" Model
How to Get Rich in Crypto Without Relying on Luck? Financial Veteran Raoul Pal's Macro Insights and Investment Path
Stablecoins Driving Global B2B Payment Innovation: How to Break Through Workflow Bottlenecks and Unlock Trillion-Dollar Market Potential?
Key Market Insight Discrepancy on May 2nd - A Must-Read! | Alpha Morning Report
Gate.io MemeBox has officially integrated with the Solana ecosystem, providing lightning-fast on-chain asset trading.
Taking Stock of the Top 10 Emerging Launchpad Platforms: Who Will Succeed in Disrupting Pump.fun?
GoRich Officially Launched: On-Chain Transactions with Zero Barrier to Entry, Even Beginners Can Catch 100x Meme Coins
Parse Haedal Protocol: Sui Liquidity Staking Gem Project, TVL Ratio Exceeds Sum of Competitors
LetsBONK's market cap surpasses $30 million in just 6 hours, Raydium launches counterattack against Pumpfun
This Week in Review | Trump to Host Dinner for TRUMP Holders; Musk and US Treasury Secretary Engage in Heated Argument at the White House
Key Market Information Discrepancy on April 27th - A Must-Read! | Alpha Morning Report
Cryptocurrency Market Sentiment Warms Up, MCP Emerges as New AI Frontier
Solana Validator Shake-Up: Foundation Aims for Decentralization, Half Validators Face Survival Test
Emotions are down, data is holding strong: Can the Memecoin make a comeback?
History Doesn’t Repeat, But It Rhymes — Don’t Miss It This Time
a16z Leads $18M Seed Round for Catena Labs, Crypto Industry Bets on Stablecoin AI Payment
$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.
App