A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

• Coinbase Q3 earnings

• FCA stablecoin framework

• Aave pausing markets

• Robinhood trading revenue drop

• Service providers in DAOs

The Latest

The Simpsons take on NFTs

It’s earnings time dept.

Coinbase Q3 earnings

Last Thursday, Coinbase released its Q3 earnings. earnings per share came in slightly below expectations, at $-0.57 compared to estimates of $-0.54. Despite that, the amount of bullish COIN posting I see on CT has never been higher, with many seeing it as a clear picks & shovels winner in the next bull market.

In Q3, Coinbase’s transaction revenue was $289M, down 12% QoQ. That was primarily driven by trading volume being down 17%, with a significant hit on the institutional front, with transaction revenue down 18%. Interestingly, Coinbase segmented out transaction volume by tokens/token type, and for the first time, USDT volume generated more than 10% of transaction volume, coming in at 15%.

Subscription and services revenue came in at $334M. Blockchain rewards were down 15% QoQ, custodial fee revenue down 7% QoQ, and interest income was down a whopping 21% QoQ, but importantly, other subscription and services revenue was up 10% QoQ, primarily being driven by the Coinbase One subscription program and growth in Coinbase’s prime financing product. This is the first time that Coinbase’s non-trading commission-based revenue has exceeded its commission-based revenue. 

As we saw in the world of stock brokerages, trading fees will likely converge to zero over time for crypto CEXs. What started as a commission-based revenue model eventually transitioned to a payment-for-order-flow revenue model. CEXs will have to mentally prepare for that same shift, and thus, Coinbase’s increasing source of revenue from subscriptions and services is a promising sign for the CEX.

Despite the relatively small amount of revenue generated from its subscription and services, all the cards are there for that revenue to significantly increase over the coming years. USDC interest income will likely explode higher in a bull market as the stablecoin’s market cap increases on the back of it being the stablecoin of choice for institutions vs Tether, staking revenue will increase purely due to token price increases or with significantly increased institutional adoption, and Base sequencer revenue will likely trend higher as usage grows. Each of these are monster businesses that may eventually bring in hundreds of millions in revenue. Other notable catalysts include the upcoming spot ETF decisions, the successful launch of futures for US customers, and its international exchange.

For the first time, Coinbase broke out stablecoin volume and included the amount of USDC custodied on the platform. Coincidentally, we just got the news that Circle may be considering a 2024 IPO. What does that mean for Coinbase? Other than the fact that Coinbase stock should be valued slightly higher if an IPO occurs, Coinbase may eventually have lofty goals of becoming a bank. That would fit in well with its master plan, where Coinbase eventually wants to build the apps of an open financial system, including loans, investing, and merchant processing. — Joseph Cooper, Decential Media

Quick Bits

FCA stablecoin framework

• While the US grinds to a halt on the regulatory front, the UK is making significantly more strides. The UK’s Financial Conduct Authority (FCA) has released a 109-page discussion paper on stablecoin regulation.

• It seems the FCA understands the value that stablecoins could provide “to deliver faster, cheaper, frictionless payments between consumers and merchants.”

Aave pausing markets

• Is blue-chip DeFi that safe? Apparently not. Over the past week, Aave, the industry leader in the DeFi lending sector, decided to pause several markets. Its V2 Ethereum market, V2 Avalanche market, and V3 Polygon, Arbitrum, and Optimism markets have all been paused.

• Details are still scarce, but it appears as though the potential issue could lie with stablecoin debt across many pools. That’s another blue-chip protocol we can add to the list of having an undiscovered exploit or was exploited following Curve earlier this year.

Robinhood trading revenue

• When will the Robinhood degens come back? Robinhood’s crypto trading revenue declined to $23M in Q3, representing a 55% drop from the previous quarter.

• Wallstreetbets degens aping and the GME fiasco could’ve been a zero interest rate phenomenon (ZIRP) unique to the COVID period. It’ll be interesting to see whether Robinhood crypto trading ever makes a comeback.

And last but not least

Service providers in DAOs

DAOs have a problem. The problem? That they’re decentralized. Because they are decentralized, they require people who haven’t been elected into any positions to step up and work together to push the DAO forward. Fundamentally, a DAO is controlled by tokenholders, although you can often separate these tokenholders into a few categories. First, those that hold the token. Second, delegates who have tokens delegated to them so that they can vote on behalf of other people, and lastly, you have a wide-ranging bunch of protocols, devs, and service providers who all have some say or interest in the DAO one way or the other. Together, all these stakeholders try to control what to do to help the DAO work, while collectively trying to figure out how to spend a massive treasury. In Arbitrum DAO’s case, a treasury that is currently worth $3.9B.

As you can imagine, this process is, for lack of a better term, a shit show. Imagine having the power of the Secretary of the Treasury, the President, and just about every high ranking government official, but managed by, checks note, 755K unique token holders. To be fair, there aren’t literally 755K unique individuals communicating with each other and trying to come to a consensus. This has reached peak contention this week, driven by a proposal from Blockworks Research to form a working group called The Arbitrum Coalition. The goal of The Arbitrum Coalition is to aid in turning Arbitrum DAO members’ ideas into reality for a term of 12 months. Initially, it will be made up of Blockworks Research, Gauntlet, and Trail of Bits, each specializing in different functions. As part of the proposal, $2M is being requested as compensation for services offered.

The crux of the argument here is how should the DAO work with service providers. Evidently, a DAO needs service providers. One can’t expect random individuals who are treasury managers, framework creators, grant committee members, security auditors, quants, and more to step up and do all this work for free. Despite how much delegates believe the Arbitrum Coalition makes sense and will provide value to the DAO, there is a wide range of concerns and pushback, including how it could potentially result in a centralization of power, the cost is too high, the scope of the proposal being too wide, and more. Understandably, no one has figured this out yet. What should the service provider onboarding framework look like? How long should vendors be locked in for? How should we think about service provider compensation? Should we run a competitive auction process for service providers? Do we trust delegates and voters to vote in the best interest of the DAO instead of themselves? Does a normal person understand how to evaluate quantitative risk analysis and security auditing firms? (Probably not). I feel like it’ll be at least a few more years before anyone figures this DAO thing out. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.