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:

• PayPal’s stablecoin

• Coinbase earnings

• Goldfinch RWA default

• MakerDAO enhanced DSR

• Worldcoin raided in Kenya

• … as a service

The Latest

What’s the definition of beating earnings? dept.

Coinbase continues to shine

Last Thursday afternoon, Coinbase released its Q2 earnings. As crypto activity continued to decline in Q2 on the back of fierce enforcement action by the SEC, Coinbase stood its ground with a relatively positive earnings beat.

Q2 revenue came in at $708M, versus analyst estimates of $629M. Similar to its Q1 results, tradfi analysts got it all wrong, with an expected earnings-per-share of 54 cents versus a reported consensus of 50 cents. It seems like these analysts don’t have a good grasp of Coinbase’s business to be very honest. Impressively, Coinbase’s revenue was $808M one year ago, and if you consider everything that has happened between then and now, including FTX, 3AC, and LUNA, it’s surprising that their revenue has only decreased by 12.5% YoY.

Coinbase’s subscription revenue came in at $335.4M vs $147.4M, representing a 127% YoY increase. This was mainly driven by a much higher rate environment resulting in an order of magnitude more interest income. However, Coinbase’s interest income still pales in comparison to Tether’s, which reported $850M in profit in Q2 recently. In addition, Brian Armstrong mentioned that the blockchain rewards revenue outperformance was driven by higher MEV boost rewards. How cool is it to hear that term in a public company’s earnings call?

Another talk of the town during the earnings call was Coinbase’s L2, Base. The way gw sees it, Base is not a cannibalizer of Coinbase’s CEX volume or revenue; if anything it will increase the size of the pie. A large amount of emphasis was placed on utilizing Base to build new products, with payments being the most mentioned use case. Base will slowly be decentralized over time and will be monetized through sequencer fees. Importantly, Brian mentioned that Coinbase can run one of the sequencers, as others can over time too.

Here’s a number that may stand out to you. In just three days surrounding the memecoin mania on Base, the sequencer managed to generate $700K in profit, which is $85M on an annual basis. Now imagine if user activity is multiples of that when Base launches and what the potential profit would be. To put this $85M number into context, Coinbase’s adjusted EBITDA was $194M for Q2 2023, so it’s pretty significant, to say the least.

Coinbase is in an extremely strong position, with sticky retail transaction revenue that’s currently willing to pay a 2.2% take rate (which IMO is crazy), a slew of new products including Onchain Summer with the official launch of Base, and an international derivatives exchange that is slowly gaining traction with fifty onboarded institutional clients. Lastly, Brian pointed out how the regulatory environment is actually benefitting them, as other exchanges that may not have always played within the rules have been slowly getting cornered by regulators. — JC, Decential Media

Crypto charting

Here's a deeper look into the economics and mechanics of web3 and crypto courtesy of charts by Pyth Data Association. To see more Pyth research click here.

Oracle cross-chain integration

The future landscape of DeFi and Oracles is poised for cross-chain integration. Emerging ecosystems like Optimism, Arbitrum, Aptos and Sui are rapidly gaining ground, challenging Ethereum, Solana, and other established players. This shift has transformed the Oracle sector into a compelling two-horse competition, where providers are sprinting to adapt to this evolving paradigm. Their goal? To comprehensively embrace numerous chains and protocols, ensuring widespread coverage across the expanding blockchain universe. (Source: DefiLlama)

Eight months since its cross-chain expansion, Pyth Network has secured nearly half of the entire DEX trading volume dedicated to derivatives. Such progress is testament to the influence of providing high-fidelity data accessibility.

Cross Chain Wars:

The cryptocurrency landscape remains in a perpetual state of transformation, with diverse Layer 1 (L1) and Layer 2 (L2) solutions engaged in a fierce competition for supremacy and dominance over user Total Value Locked (TVL). Noteworthy recent advancements have emerged, including Aptos' strategic collaboration with Microsoft, uniting their strengths in pioneering AI initiatives. This partnership has yielded a remarkable 10% surge in the value of the $APT token. Simultaneously, Fantom is actively deliberating a potential migration to an Ethereum Layer 2, a strategic move aimed at reinvigorating its ecosystem and attracting both users and developers. Amidst these developments, Optimism experienced a price setback subsequent to the introduction of its latest contender, Coinbase's Base Layer 2. The unfolding narrative leaves us eagerly anticipating which among these competing ecosystems will ultimately emerge triumphant.

Quick Bits

Goldfinch RWA default

• Lending defaults strike again. Except this time, it isn’t from lending to crypto market makers who blew up on the back of 3AC’s implosion; it’s to Tugende, a fintech company that helps bridge the credit gap for small businesses in Africa.

• They recently defaulted on their $5M loan issued on Goldfinch, which represents 4% of the TVL of the protocol. Some depositors are reporting that it will take 7.6 years to be made whole, which, to say the least, is not ideal.

MakerDAO enhanced DSR

• Last week, MakerDAO voted to turn on something called the enhanced DAI savings rate (eDSR). This promises up to 8% yield on DAI, being generated off the back of a portfolio of RWAs.

• The 8% yield is only offered when the utilization is low, and as more users lock their DAI into the eDSR, that rate should come down. The amount of DAI in the DSR vault has rocketed from to $1B from $339M in less than four days.

Kenya shuts down Worldcoin

• Looks like Kenyan law enforcement isn’t the biggest fan of Worldcoin. A few days ago, their warehouse was raided by Kenyan police, and just before that, their operations were shut down in Kenya.

• It seems like they are in hot water, with a commissioner stating that Worldcoin failed to disclose its true intentions when it registered. It could also be related to the fact that Kenya wants to roll out its new digital identity system, which would obviously compete with Worldcoin.

And last but not least

X as a service

What is more valuable, a company that does one thing or a company that provides a platform to operate that same thing as a service? For example, would you rather be a company that provides snow plowing services or a company that rents out snow plow trucks to help other people operate a snow plowing service? That’s a debate that has recently been going around in the context of rollups.

There are currently a few major rollups, including the likes of Arbitrum, Optimism and zkSync. They provide a platform for developers to permissionlessly build dApps. In addition, they have built out tech stacks that one could use to launch a rollup. For example, Optimism and the OP stack are best thought of as a collection of software components. Today, these major rollups generate profits from their sequencer by charging users a higher fee when a transaction is made than the cost to batch and post that transaction to the L1. Whenever someone launches a rollup using their tech stack, however, a problem develops. Rollups such as Optimism and Arbitrum don’t stand to benefit, compared with a rollup-as-a-service provider such as Conduit. That’s because Conduit is better positioned to capture revenue from both the cost of hosting these rollups they helped deploy, and the profit made from helping to run a sequencer.

The reason they may be better positioned is due to the composable nature of blockchains. If everyone is launching a rollup using your stack, you could in some sense control all these rollups or standardize them in some way. Then maybe the rollups launched through your platform generate some network effect that no one else has, not even the rollup framework you are utilizing. If we expand this and look towards the wider crypto ecosystem, we see more and more x-as-a-service products popping up. Examples include wallets-as-a-service, blockchains-as-a-service, liquidity-as-a-service, and more. This will likely be a continuing trend as incumbents fight for value capture and theorize how to grow their size of the pie.— JC

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