In brief
- Coinbase sees NFTs as an opportunity for a new revenue stream as it seeks to diversify from trading fees.
- CFO Alesia Haas also said the company isn't concerned that stock brokerages like Robinhood will eat its lunch.
Cryptocurrency giant Coinbase is exploring NFTs (non-fungible tokens) as a potential new business line, according to the company's CFO, Alesia Haas.
In an interview with Decrypt, Haas said NFTs would be a natural fit for Coinbase's platforms and that the tokens could provide the company with a new source of transaction fees.
NFTs are blockchain-based tokens that, unlike Bitcoin, represent unique ownership deeds to digital or physical items—anything from art to videos to tweets to concert tickets. While NFTs have existed for several years (CryptoKitties, the digital kitten collectibles that got hot in 2018, were an example of NFTs), they've broken in to the mainstream in recent months, powered by high profile transactions such as the $69 million sale in March of an NFT painting by the artist Beeple.
Haas did not elaborate on when Coinbase might offer NFTs, or whether the company plans to build out a marketplace for original NFT artwork a la Nifty Gateway or Foundation, or instead just serve as an NFT resale forum. Nor did she say how much in fees the company might collect.
Haas's comments came on the eve of Coinbase's debut as a public company.
Coinbase CFO on competition from Robinhood
And while the company is highly profitable and expected to attain a valuation of as much as $100 billion, skeptics say the company's business model—which is highly dependent on trading commissions—is not sustainable. In particular, they say Coinbase's commission fees, which can be over 2%, will be eroded as the likes of Robinhood and PayPal expand their crypto operations.
Haas acknowledged that the company's margins may come under pressure over time, but said this is not an immediate concern.
"It's true that over time there’s fee compression across all assets. But I don’t believe [crypto fees] are being commodified at this time," she said, adding that crypto trades are far more complex than stock trades, and that other trading platforms lack the expertise and security infrastructure necessary to challenge Coinbase.
Haas also acknowledged that Coinbase will have to diversify its revenue streams; 94% of its revenue currently comes from trading commissions on Bitcoin and other cryptocurrencies.
She said part of the company's strategy will be encouraging existing users to branch out to the growing array of new products, including those related to lending and staking, part of the white-hot decentralized finance (DeFi) space swelling as the crypto industry matures.
Tokenize all the stocks?
In the longer term, Coinbase also believes it will sit at the center of a growing trend to transform assets of all sorts to tokens on a blockchain.
Haas predicts this will eventually include company shares of all sorts—not just Coinbase's own shares, but also those of traditional giant companies like Wal-Mart. She says there are already "green shoots" emerging around such endeavors.
In her conversation with Decrypt, Haas also addressed the issue of whether Coinbase will change its corporate treasury polices to hold more cryptocurrency on its balance sheet. In February, Coinbase disclosed that it holds around $230 million worth of Bitcoin, $53 million in Ethereum, and $34 million of so-called altcoins.
While the current value of those holdings has likely risen significantly given the ongoing bull run, some have carped that Coinbase should hold more than it does, especially at a time when the likes of Tesla and Square are buying Bitcoin.
Haas said that Coinbase must take care to provide ample cash for working capital and reserve requirements, but that its current policies permit it to invest 10% of surplus cash in crypto assets. She added the company is considering adjusting this policy so as to allow Coinbase to hold more.