Coinbase Earnings Shows Uneven Growth in Ethereum, Solana and Cardano Staking

Coinbase has a ways to go before it becomes the “#1 staking provider.”

The last time Coinbase reported quarterly earnings, in August, the company told shareholders it had prioritized development of its staking products and has a long-term goal of becoming the top provider.

When a user stakes their crypto assets, they’re being loaned out to validators on blockchain networks. Validators use the funds to secure the network and process transactions. In return, users receive a portion of the validator’s rewards. It’s become an increasingly popular product for Coinbase, which saw transaction revenue fall 44% in the third quarter.

While reporting its Q3 earnings on Thursday, Coinbase (COIN) had mixed results for its “blockchain rewards” category. It saw $63 million in revenue for the quarter, down 18% from $77 million the same time last year. 

Keep in mind there’s hardly any asset that compares favorably to this time last year, when crypto markets had surpassed a $3 trillion market capitalization and Coinbase’s share price closed at $337.05. Since then, the global crypto markets have lost two-thirds of their value and COIN has dropped 83%, ending trading at $58.82 on Friday.

Comparing the first nine months of 2022 to the same period last year tells a different story. 

In the first three quarters of 2021, Coinbase earned $120 million in revenue from blockchain rewards. Over the same period this year, the company increased that by 77% to $213 million.

“In Q3, blockchain rewards benefited from increased participation in staking—both in terms of number of users and an increase in the number of native units staked across all assets supported on our platform—compared to Q2,” the company wrote in its letter to shareholders. “Staking user growth was driven primarily by Solana, which we began supporting in June.”

The crypto exchange also noted that it added support for Cardano (ADA) staking in March. So there are signs that Coinbase has gained traction with some of its staking products, but perhaps not Ethereum.

“In Q3, we launched institutional staking for Ethereum globally and while adoption is still in its early days, we are optimistic about the long-term opportunity,” the company wrote in the letter.

Before the merge, Coinbase accounted for 15% of the 13.5 million ETH that had been staked, according to blockchain analytics firm Nansen. By early October, the total had increased to 14 million, but Coinbase’s share remained the same. But in the past month, Coinbase has actually dropped and now represents 14% of staked Ethereum. 

To be clear, that doesn’t mean that Coinbase users have withdrawn their staked ETH. Nobody can withdraw staked ETH until developers implement the Shanghai upgrade to the network, which is expected to launch in September 2023. 

Instead, it’s a sign that people who have wanted to stake ETH over the past couple of weeks have chosen to do it with providers other than Coinbase.

But Coinbase’s Ethereum staking business faces another potential challenge: When CEO Brian Armstrong was asked if he’d censor transactions on the Ethereum network or get out of the ETH staking, he said he’d rather shut it down.

The question came up after the U.S. Department of Treasury’s Office of Foreign Asset Control added crypto wallet addresses connected to Ethereum mixer Tornado Cash to its sanctions list. Traditional financial institutions, like banks, face heavy penalties if they do business with sanctioned individuals or entities. 

There’s been no sign yet of federal regulators putting pressure on Coinbase, or any other crypto firm, to exclude or blacklist sanctioned wallet addresses. Still, Coinbase has gone on the offensive.

In September, the company announced that it had backed a lawsuit against the U.S. Department of Treasury. The complaint called the department’s sanctioning of Ethereum mixer Tornado Cash an “unprecedented, overbroad action.”