Brian Armstrong: Yeah, it’s a good question because if I go back to 2015, I probably would have thought it would have happened faster. There was a couple — we did a deep dive back then on Lightning. And it was very nascent. It was frankly a little bit complex, just the way that liquidity pools have to be spun up, how transactions could be received and send an on a mobile device where the app is not always in the foreground. These were the types of challenges that we saw early on. And at that point back in 2015, we determined Lightning wasn’t ready. We’ve been taking a fresh look at it, and there’s been a number of really great teams from different companies working on open source solutions and some proprietary ones that are trying to help advance the state of technology there.
I think the Layer 2 solutions on Ethereum, like Polygon and Optimism and Arbitrum, Base is built on one of those, Optimism, have — they’ve actually gotten more adoption. I’m not trying to make a — we’re supportive of every innovation in the industry, and there’s kind of — everybody has their favorite one. And so we’re — we always have to be a little bit neutral, but the way that you can track the adoption of these things, actually, a lot of the data is public and it’s online because the blockchains are public themselves. So, for instance, you can go look at the daily number of transactions happening on Ethereum Layer 2. You can look at the TBL metric, which total value locked. There’s various sites out there like DeFi, LAMA, and places like that, you can go track some of this publicly available data.
We actually have seen a pretty nice growth. We have seen pretty nice growth in Ethereum Layer 2, just in the last, I’d say, like three to six months. And so a lot of it comes down to usability challenges as well. So if you’re an average user, they don’t really want to know or maybe they don’t even care like about these — what is it doing underneath, like the average user doesn’t want to have to learn how to bridge from Layer 1 to Layer 2 to send their payment. They just want to pay for something and it, “just works”. So I think what needs to happen, and this is something Coinbase can really help on is we can make this seamless in the background. So if somebody goes to pay for something online or a friend or a remittance payment or something like that, it should really negotiate almost do a handshake underneath that would say, okay, what types of cryptocurrencies on what chains and is this recipient accepting, and which ones do I have?
And it would basically do the bridge or the conversion real time for you underneath. And so you would just see the amount of dollars or something like that that is going over the wire, and it arrives in one second with one send. That’s kind of — and you don’t have to worry about Layer 2 and all these kind of things. That’s the ideal outcome we need to get to, and a lot of hard work and computer science needs to go into making all of that seamless. So — and it’s a coordination problem amongst the industry, too, because everybody has their own favorite solution, and that’s a good thing. I’m glad a lot of ideas are being tried. But we can help by enabling the best ones and rallying people around good solutions so that we get a little bit more consistency, interoperability across the industry as well.
Operator: Your next question is from the line of John Todaro with Needham & Company.
John Todaro: Hey, great. Thanks for taking my question. First, I just wanted to drill into the take rate a little bit more because it looks like it expanded to the highest level since a public company. So first off, I guess if the advanced rate mix goes down, is there room for it to expand further from here? And then as a follow-up to that, if so, kind of how confident are you that you can continue to increase retail spread before maybe you do start to lose some market share, some migration away?
Alesia Haas: Thanks for the question, John. So in Q2, this was mix shift as we shared. So if you just think about simple math and you say we had zero advanced trading as a scenario, this blended average fee would then be higher for retail because it would reflect the entire simple platform. So a concentration of simple versus advanced in consumer will change the number meaningfully period-over-period. As we said earlier in the prepared remarks, we did see a greater decline on advanced than we did on simple in the quarter, which is what’s driving what you see is the performance of that blended fee. But that fee in Q2 is just math. Broadly on your question, we did raise spread as we shared in Q1, that was a Q1 event, and we haven’t seen any meaningful change in our consumer behavior from that event.
We monitored that very closely. We experimented our fees on a regular basis, and we think that’s part of just building a healthy business to understand pricing with our customers. So trust is our premium brand that we’re selling, Product diversity is what we’re selling, the experience, the app platform that Brian mentioned earlier, and we think we have a differentiated product in the market. And so we are hoping to price that appropriately.
Operator: Your next question is from the line of Bo Pei with US Tiger Securities.
Bo Pei: Thanks for taking the question. So I just want to stay a little bit deeper to the retail trading fee rate question. So what is the average rate for advanced trading and non-advanced trading, respectively? And do you think the same dynamics could will sustain in 3Q? And then my second question is, despite the recent ways of the big, big clients ETF educations, the USDC market has been declining. But on the other hand, you mentioned the growth of Prime indicators — institutions are still investing in crypto. Do you think on a net basis, the U.S. institutions are losing interest in crypto? And when can we see a turning point for U.S. market cap?
Alesia Haas: Let me start with the fees and then Brian or Emilie, if you want to talk about USDC and US institutions. So on the fees, we have multiple products within the retail and on the institutional side. So within retailer consumer, we have simple trading. we have advanced trading, we have Coinbase 1. And then underneath that, we have the crypto and crypto. So I can’t give you a specific blended average for each of these products. There’s also a tiered fees on the advanced product. What I can tell you is that our fees are transparent that they’re posted for customers, and so customers know what the fee is before they execute a trade on our platform. So then the blended average fee rate, which we report, is just a mix shift.
