Coinbase’s Base may make DeFia NVIDIA.

Coinbase's first quarter earnings report – released on May 2nd – indicated that the company has been growing over the past several months thanks to a buoyant market for Bitcoin (BTC) and Ethereum (ETH). However, the numbers suggested the foundation's platform showed more potential — and could make Coinbase the decentralized finance (DeFi) NVIDIA.

Launched in August 2023, Base is a secure and cheap Ethereum layer-2 solution built to scale Coinbase's user base on-chain to make transactions faster. Coinbase's vision is to decentralize Base and create an open global crypto ecosystem that supports the security of the Ethereum mainnet, accessible to everyone.

According to Coinbase's Q1 report, volume on Base surpassed its competitors, especially after the release of the Ethereum Dencun update. DeFi crypto exchanges on Base's daily trading volume has exceeded $1 billion per day, narrowing the gap between Coinbase's main centralized exchange trading around 250 cryptocurrencies.

Related: Crypto Leaders Should Stop Flirting With CBCCs

Denkun's reforms have greatly increased grassroots activity. In a short period of time, Base experienced an increase in daily trading volume and revenue, surpassing competitors such as Optimism and Arbitrum. The upgrade has reduced costs for Layer-2 scale chains such as Base and increased user engagement and transaction volume.

Since the upgrade, Base has consistently increased its payment revenue by processing more than 3 million transactions per day. If this momentum continues, Base could be a huge growth driver for Coinbase. Since Denkun's update, the payouts Baez has received have surpassed those of other major Ethereum exchange networks.

Base's revenue growth is due to its support for DeFi protocols, with approximately 250 protocols currently operating on the network. Its dramatic increase in market share in such a short period of time shows the potential of the base – and makes the case that Coinbase can be NVD as the long-term industry leader of DeFi.

Outlook for Q2

Now that Bitcoin's halving — one of the main price drivers — is over, the outlook for cryptos may turn to macroeconomic factors such as interest rates, inflation, the direction of stock markets and geopolitical tensions. The Federal Reserve's “long-term high” stance is one of the factors that can create risk sentiment in markets and lower risk assets.

Coinbase gave positive guidance for the second quarter of 2024, but warned that the outcome will depend on crypto prices. Bitcoin's trading volume, which peaked in mid-March, has been slowing, and the second quarter could be weaker than the first, especially if crypto prices continue to slide.

In the long term, Bitcoin's bull run may resume. Higher rates are in the cards. But in a short time, more weaknesses may appear.

It is expected that the income of the Coinbase guardian fee will increase

Coinbase's revenue from transactions is about half of its net income. The other half comes from non-transactional revenue, which includes subscriptions and services: stablecoin revenue, retention fees, blockchain rewards, and interest income. Non-trading revenues have seen strong growth over the past two years, and trading revenues can reduce volatility, which is highly correlated with cryptocurrency prices.

Coinbase is the custodian of eight of the 11 new Bitcoin ETFs launched on January 10. These ETFs will have nearly $60 billion in assets under management in the first quarter of 2024. Basic points on foreclosed properties.

As assets under management in these ETFs increase, so do Coinbase's custodian fees. Coinbase's custodian fee revenue was $19.7 million in Q4'23. Since the launch of Bitcoin ETFs in mid-January, Coinbase's revenue from holding fees has jumped 90% to $32.3 million.

Cryptocurrency custodians have the same role as banks in traditional finance – to settle trades, manage regulatory reporting, protect and manage client assets. However, the process for crypto markets is more complicated than for digital assets. Also, the technology, security and storage requirements are different.

Basis may offset some future trading volume declines.

While Base could be a top-line revenue contributor for Coinbase, it may take some time. The additional – and perhaps even higher – source of income could help Coinbase's stock price to resolve its correlation with cryptocurrency prices in the future.

Related: Jerome Powell's column heralds a dull summer for Bitcoin

Overall, there is a huge potential for cryptos to grow thanks to the 11 Bitcoin ETFs in the United States. Similarly, six bitcoin and ethereum ETFs were launched in Hong Kong in April, and the Australian Securities Exchange could approve the first bitcoin ETFs before 2025.

These factors could provide consistent support for crypto in the long run, which would be beneficial for Coinbase's trading and non-trading income. While the decline in crypto prices may weigh on Coinbase's share price in the short term, the diversification of Coinbase's revenue drivers could result in a higher share price in the long term.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.