Coinbase’s Base could be DeFia’s NVIDIA.

Coinbase’s first quarter earnings report released on May 2 revealed that the company has been thriving over the past few months thanks to active markets for Bitcoin (BTC) and Ethereum (ETH). However, the numbers show that the Base platform shows much greater potential and could make Coinbase the NVIDIA of decentralized finance (DeFi).

Launched in August 2023, Base is a secure and low-cost Ethereum layer 2 solution built to accelerate transactions by expanding Coinbase’s on-chain user base. Coinbase’s vision is to create an open, global cryptocurrency ecosystem by decentralizing Base and leveraging the security of the Ethereum mainnet for everyone to access.

According to Coinbase’s first quarter report, Base’s trading volume surged beyond its competitors, especially following the launch of Ethereum’s Dencun upgrade. Base’s DeFi cryptocurrency exchange has surpassed $1 billion in daily trading volume, closing the gap between trading volume on Coinbase’s leading centralized exchange, where approximately 250 cryptocurrencies are traded.

Related: Crypto Leaders Must Stop Tempting With CBDCs

The Dencun upgrade significantly improved Base’s activities. Within a short period of time, Base saw a surge in daily trading volume and revenue, outperforming competitors such as Optimism and Arbitrum. The upgrade reduced the cost of layer 2 scaling chains like Base and led to a surge in user engagement and transaction volume.

Since the upgrade, Base has continued to process more than 3 million transactions per day, significantly increasing its fee revenue. If this pace continues, Base could become a big growth driver for Coinbase. After the Dencun upgrade, the fees earned by Base surpassed other major Ethereum scaling networks.

Base’s surge in revenue is due to its support for DeFi protocols, with around 250 protocols currently operating on the network. This significant increase in market share in such a short period of time demonstrates Base’s potential and supports the case that Coinbase is a long-term industry leader that could become the NVIDIA of DeFi.

2nd quarter outlook

Now that the halving, one of Bitcoin’s main price drivers, has come to an end, the outlook for the cryptocurrency may return to macroeconomic factors such as interest rates, inflation, stock market direction and geopolitical tensions. The Fed’s “higher for longer” stance is one of the catalysts that could create risk aversion in markets and put downward pressure on riskier assets.

Coinbase provided good guidance for the second quarter of 2024, but warned that results will depend on cryptocurrency prices. Trading volume has been declining since Bitcoin peaked in mid-March, and the second quarter is likely to be weaker than the first, especially if the cryptocurrency price continues to fall.

In the long term, the Bitcoin bull market is likely to resume. Higher price levels are on the cards. However, further weakness is likely to develop in the near term.

Coinbase custodian fee revenue is expected to increase.

Coinbase’s revenue from trading is roughly half of its net revenue. The other half comes from non-transactional revenue, which includes subscriptions and services, including stablecoin revenue, storage fees, blockchain rewards, and interest income. Non-trading revenue has seen significant growth over the past two years and can offset fluctuations in trading revenue, which is highly correlated with cryptocurrency prices.

Coinbase is the custodian for 8 of the 11 new Bitcoin ETFs launched on January 10th. The ETF had nearly $60 billion in assets under management in the first quarter of 2024. Coinbase charges a fee for assets under management. A reference point for assets in storage.

As the assets managed by these ETFs increase, Coinbase custodian fees will also increase. Coinbase custodian fee revenue was $19.7 million in the fourth quarter of 2023. Since the launch of the Bitcoin ETF in mid-January, Coinbase’s custody fee revenue has increased 90% to $32.3 million.

Cryptocurrency custodians play a role similar to that of banks in traditional finance, including settling transactions, managing regulatory reporting, and maintaining and managing customer assets. However, for cryptocurrency markets, the process is more complex as it is more specific to digital assets. They also have different technology, security, and storage requirements.

The base could offset any decline in volume in the future.

It’s likely that Base will contribute to Coinbase’s top returns, but it will likely take some time. An additional (possibly significant) revenue stream could help Coinbase’s stock price become less correlated with cryptocurrency prices in the future.

Related: Jerome Powell’s pivot portends a boring summer for Bitcoin.

Overall, there is still significant growth potential for cryptocurrencies thanks to the 11 Bitcoin ETFs in the United States. Likewise, six Bitcoin and Ethereum ETFs were launched in Hong Kong in April, and the Australian Stock Exchange may also approve its first Bitcoin ETF before 2025.

These factors are likely to provide consistent support for the cryptocurrency in the long term, which will benefit Coinbase trading and non-trading profits. Although the decline in cryptocurrency prices is likely to weigh on Coinbase’s stock price in the short term, Coinbase’s diversification of revenue generation drivers is likely to lead to a rise in its stock price in the long term.

This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.