However, while some have chosen to retreat and wait for better times, America’s largest crypto institution – Coinbase ($COIN) – has decided to stay and fight.

Its strategy is heavily oriented on institutions, lobbying efforts, public campaigns, and the rise of web3. The latter is now so important in the eyes of the company that it even launched its own blockchain called Base, officially introduced last week.

This strategy could help Coinbase generate new revenue streams both in the short and long term, fuelling its legal battle with the SEC and funding its efforts on Capitol Hill.

Here is how Coinbase is approaching it.

Focus on institutions

Like any exchange, Coinbase’s main revenue stream – trading fees – has significantly declined during the bear market.

However, as average retail investors are cautious about entering the market, and those who already own crypto await the beginning of a new growth cycle, institutional investors spot a favorable opening.

This is an opportunity for Coinbase, and it does not hesitate to seize it.

In April, it opened a new Coinbase International Exchange in Bermuda, exclusively available to non-US institutional clients and specializing in derivatives trading.

In June, Coinbase Derivatives Exchange, its CFTC-regulated derivatives arm, started to offer “institutional-sized” futures (1 BTC and 1 ETH per contract).

The new wave of spot crypto ETF filings, initiated by BlackRock in June, did not go without Coinbase either. The company was designated as a custodian for future funds in several filings, including BlackRock’s.

Speaking at the recent public earnings call, Coinbase COO Emilie Choi precised that the primary way of monetizing crypto ETFs in the near term was through AUCC (assets under custody and control). The company will also be able to generate ancillary revenue from settlement and other services.

However, this revenue stream is contingent upon the SEC’s approval of spot crypto ETFs, which is far from certain.

Legal endeavors

SEC is not particularly friendly toward crypto institutions, especially Coinbase.

Earlier this year, the Commission filed a lawsuit against the exchange, alleging the unregistered offer of securities (i.e. cryptocurrencies that the SEC considers securities).

In early August, the company requested the Court to dismiss the case, arguing that crypto falls outside the SEC’s oversight.

At the same time, Coinbase is actively engaging with Congress, working on comprehensive crypto legislation. Two new bills introduced by the House Financial Services Committee and the House Agriculture Committee will undergo a full House vote later this year: the crypto market structure bill and the stablecoin bill, both with bipartisan support.

Coinbase has also founded Stand With Crypto, a nonprofit organization aiming at advancing pro-crypto legislation. Its goal is to mobilize American crypto users and promote the crypto narrative for the upcoming Presidential election.

Betting on Web 3

As the exchange’s CEO Brian Armstrong put it, the first ten years in crypto were primarily about trading. Now, however, the company has observed a shift in its customers’ activity, whereby they “do something with crypto other than trading”. For Mr. Armstrong, the rise of web3 is imminent, and he bets heavily on it, to the extent of creating a brand new blockchain.

Last Wednesday, the company officially launched Base, a layer-2 network built on Ethereum. It was developed in collaboration with Optimism, another Ethereum layer-2 that uses optimistic rollups - an approach to scaling that involves moving computation and state storage off-chain.

The company plans to decentralize Base progressively over time; however, it does not plan on issuing any token.

The company will derive revenue from Base directly through the user fees (Coinbase is one of the Base’s “sequencers”), and indirectly – by leveraging the growth of the ecosystem.

Even prior to the public debut, there were already $139 million of deposits locked into apps and protocols on Base. A week later, this figure has increased to over $227 million, according to L2Beat.

Coinbase's Head of Protocols Jesse Pollak said on Tuesday that 100 DApps were already deployed or ready to go on the new network.

Like many in the industry, Coinbase engaged in active cost-cutting last year, successfully reducing its operating expenses by almost 50% year-on-year. Judging by its recent activities, this reduction doesn't appear to have significantly impacted the company's operations.

Written by D.Center