Coinbase: The Evolution from a Marginal Project to Global Financial Infrastructure

Author: Yokiiiya

Recently, I conducted an in-depth study and analysis of Coinbase Global, Inc. (NASDAQ: COIN), covering comprehensive data, legal documents, internal communications, and market analysis up to early 2026. This is the story of how Coinbase evolved from a fringe project in Y Combinator in 2012 to a giant controlling the global flow of crypto assets.

This article will delve into the counterintuitive decisions behind its rise—seeking compliance in chaos; reveal the internal turmoil behind the cultural purge and racial discrimination allegations in 2020; detail its thunderous tactics to reshape the regulatory environment through "money politics" in the 2024 U.S. elections; and predict the future risks of building Web3 super applications and monopolizing the ETF custody market through the Base chain.

I. The Genes of Rise: Advancing in Rebellion (2012-2017)

Coinbase's success did not stem from having the most advanced technology, but rather from its business strategy, which at the time seemed the most "rebellious": in a crypto-punk world dominated by liberalism and anarchism, it chose to don a suit and make peace with the banking system it sought to disrupt.

1.1 Route Correction During Y Combinator and the "Bitbank" Origin

In 2012, when Brian Armstrong applied to join Y Combinator (YC) S12 batch, his project was not called Coinbase, but "Bitbank." The name itself revealed Armstrong's initial ambition—not just to create a wallet, but to build a bank.

As a former fraud engineer at Airbnb, Armstrong had a unique perspective. At Airbnb, he witnessed the friction and pain of funds flowing between 190 countries. He realized that while Bitcoin solved the technical problem of value transfer, the user experience was extremely poor. At that time, Bitcoin users had to use complex open-source desktop clients, facing 34-character hash addresses, and a small mistake could result in losing all their assets.

Armstrong's core insight was "Trust as a Service." In his YC application, he mentioned that there were only 100,000 Bitcoin users at the time, and the purchasing process required multiple unreliable intermediaries. Although YC was initially skeptical of this idea (Armstrong's first application was rejected), he impressed YC partners Garry Tan and Paul Graham with a prototype of an Android wallet during his second application—along with his experience in payment security and growth hacking at Airbnb.

The addition of Fred Ehrsam was another decisive moment. As a former foreign exchange trader at Goldman Sachs, Ehrsam brought the Wall Street gene that Armstrong lacked. This combination of "Silicon Valley geek + Wall Street trader" infused Coinbase with a DNA that was distinctly different from its competitors: rigorous, conservative, and even somewhat dull, but exactly what financial institutions needed.

1.2 Key Successful Decision: Reverse Compliance Strategy

The years 2013 to 2014 were the "Warring States" period for cryptocurrency exchanges. Japan's Mt. Gox accounted for 70% of global Bitcoin trading volume, operating in a wild style, lacking audits, and often misappropriating customer funds. In this context, Coinbase made its most important strategic decision in history: to seek full compliance on U.S. soil rather than evade regulation through offshore registration.

This decision was not only costly at the time but also highly risky:

Building Banking Relationships: In its early days, Coinbase not only struggled to open bank accounts but also faced the risk of banks cutting off services at any time. Armstrong and Ehrsam spent considerable effort lobbying institutions like Silicon Valley Bank to establish the first stable fiat channels.

The Long March for Licenses: Coinbase chose not to register in a single lenient jurisdiction but embarked on a long "license march," applying for money transmitter licenses in all 50 states of the U.S. This significantly slowed its early expansion speed but also built a high barrier to competition.

Thus, when Mt. Gox collapsed in 2014 due to hacking and mismanagement, resulting in the loss of 850,000 Bitcoins, market panic reached its peak. However, Coinbase, due to its transparent reserve system and compliance framework, absorbed almost all U.S. traffic seeking safety.

This event established Coinbase's position as a "safe haven for cryptocurrencies," allowing it to remain resilient amid the regulatory storms that followed.

1.3 Early Financing and Capital Landscape

Coinbase's early financing list was not just about money but also about endorsements.

Series A and B: Led by Union Square Ventures (Fred Wilson) and Andreessen Horowitz (a16z). a16z's Marc Andreessen not only brought funding but also opened his extensive network in Washington and Wall Street to Coinbase.

Strategic Investors: Coinbase brought in traditional financial giants like the New York Stock Exchange (NYSE), USAA, and BBVA as strategic investors. These endorsements sent a clear signal to the outside world: Coinbase is a crypto company recognized by the "establishment."

II. Internal Wars: Cultural Purges, Racial Allegations, and Moral Crises (2018-2021)

As the company rapidly expanded, immense tension gradually built up within Coinbase. In 2020, this tension erupted against the backdrop of the racial justice movement and political polarization, leading to the most profound cultural transformation and public relations crisis in the company's history.

2.1 "Non-Political" Declaration and the 5% Purge

In the summer of 2020, massive "Black Lives Matter" (BLM) protests erupted in the U.S. following the death of George Floyd. Major tech companies in Silicon Valley expressed their support, and employee activism surged at companies like Twitter and Facebook.

According to internal sources, in June 2020, during an all-hands Q&A session (AMA), an employee asked Brian Armstrong for the company to publicly support the BLM movement. Armstrong refused to answer directly, stating only that the company was focused on economic freedom. This response triggered a fierce backlash internally, leading some employees to organize a "virtual walkout" and vehemently criticize management in Slack channels.

On September 27, 2020, Armstrong published the famous blog post "Coinbase is a Mission Focused Company." In it, he drew clear boundaries:

Prohibition of Political Discussions: Coinbase would not engage in any social activities or political debates unrelated to its "core mission" (i.e., using cryptocurrency to increase economic freedom).

Focus on Business: Employees should focus on work like a "champion team" rather than engage in social justice debates within the company.

Armstrong then issued an ultimatum: employees who disagreed with this cultural direction could resign, and the company would offer extremely generous severance packages (typically 4-6 months of salary). Ultimately, about 60 employees (5% of the total workforce at the time) accepted this offer and left the company.

This decision was viewed by outsiders as "even somewhat dictatorial," but it also garnered support from old-school Silicon Valley investors like Paul Graham. In hindsight, this "purge" allowed Coinbase to maintain high organizational efficiency during the subsequent IPO sprint in 2021, avoiding the endless internal cultural wars that plagued companies like Google or Facebook. Armstrong effectively filtered out a "mercenary" team that aligned with the company's business goals through this action.

2.2 Racial Discrimination Allegations and PR "Front-Running" Tactics

Just as the "non-political" storm was still brewing, Coinbase faced more serious moral allegations.

At the end of 2020, New York Times journalist Nathaniel Popper completed an in-depth investigation aimed at exposing systemic discrimination against Black employees at Coinbase. According to the investigation, there was a significant turnover of Black employees at Coinbase between 2018 and 2019, and they faced wage disparities (7% lower pay) and workplace bullying. Specific allegations were shocking: some managers had publicly suggested that Black employees were involved in drug dealing or carrying firearms; Black employees were commonly stereotyped as "incompetent."

Coinbase adopted a highly aggressive defense strategy—"front-running." Days before the New York Times article was published, Coinbase sent an open letter to all employees and posted it on its official blog. The letter not only previewed the upcoming negative report but even listed the names of former employees that the report might cite, claiming that the internal investigation found no evidence of misconduct.

This move broke the conventional rules of corporate PR. Typically, companies wait to respond after a report is published, but Coinbase chose to take the initiative, attempting to set the narrative framework before the public saw the report. Although this approach drew criticism in the media for "witness intimidation," it successfully conveyed a strong message to internal employees and investors: Coinbase would not be manipulated by the media.

2.3 The Ishan Wahi Insider Trading Case: The First Case of Crypto Insider Trading

In 2022, Coinbase was once again embroiled in scandal, this time directly questioning the fairness of its core business.

Former Coinbase product manager Ishan Wahi conspired with his brother Nikhil Wahi and friend Sameer Ramani to trade based on his advance knowledge of token listing schedules. Hours or even minutes before Coinbase announced new coin listings, Nikhil and Ramani would buy large amounts of the relevant tokens through anonymous wallets and sell them after the announcement when prices surged. The gang was involved in trading at least 25 tokens between June 2021 and April 2022, illegally profiting over $1.5 million.

This case was classified by the U.S. Department of Justice (DOJ) as the first case of cryptocurrency insider trading, and Ishan Wahi ultimately pleaded guilty and was sentenced to two years in prison. However, the more far-reaching impact came from the SEC's involvement. The SEC explicitly defined the nine tokens involved in the civil lawsuit as "securities." This was, in fact, the first time the SEC formally labeled specific tokens as securities in court documents, directly challenging the legality of Coinbase's business model—if these tokens are securities, then Coinbase is operating an unregistered securities exchange. This case became the legal prelude to the SEC's subsequent lawsuit against Coinbase.

III. From Passive Defense to Political Counterattack—2024 Elections and Regulatory Retaliation (2022-2025)

Faced with the relentless pressure from the SEC under Gary Gensler's leadership, Coinbase chose not to settle like Kraken or Binance but instead launched a comprehensive counterattack encompassing legal, public opinion, and electoral strategies.

3.1 Legal Battle: Injunctions and Litigation Victories

When the SEC refused to respond to Coinbase's petition for clear digital asset rules, Coinbase chose a rare legal tactic: applying for a "writ of mandamus" in federal appeals court, attempting to force the regulatory agency to fulfill its duties. This "citizen suing the government" posture was extremely assertive.

By early 2025, as the political winds shifted, this legal gamble paid off. The SEC lost in several key lawsuits and ultimately announced in February 2025 the withdrawal of most of its charges against Coinbase. This victory not only belonged to Coinbase but was also seen as a confirmation of the survival rights of the entire crypto industry.

3.2 2024 Elections: A Textbook Victory of "Money Politics"

Coinbase deeply understood that legal issues in the U.S. ultimately boil down to political issues. Therefore, it played the role of a super donor in the 2024 elections.

Ohio Senator Sherrod Brown, the chairman of the Senate Banking Committee, is one of Washington's most famous cryptocurrency skeptics. He has repeatedly obstructed the passage of pro-crypto legislation and has rigorously questioned Coinbase executives during hearings. To bring him down, Coinbase partnered with companies like Ripple to fund the Super PAC "Fairshake."

Data shows that the crypto industry invested over $119 million in the 2024 election cycle, with more than $40 million specifically targeting Sherrod Brown's Ohio Senate seat. This funding was primarily used for aggressive advertising, ultimately helping Republican challenger Bernie Moreno win by a narrow margin.

In addition to money, Coinbase also launched the grassroots campaign "Stand With Crypto," mobilizing over 2.6 million cryptocurrency holders as a voter base. They graded politicians (from A to F) and organized voter turnout in swing states. This dual pressure of "money + votes" fundamentally changed the political calculations in Washington. Sherrod Brown's defeat sent a chilling message to all politicians: opposing cryptocurrency could jeopardize your political career.

By 2025, Coinbase's lobbying expenditures had reached record levels (nearly $1 million in a single quarter), and it hired top lobbyists, including former Obama campaign manager David Plouffe, to join its advisory board. This marked Coinbase's transformation from a "tech newcomer" to a "Washington power player."

IV. Transformation of Business Model—From Trading Commissions to Financial Infrastructure (2021-2026)

Coinbase's financial statements reveal that its business model is undergoing a profound, structural transformation. It is moving away from reliance on retail trading sentiment and instead relying on subscription services and institutional custody fees.

4.1 Changes in Revenue Structure: Saying Goodbye to "Living Off the Market"

In 2020, 96% of Coinbase's revenue came from trading commissions, meaning its performance was entirely tied to Bitcoin price fluctuations. However, according to forecasts for 2025, this proportion will drop to 59%, while subscription and service revenue will account for nearly half.

• 2020: Almost entirely reliant on trading: Coinbase explicitly stated in its listing materials that trading revenue accounted for "over 96%" of net revenue in 2020. This meant it was essentially a "crypto brokerage/exchange," easily stalling when the market cooled.

• 2021: The bull market pushed trading revenue to extremes but also exposed the issue of "over-reliance on market conditions." Total trading revenue for 2021 was approximately $6.8 billion, compared to about $1.1 billion in 2020 (the bull market amplifier). Such explosive growth was exhilarating but highlighted a fact: revenue quality was highly tied to market volatility and trading volume.

• 2023: After the bear market, service revenue became "half the pie." In 2023, Coinbase's net revenue was about $2.9 billion, with trading revenue around $1.5 billion and subscription and service revenue about $1.4 billion—almost evenly split. This represents a structural turning point: even if trading cools, service revenue can provide a floor.

• 2024: As the market warms up, trading rebounds, but service revenue continues to grow and "stands firm." The 2024 10-K shows subscription and service revenue at about $2.3 billion, while trading revenue also significantly increased (total revenue around $6.564 billion). Looking specifically at Q4 2024: trading revenue was $1.6 billion, and subscription and service revenue was $641 million—trading will be more vigorous in a bull market, but service is no longer optional.

• 2025 (using quarterly data to assess "stability"): Service revenue increasingly resembles a "foundation." Q2 2025: trading revenue was $764 million, and subscription and service revenue was $656 million, already very close. Q3 2025: trading revenue was $1 billion, and subscription and service revenue was $747 million.

Additionally, there is a consensus among institutions that by 2025, subscription and service revenue could reach about 41% of total revenue (with trading around 59%), while in 2020, trading accounted for about 96%—this long-term trend is very clear.

4.2 Stablecoin Printing Press and ETF Monopoly

The USDC jointly issued by Coinbase and Circle has become a core pillar of its revenue. As the Federal Reserve maintains interest rates, the reserve assets of USDC generate substantial interest income. Coinbase is effectively enjoying a net interest margin (NIM) similar to that of banks, and this income remains extremely stable even in bear markets.

The approval of Bitcoin spot ETFs in 2024 is the crowning achievement of Coinbase's institutional business.

Market Share: By 2025, Coinbase was managing about 85% of Bitcoin ETF assets, including major products like BlackRock's IBIT and Grayscale's GBTC.

Moat: This monopoly position not only brings stable custody fees but, more importantly, embeds Coinbase into the underlying architecture of the global financial system. Now, if you buy a Bitcoin ETF from Fidelity or BlackRock, your assets are effectively held in Coinbase's cold wallets.

Coinbase's long-term narrative can be summarized as: transitioning from a "trading fee-driven high-volatility business model" to a hybrid model where "trading revenue remains important but is smoothed out by more sustainable service revenues such as stablecoins/staking/custody/subscription."

V. Web3 Layout—Base Chain and "Super App" Ambitions

If the first decade of Coinbase was as an exchange in the Web 2.0 era, the future Coinbase is attempting to become the operating system of Web 3.0.

5.1 Base Chain: The King of L2 Without Issuing Tokens

In 2023, Coinbase launched the Layer 2 network—Base—based on OP Stack. This move marks a significant strategic shift for the company.

Counterintuitive "no token issuance" strategy: Unlike Arbitrum and Optimism, which bribe users through token airdrops, Coinbase insists that Base will not issue tokens.

Compliance Considerations: Not issuing tokens avoids the risk of SEC classification as securities.

Shareholder Interests: The sequencer revenue from Base directly counts towards Coinbase's financial statements. This means that COIN stock itself becomes the "invisible token" of the Base ecosystem.

Market Performance Comparison (Q4 2025 Data):

5.2 "Onchain is the New Online"

Brian Armstrong proposed a grand argument: cryptocurrency is not just an asset; it is a new internet architecture.

Base App (formerly Coinbase Wallet): Coinbase is transforming its wallet into a "super app" similar to WeChat. In this app, users can not only transfer funds but also post and socialize through the Farcaster protocol, conduct automated trading via AI agents, and even purchase real-world assets (RWA) directly on-chain.

AI Agent Economy: By 2025, Base became the center of the AI agent economy. For example, the Virtuals protocol allows AIs to have their own wallets and autonomously conduct value exchanges. Coinbase provides critical payment rails, enabling AIs to make millisecond-level payments using USDC.

VI. Future Prospects and Risks (2026 and Beyond)

6.1 "Universal Exchange" and Neo-bank

Coinbase's 2026 roadmap shows its ambition to become an "Everything Exchange."

All-category Trading: In addition to cryptocurrencies, Coinbase plans to launch stocks, commodities, forex futures, and prediction market contracts. This will put it in direct competition with Robinhood, Interactive Brokers, and even the Chicago Mercantile Exchange (CME).

National Trust Bank License: Coinbase is applying for a National Trust Bank license in the U.S. Despite strong opposition from the Independent Community Bankers Association (ICBA), if approved, this would allow Coinbase to hold user deposits directly, completely bridging the gap between fiat and cryptocurrency, becoming a true "crypto-native bank."

6.2 Systemic Risks: Concerns of Single Point of Failure

Coinbase's success itself is becoming a risk.

Custody Concentration: Coinbase controls 85% of Bitcoin ETF custody assets. This means that if Coinbase's private key management system has vulnerabilities or suffers attacks from insiders (such as rogue employees), the entire U.S. ETF market could face disaster. This "too big to fail" concentration is likely to attract the Financial Stability Oversight Council (FSOC) to intervene, demanding that it adhere to regulatory standards similar to those for globally systemically important banks (G-SIBs).

Fidelity's Challenge: Traditional financial giant Fidelity is actively competing for custody market share through its digital asset division (Fidelity Digital Assets). For example, MicroStrategy recently transferred some Bitcoin from Coinbase to Fidelity, indicating that the monopoly in the custody market may face challenges.

Conclusion

The story of Coinbase is a microcosm of the maturation of the crypto industry. It demonstrates that in a decentralized world, centralized compliance bridges still hold immense value. By enduring the pains of compliance in its early days, decisively purging internal dissent in 2020, and showcasing formidable political maneuvering in 2024, Coinbase has earned itself a ticket to the future.

Now, it is no longer just an exchange; it is the gatekeeper of the on-chain world, a digital vault for Wall Street, and an incubator for Web3 super applications. In 2026 and beyond, its greatest challenge will no longer be survival, but how to manage the systemic responsibilities that come with being a global financial infrastructure.