The second-largest crypto exchange, Coinbase, is still progressing despite the US Securities and Exchange Commission’s enforcement action against it. 

As such, a Ripple board member and an angel investor at PartyDAO, Asheesh Birla, predict it might offer crypto-enabled banking services. 

In a Twitter thread, Birla recounted Coinbase’s mission, vision, and value proposition in the crypto industry, concluding that it might offer banking-like services backed by crypto.

According to the angel investor, the second largest exchange aims at building the crypto economy. This financial system will be accessible, efficient, transparent, powered by crypto, and fair to all users. 

Birla further revealed that Coinbase’s 2023 quarter-one report showed that more of the exchange’s revenues came from deposits through interest income, custodial fees, and blockchain rewards. These revenue streams were classified under subscription and services.  

Based on the quarterly report, Birla pointed out USDC deposits interest at $199 million, representing 18% of all Coinbase revenue. 

Also, the exchange’s revenue gradually moves from consumer transactions to institutional consumers with high margins. Institutional trading revenue spiked by 67% from its 2022 Q4 amount. 

The Ripple board member also noted that Coinbase now benefits from banking-like revenues not entirely dependent on the crypto market. 

While concluding his post, Birla wondered if the time has come for consumers and institutions to turn to alternative services.

Notably, the recent banking crisis that led to the crash of Silvergate, Silicon Valley, and Signature Bank has reduced people’s trust in the traditional financial system. 

Birla cited a recent Bloomberg Opinion piece by Matt Levine titled; “Nobody Trusts Banks Now,” asking if the timing is right for everyone to move on to alternatives.

In the piece, Levine described banking operations strategies in two ways. First, banks borrow short to lend long. Secondly, they borrow long to lend long. In the first strategy, banks use customers’ deposits subject to fast withdrawals to buy bonds and fund loans.

In the second strategy, banks use customers’ deposits which could also be withdrawn in the short-term, although not always to buy bonds and fund loans.

Considering these strategies purely dependent on customers’ deposits, Levine concluded that the banking business is inherently risky. 

The reason is that if all depositors wake up to withdraw their money simultaneously, the banks will crash. Also, the banks are in trouble if the interest on customers’ deposits spikes. 

That’s why research by Amit Seru disclosed that 200 more banks in the US face the same risks that crashed Silicon Valley Bank. As it stands now, only the future will tell if Birla’s musings will play out.

-Featured image from Pexels and chart from Tradingview

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