Coinbase Institutional Business Thrives Despite Continued Layoffs

Coinbase’s custody business thrives despite the fact that the bear market forces it to lay off 950 employees as a cost-cutting measure.

In a company blog post today, CEO Brian Armstrong announced that the exchange will cut another 950 jobs, bringing the total number of layoffs to 2,050 in the last seven months.

According to Armstrong, the layoffs are aimed at employees involved in projects that are likely to fail or those in teams whose projects can be completed with fewer people. The move comes as Coinbase seeks to reduce its quarterly expenses by 25% while waiting to fully reap the benefits of competitors’ implosion and regulatory clarity.

Coinbase will prioritize “operational efficiency over headcount as a key measure of success,” according to Armstrong. He also assured affected American workers that they would receive 14 weeks of severance pay and health insurance. He later stated that the layoffs were not the result of poor performance.

Nick Slater, a product illustrator and icon designer who was among those affected, expressed gratitude for the opportunity to work for the company.

The latest layoffs come seven months after the exchange laid off 1,100 workers as a result of the Terra Luna collapse, which caused trading revenues to plummet. The majority of Coinbase’s revenue comes from cryptocurrency trading fees.

Despite its cost-cutting measures, Coinbase has been expanding its cryptocurrency custodian business through a separate entity known as Coinbase Trust Company.

Custodians keep private keys governing access to funds belonging to institutional customers’ clients in cold storage. Private keys are kept offline with cold storage. In some cases, custodians also provide asset insurance and 24-hour customer service. The custodian also serves as a fiduciary, which means that all assets in custody are owned by the client.

Coinbase Trust was named the crypto custodian of BlackRock, the world’s largest asset manager, last year. Coinbase could offer Bitcoin and, later, other cryptocurrencies to BlackRock clients via Aladdin, BlackRock’s investment technology platform.

Recently, Coinbase Trust partnered with Ondo Finance, a decentralized investment platform founded by two former Goldman Sachs associates, to launch a stablecoin investment fund.

Through three tokenized share classes, the fund allows holders of more than $100 billion in non-yielding USDC, USDT, and DAI to invest in bonds and Treasuries. Each of these tokenized securities will invest in a BlackRock or Pacific Investment Company exchange-traded fund. Coinbase Custody will be the USDC stablecoin’s custodian.

Coinbase Trust, as a cryptocurrency custodian, can charge clients like Ondo a setup fee plus a monthly percentage of the value of the assets the client holds in Coinbase storage. A minimum initial deposit of $500,000 is also required by the custodian.

Gemini, a Coinbase competitor, charges 0.4% or $30 per month per asset, assuming a $100,000 balance. There is no minimum deposit required.

While it is unknown how much Coinbase earned through institutional custodial services in 2022, it did earn $136.1 million in 2021, accounting for approximately 0.06% of the assets on its platform.