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Known as Solana's most significant economic adjustment, SIMD-0228 will have the following impacts: - **Increase in Transaction Fees**: The upgrade will lead to a significant increase in transaction fees on the Solana network. - **Reduction in Token Emiss
Original Title: "What Impact Will the Self-Proclaimed Most Significant Economic Adjustment of Solana, SIMD-0228, Bring?"
Original Source: SolEasy Labs
Recently, a governance proposal within the Solana community, SIMD-0228, has become a focal point of attention. This proposal, once introduced, sparked numerous discussions within the community, with some applauding it and others expressing concerns. So what is it exactly? Put simply, SIMD-0228 aims to transform Solana's SOL issuance mechanism from its original fixed inflation to a flexible dynamic adjustment based on staking participation rate, reshaping the network's economic model. This not only concerns the value of SOL but may also press an important key for the future development of the Solana ecosystem.
Why Has SIMD-0228 Drawn Attention?
SIMD-0228 was jointly proposed in January this year by three heavyweights in the Solana ecosystem, including Tushar Jain and Vishal Kankani, co-founders of Multicoin Capital—a firm that is one of Solana's earliest and most significant supporters. Furthermore, Max Resnick, Chief Economist at Anza, the Solana core development team, has also shown strong support.
Currently, Solana's inflation mechanism follows a fixed schedule, with the annual inflation rate decreasing from the initial 8% to the current inflation rate of around 4.669%, aiming to stabilize in the long run at 1.5%. However, this fixed model lacks flexibility and cannot be dynamically adjusted based on the network's actual needs or staking participation rate.
Over the past six months, Solana's on-chain activity has been booming, creating over $1.5 billion in REV (Network Revenue = Fees + Tips), demonstrating its strong network usage demand. At the same time, Solana's staking rate has also reached a historical high of 65.7%, creating favorable conditions for reducing inflation. Therefore, the proposers believe that the inflation strategy should be optimized to no longer blindly issue excess SOL, allowing the network to develop more healthily.
The core of SIMD-0228 lies in introducing an "intelligent inflation" mechanism, which dynamically adjusts the issuance of SOL based on the staking rate, with specific goals including:
· Dynamic Staking Incentives: When the staking rate decreases, the system will automatically increase the issuance of SOL to incentivize more users to participate in staking, ensuring the network's security.
· Minimum Necessary Attestation (MNA): The system will minimize unnecessary SOL issuance, only issuing the minimum amount of tokens required to maintain network security, to avoid market sell pressure.
· Network Security: Ensure the security of the network while allowing more capital to flow into the DeFi ecosystem, driving the healthy development of the ecosystem.
The proposers believe that this adjustment will allow Solana to break free from the old path of "inflation" and move towards a more sustainable development trajectory. It sounds perfect, but what will happen after implementation? What kind of impact will it bring?
What Impact Might SIMD-0228 Have?
If SIMD-0228 is successfully approved, Solana's economic model will undergo a significant transformation, with the impact spreading throughout the entire ecosystem.
1. Impact on the Solana Network
After the proposal is passed, based on the current staking rate of 65%, the inflation rate may plummet from the current 4.5% to 0.87%, and staking rewards will see a significant reduction. This means that validator income will rely more on MEV (Miner Extractable Value) rather than inflation rewards. For regular holders, SOL dilution will decrease, sell pressure will ease, and there will be more room for price appreciation.
However, for validators, especially small validators, the low returns may make it difficult for them to maintain operations. Former Grayscale research director David Grider has created a model predicting that Solana may lose between 50 and 250 validators as a result, increasing the risk of network centralization. Therefore, this is actually a game of "security and efficiency."
2. Impact on Ecosystem Builders
A decrease in staking rewards will leave more SOL without a destination, ultimately flowing into the DeFi ecosystem, increasing liquidity. Ian Unsworth stated that this will drive up the adoption rate of liquid staking tokens (LST), creating a positive trend for DeFi protocols that currently have liquidity (such as JitoSOL), while also benefiting VRTs (like Renzo, Fragmetric, and Kairos) built on their staking platforms.
Furthermore, this will also result in rewards being directly tied to network usage, with most rewards coming from priority fees and Jito fees. Validator tips may generate a potential flywheel effect, as wealth injection drives higher chain utilization = higher returns = even higher chain utilization. At the same time, low base returns will pressure developers to create "yield-enhancing" products, ultimately triggering an explosion of staking derivative products.
Editor's Note: Jito Validator Tips, or Jito Validator Tips, is a feature introduced by Solana ecosystem MEV infrastructure protocol Jito Labs, aimed at optimizing the Validator's revenue distribution mechanism, to directly distribute a portion of MEV revenue (such as arbitrage, liquidation-generated profits) to Validators in the form of "Tips".
But everything has two sides. Reducing the issuance of new tokens may limit the funding and liquidity of ecosystem projects and developers, potentially slowing down innovation and growth, which could affect the overall vitality of the ecosystem. Furthermore, due to the reduction in network validators, if network security is compromised, it may directly impact the development of ecosystem projects, reducing user confidence.
3. Impact on Holders
For SOL holders, "smart inflation" greatly enhances Solana's inflation controllability, which is particularly attractive to institutional capital. More funds may flow into DeFi protocols in pursuit of high returns, and the long-term price performance of SOL is promising. The model can also maintain a competitive return rate based on the staking participation rate, enhancing asset value. However, for large holders, the reduction in staking rewards may prompt them to reassess: should they continue to stake or switch to other revenue channels? This is not just a technical adjustment, but also a reconstruction of investment logic.
SIMD-0228 Game of All Parties
The lively discussion of the SIMD-0228 proposal reflects the complexity of the ecosystem, with major investment institutions mainly in support, a divided Validator group, and a complex stance of developers and ecosystem builders.
· The two proposers of the SIMD-0228 proposal, Tushar Jain and Vishal Kankani, both believe that SMID-0228 will release more SOL into the DeFi ecosystem, providing more opportunities to develop and promote new DeFi products and services, increase liquidity, and user engagement.
· Solana's co-founder Anatoly Yakovenko also expressed support for this proposal, believing that a practical release gives Solana the "opportunity to correct our youthful mistakes".
· Ben Hawkins, Staking Lead at the Solana Foundation, supports the dynamic $SOL issuance to reduce inflation.
· Max Kaplan from Sol Strategies proposed the concept of "preferring to be roughly right rather than precisely wrong," emphasizing the flexibility of market-driven mechanisms.
· Kamino Co-founder Marius pointed out that "Staking encourages hoarding and reduces financial activity," supporting reducing inflation to enhance liquidity.
Therefore, for large investment institutions, the SIMD-0228 proposal can shape the narrative of a "market-driven efficient network," attracting more institutional investment. At the same time, the reduction in inflation rate helps reduce token dilution and maintain the value of their holdings.
While experts are optimistic, Solana community members have expressed their concerns. For example, validator Xen mentioned that if rewards eventually favor those who hold more SOL, smaller validators may struggle to earn rewards, leading to an "inflation spiral."
Xen's concerns are valid, as Solana's MEV revenue in Q4 2024 reached a staggering $430 million, more than 10 times that of Q1. Therefore, even with a significant reduction in the inflation rate, large professional validators can offset the reduced rewards through MEV and transaction fees, maintaining profitability.
For small and medium validators, there are currently still 250 small validators operating at a loss, relying only on the Solana Foundation's delegation program to stay online. A model created by former Grayscale researcher David Grider suggests that after the SMID-0228 proposal passes, Solana may lose an additional 50 to 250 validators in various revision scenarios.
Community member Leapfrog candidly stated on the Solana developer forum that this proposal "will have a disastrous impact on Solana." He believes that if inflation rises during a period of low investor confidence, leading to disinvestment and selling pressure, it will exacerbate panic. Regardless of the potential returns from staking, volatile assets are not suitable for long-term large investors.
The Managing Partner of Multicoin Capital stated that the current high inflation rate is a consensus and action should be taken promptly. He is not concerned about consensus security but acknowledges that validator profitability may be affected. He expects that some validators may exit the network, potentially triggering a "zero-commission race" and further worsening their economic situation.
He emphasized that excessive caution could lead to "analysis paralysis," hindering Solana's development. Therefore, rapid progress should be maintained to avoid a situation similar to Ethereum's. This proposal fundamentally represents a rebalancing of power among large token holders, validators, and ecosystem builders. As such, this vote is also considered one of Solana's most crucial decisions.
Can SIMD-0228 Be Further Optimized?
SIMD-0228 has undoubtedly sparked discussions across the entire Solana ecosystem. If it is successfully implemented, it would be a long-awaited development, achieving short-term consensus. However, after running for a period of time, new issues are likely to arise, leading to the proposal of new adjustments.
If the vote on SIMD-0228 does not pass, given the current popularity of the proposal, it is likely that new proposals will be put forward to modify Solana's economic model. The main conflict currently lies in the mismatch between Solana's development needs and its economic model. As long as this conflict exists, there will be sufficient motivation within the ecosystem to drive the proposal of new adjustments.
Through the various perspectives on SIMD-0228, we can also perceive that most people have not discussed whether this conflict itself exists; rather, the discussions have revolved around the specific adjustment methods in the SIMD-0228 proposal. Therefore, new proposals are likely to emerge endlessly.
So, if a new proposal to address the current conflict is to be put forward, where can we start?
Firstly, make some modifications to the parameters mentioned in SIMD-0228. Some of the opposition to SIMD-0228 stems from its perception as too drastic, with its significant impact on the ecosystem. By adjusting some of its parameters to slow down the overall changes, such as raising the lowest inflation rate in SIMD-0228 from 0% to around 2%, the reduction in validator income would be less severe, ensuring their sustainability. This milder version of SIMD-0228 may lead to a new proposal.
Secondly, redesign the dynamic inflation adjustment scheme. For example, Polkadot also has a mechanism for dynamically adjusting Staking rewards. It has designed an optimal Staking ratio; when the actual Staking ratio deviates from this optimal ratio, Stakers are unable to receive the full inflation rewards, as a portion is directed to the treasury. Through this mechanism, it encourages participants to align the Staking ratio closer to the optimal ratio, making it the most cost-effective for Stakers, thereby regulating the network's overall Staking ratio.
However, Polkadot's mechanism will involve routing a portion of the inflation funds to the treasury, which will add additional complexity to governance. Nevertheless, it is undeniable that there are mechanisms that can dynamically adjust Staking rewards, thus impacting the overall ecosystem development, a point that Solana can draw inspiration from.
Regarding the portion of inflation funds routed to the treasury in Polkadot, combined with Solana's treasury-less design, it can be considered to burn those funds, thereby achieving a target Solana staking ratio (e.g., 33%). At the same time, during suboptimal Staking ratios, Solana's total inflation rate will decrease due to additional burning, and Staking rewards will also decrease.
The approach mentioned above still involves dynamically adjusting the inflation rate itself, but it can also be achieved by dynamically adjusting other parameters, similarly achieving a similar effect.
For example, consider directly setting the initial inflation rate to a fixed value of 3%, but dynamically adjusting the current fee burn ratio. Currently, 50% of fees are burned, and 50% are given to validators. We can dynamically adjust this 50% ratio to increase burning when necessary or reduce burning when needed, ensuring that Staking rewards do not become too high to affect ecosystem development, while harnessing the ecosystem's power to reduce inflation.
Of course, if the transition from the current inflation rate of around 4.5% to 3% is deemed to be too rapid, it is also possible to consider reducing by 0.5% every six months, reaching the endpoint of 3% in one and a half years, thus mitigating the impact of this adjustment on the ecosystem.
The above suggestions are just some divergent thoughts on SIMD-0228, but they are sufficient to demonstrate that there are many ways to adjust the Solana economic model. As one of the most successful public chains at present, Solana's economic model adjustment is a significant experiment in the blockchain industry.
Currently, SIMD-0228 is under a vote, and the vote count has exceeded 33%, reaching the required quorum. The current approval rate has exceeded 70%, and the vote will continue until Epoch 755. If successfully passed, it will provide a "dynamic inflation" reference paradigm for other public chains. Even if it does not succeed, this governance dispute has profoundly altered the narrative of Web3: The future of blockchain economics lies in the delicate balance between code rules and human incentives, and Solana is undoubtedly leading the industry's development.
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$COIN Joins S&P 500, but Coinbase Isn't Celebrating
On May 13, S&P Dow Jones Indices announced that Coinbase would officially replace Discover Financial Services in the S&P 500 on May 19. While other companies like Block and MicroStrategy, closely tied to Bitcoin, were already part of the S&P 500, Coinbase became the first cryptocurrency exchange whose primary business is in the index. This also signifies that cryptocurrency is gradually moving from the fringes to the mainstream in the U.S.
On the day of the announcement, Coinbase's stock price surged by 23%, surpassing the $250 mark. However, just 3 days later, Coinbase was hit by two consecutive events: a hack where employees were bribed to steal customer data and a demand for a $20 million ransom, and an investigation by the U.S. Securities and Exchange Commission (SEC) into the authenticity of its claim of having over 100 million "verified users" in its securities filings and marketing materials. These two events acted as mini-bombs, and at the time of writing, Coinbase's stock had already dropped by over 7.3%.
Coincidentally, Discover Financial Services, being replaced by Coinbase, can also be considered the "Coinbase" of the previous payment era. Discover is a U.S.-based digital banking and payment services company headquartered in Illinois, founded in 1960. Its payment network, Discover Network, is the fourth largest payment network apart from Visa, Mastercard, and American Express.
In April, after the approval of the acquisition of Discover by the sixth-largest U.S. bank, Capital One, this well-established digital banking company of over 60 years smoothly handed over its S&P 500 "seat" to this emerging cryptocurrency "bank." This unexpected coincidence also portrayed the handover between the new and old eras in Coinbase's entry into the S&P 500, resembling a relay race scene. However, this relay baton also brought Coinbase's accumulated "external troubles and internal strife" to a tipping point.
Over the past decade, cryptocurrency exchanges have been the most stable "profit machines." They play a role in providing liquidity to the entire industry and rely on trading fees to sustain their operations. However, with the comprehensive rollout of ETF products in the U.S. market, this profit model is facing unprecedented challenges. As the leader in the "American stack," with over 80% of its business coming from the U.S., Coinbase is most affected by this.
Starting from the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has significantly onboarded users and funds that originally belonged to exchanges in a more cost-effective, compliant, and transparent manner. The transaction fee revenue of cryptocurrency exchanges has started to decline, and this trend may further intensify in the coming months.
According to Coinbase's 2024 Q4 financial report, the platform's total trading revenue was $417 million, a 45% year-on-year decrease. The contribution of BTC and ETH's trading revenue dropped from 65% in the same period last year to less than 50%.
This decline is not a result of a decrease in market enthusiasm. In fact, since the approval of the Bitcoin ETF in January 2024, the inflow of BTC into the U.S. market has continued to reach new highs, with asset management giants like BlackRock and Fidelity rapidly expanding their management scale. Data shows that BlackRock's iShares Bitcoin ETF (IBIT) alone has surpassed $17 billion in assets under management. As of mid-May 2025, the cumulative net inflow of 11 major institutional Bitcoin spot ETFs on the market has exceeded $41.5 billion, with a total net asset value of $1214.69 billion, accounting for approximately 5.91% of the total Bitcoin market capitalization.
Institutional investors and some retail investors are shifting towards ETF products, partly due to compliance and tax considerations. On one hand, ETFs have much lower trading costs compared to cryptocurrency exchanges. While Coinbase's spot trading fee rate varies annually in a tiered manner but averages around 1.49%, for example, the management fee for IBIT ETF is only 0.25%, and the majority of ETF institution fees fluctuate around 0.15% to 0.25%.
In other words, the more rational users are, the more likely they are to move from exchanges to ETF products, especially for investors aiming for long-term holdings.
According to multiple sources, several institutions, including VanEck and Grayscale, have submitted applications to the SEC for a Solana (SOL) ETF, with some institutions also planning to submit an XRP ETF proposal. Once approved, this may trigger a new round of fund migration. According to a report submitted by Coinbase to the SEC, as of April, the platform's trading revenue from XRP and Solana accounted for 18% and 10%, nearly one-third of the platform's fee revenue.
However, the Bitcoin and Ethereum ETFs passed in 2024 also reduced the fees for these two tokens on Coinbase from 30% and 15% to 26% and 10%, respectively. If the SOL and XRP ETFs are approved, it will further undermine the core fee revenue of exchanges like Coinbase.
The expansion of ETF products is gradually weakening the financial intermediary status of cryptocurrency exchanges. From their original roles as matchmakers and clearers to now gradually becoming mere "on-ramps and off-ramps" for funds, exchanges are seeing their marginal value squeezed by ETFs.
On May 12, 2025, SEC Chairman Paul S. Atkins gave a keynote speech at the Tokenization and Cryptocurrency Working Group roundtable. The theme of his speech revolved around "It is a new day at the SEC," where he indicated that the SEC would not approach enforcement and regulation the same way as before but would instead pave the way for cryptocurrency assets in the U.S. market.
With signs of cryptocurrency compliance such as the SEC's "NEW DAY" declaration, an increasing number of traditional brokerages are attempting to enter the cryptocurrency industry. One of the most representative cases is the well-known U.S. brokerage Robinhood, which began expanding its crypto business in 2018. By the time of its IPO in 2021, Robinhood's crypto business revenue accounted for over 50% of the company, with a significant boost from the Dogecoin "moonshot" promoted by Musk.
In Q1 2025 earnings report, Robinhood showcased strong growth, especially in revenue from cryptocurrency and options trading. Fueled by Trump's Memecoin, cryptocurrency-related revenue reached $250 million, nearly doubling year-over-year. Consequently, Robinhood Gold subscription users reached 3.5 million, a 90% increase from the previous year, with the rapid growth of Robinhood Gold providing the company with a stable source of income.
Meanwhile, RobinHood is actively pursuing acquisitions in the cryptocurrency space. In 2024, it announced a $2 billion acquisition of the long-standing European cryptocurrency exchange Bitstamp. Additionally, Canada's largest cryptocurrency CEX, WonderFi, which recently went public on the Toronto Stock Exchange, also announced its integration with RobinHood Crypto. After obtaining virtual asset licenses in the UK, Canada, Singapore, and other markets, RobinHood has taken a proactive approach in the compliant cryptocurrency trading market.
Furthermore, an increasing number of brokerage firms are exploring the same path. Futu Securities, Tiger Brokers, and others are also dipping their toes into cryptocurrency trading, with some having applied for or obtained the VA license from the Hong Kong SFC. Although their user bases are currently small, traditional brokerages have a natural advantage in user trust, regulatory licenses, and low fee structures. This could pose a threat to native cryptocurrency platforms in the future.
In April 2025, security researchers discovered that some Coinbase user data was leaked on the dark web. While the platform initially responded by attributing it to a "technical misinformation," it still raised concerns among users regarding its security and privacy protection. Just two days before Dow Jones Indexes announced Coinbase's addition to the S&P 500 Index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to have obtained customer account information and internal documents, demanding a $20 million ransom to keep the data private. Subsequent investigations confirmed the data breach.
Cybercriminals obtained the data by bribing overseas customer service agents and support staff, mainly in "non-U.S. regions such as India." These agents abused their access to Coinbase's internal customer support system and stole customer data. As early as February this year, blockchain detective ZachXBT revealed on X platform that between December 2024 and January 2025, Coinbase users lost over $65 million to social engineering scams, with the actual amount potentially higher.
Among the victims was a well-known figure, 67-year-old Ed Suman, an established artist in the art world for nearly two decades, having been involved in the creation of artworks such as Jeff Koons' "Balloon Dog" sculpture. Earlier this year, he fell victim to an impersonation scam involving fake Coinbase customer support, resulting in a loss of over $2 million in cryptocurrency. ZachXBT critiqued Coinbase for its inadequate handling of such scams, noting that other major exchanges have not faced similar issues and recommending Coinbase to enhance its security measures.
Amidst a series of ongoing social engineering incidents, although there has not been any impact on user assets at the technical level so far, it has raised concerns among many retail and institutional investors. Especially institutions holding massive assets on Coinbase. Just considering the U.S. BTC ETF institutions, as of mid-May 2025, they collectively hold nearly 840,000 BTC, and 75% of these are custodied by Coinbase. If we price BTC at $100,000, this amount reaches a staggering $63 billion, which is equivalent to the nominal GDP of two Iceland in the year 2024.
In addition, Coinbase Custody also serves over 300 institutional clients, including hedge funds, family offices, pension funds, and endowments. As of the Q1 2025 financial report, Coinbase's total assets under management (including institutional and retail clients) reached $404 billion. The specific amount of institutional custodied assets was not explicitly disclosed in the latest report, but it should still be over 50% based on the Q4 2024 report.
Once this security barrier is breached, not only could the rate of user attrition far exceed expectations, but more importantly, institutional trust in it would undermine the foundation of its business. Therefore, after a hacking event, Coinbase's stock price plummeted significantly.
Facing a decline in spot trading fee revenue, Coinbase is also accelerating its transformation, attempting to find growth opportunities in derivatives and emerging assets. Coinbase acquired a stake in the options platform Deribit at the end of 2024 and announced the official launch of perpetual contract products in 2025. This acquisition fills in Coinbase's gap in options trading and its relatively small global market share.
Deribit has a strong presence in non-U.S. markets, especially in Asia and Europe. The acquisition has enabled Coinbase to gain a dominant position in bitcoin and ethereum options trading on Deribit, accounting for approximately 80% of the global options trading volume, with daily trading volume remaining above $2 billion.
Meanwhile, 80-90% of Deribit's customer base consists of institutional investors, with their professionalism and liquidity in the Bitcoin and Ethereum options market highly favored by institutions. Coinbase's compliance advantage, coupled with its already robust institutional ecosystem, makes it even more suitable. By using institutions as an entry point, it can face the squeeze from giants like Binance and OKX in the derivatives market.
Facing a similar dilemma is Kraken, which is attempting to replicate Binance Futures' model in non-U.S. markets. Since the derivatives market relies more on professional users, fee rates are relatively higher and stickiness is stronger, making it a significant source of revenue for exchanges. In the first half of 2025, Kraken completed the acquisition of TradeStation Crypto and a futures exchange, aiming to build a complete derivatives trading ecosystem to hedge the risk of declining spot transaction fee income.
With the surge of Memecoin in 2024, Binance, OKX, and various CEX platforms began massively listing small-market-cap, highly volatile tokens to activate active trading users. Due to the wealth effect and trading activity of Memecoins, Coinbase was also forced to join the battle, successively listing popular tokens from the Solana ecosystem such as BOOK OF MEME and Dogwifhat. Although these coins are controversial, they are frequently traded, with fee rates several times higher than mainstream coins, serving as a "blood-boosting" method for spot trading.
However, due to its status as a publicly traded company, this practice is a riskier endeavor for Coinbase. Even in the current crypto-friendly environment, the SEC is still investigating whether tokens like SOL, ADA, and SAND constitute securities.
In addition to the forced transformation strategies carried out by the aforementioned CEXs, they are also starting to lay out RWAs and the most talked-about stablecoin payment fields, such as the PYUSD launched through a collaboration between Coinbase and Paypal, Coinbase's support for the Euro stablecoin EURC by Circle that complies with EU MiCA regulatory requirements, or the USD1 launched through a collaboration between Binance and WIFL. In the increasingly crowded trading field, many CEXs have shifted their focus from just the trading market to the application field.
The golden age of transaction fees has quietly ended, and the second half of the crypto exchange platform game has silently begun.
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$COIN Joins S&P 500, but Coinbase Isn't Celebrating
On May 13, S&P Dow Jones Indices announced that Coinbase would officially replace Discover Financial Services in the S&P 500 on May 19. While other companies like Block and MicroStrategy, closely tied to Bitcoin, were already part of the S&P 500, Coinbase became the first cryptocurrency exchange whose primary business is in the index. This also signifies that cryptocurrency is gradually moving from the fringes to the mainstream in the U.S.
On the day of the announcement, Coinbase's stock price surged by 23%, surpassing the $250 mark. However, just 3 days later, Coinbase was hit by two consecutive events: a hack where employees were bribed to steal customer data and a demand for a $20 million ransom, and an investigation by the U.S. Securities and Exchange Commission (SEC) into the authenticity of its claim of having over 100 million "verified users" in its securities filings and marketing materials. These two events acted as mini-bombs, and at the time of writing, Coinbase's stock had already dropped by over 7.3%.
Coincidentally, Discover Financial Services, being replaced by Coinbase, can also be considered the "Coinbase" of the previous payment era. Discover is a U.S.-based digital banking and payment services company headquartered in Illinois, founded in 1960. Its payment network, Discover Network, is the fourth largest payment network apart from Visa, Mastercard, and American Express.
In April, after the approval of the acquisition of Discover by the sixth-largest U.S. bank, Capital One, this well-established digital banking company of over 60 years smoothly handed over its S&P 500 "seat" to this emerging cryptocurrency "bank." This unexpected coincidence also portrayed the handover between the new and old eras in Coinbase's entry into the S&P 500, resembling a relay race scene. However, this relay baton also brought Coinbase's accumulated "external troubles and internal strife" to a tipping point.
Over the past decade, cryptocurrency exchanges have been the most stable "profit machines." They play a role in providing liquidity to the entire industry and rely on trading fees to sustain their operations. However, with the comprehensive rollout of ETF products in the U.S. market, this profit model is facing unprecedented challenges. As the leader in the "American stack," with over 80% of its business coming from the U.S., Coinbase is most affected by this.
Starting from the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has significantly onboarded users and funds that originally belonged to exchanges in a more cost-effective, compliant, and transparent manner. The transaction fee revenue of cryptocurrency exchanges has started to decline, and this trend may further intensify in the coming months.
According to Coinbase's 2024 Q4 financial report, the platform's total trading revenue was $417 million, a 45% year-on-year decrease. The contribution of BTC and ETH's trading revenue dropped from 65% in the same period last year to less than 50%.
This decline is not a result of a decrease in market enthusiasm. In fact, since the approval of the Bitcoin ETF in January 2024, the inflow of BTC into the U.S. market has continued to reach new highs, with asset management giants like BlackRock and Fidelity rapidly expanding their management scale. Data shows that BlackRock's iShares Bitcoin ETF (IBIT) alone has surpassed $17 billion in assets under management. As of mid-May 2025, the cumulative net inflow of 11 major institutional Bitcoin spot ETFs on the market has exceeded $41.5 billion, with a total net asset value of $1214.69 billion, accounting for approximately 5.91% of the total Bitcoin market capitalization.
Institutional investors and some retail investors are shifting towards ETF products, partly due to compliance and tax considerations. On one hand, ETFs have much lower trading costs compared to cryptocurrency exchanges. While Coinbase's spot trading fee rate varies annually in a tiered manner but averages around 1.49%, for example, the management fee for IBIT ETF is only 0.25%, and the majority of ETF institution fees fluctuate around 0.15% to 0.25%.
In other words, the more rational users are, the more likely they are to move from exchanges to ETF products, especially for investors aiming for long-term holdings.
According to multiple sources, several institutions, including VanEck and Grayscale, have submitted applications to the SEC for a Solana (SOL) ETF, with some institutions also planning to submit an XRP ETF proposal. Once approved, this may trigger a new round of fund migration. According to a report submitted by Coinbase to the SEC, as of April, the platform's trading revenue from XRP and Solana accounted for 18% and 10%, nearly one-third of the platform's fee revenue.
However, the Bitcoin and Ethereum ETFs passed in 2024 also reduced the fees for these two tokens on Coinbase from 30% and 15% to 26% and 10%, respectively. If the SOL and XRP ETFs are approved, it will further undermine the core fee revenue of exchanges like Coinbase.
The expansion of ETF products is gradually weakening the financial intermediary status of cryptocurrency exchanges. From their original roles as matchmakers and clearers to now gradually becoming mere "on-ramps and off-ramps" for funds, exchanges are seeing their marginal value squeezed by ETFs.
On May 12, 2025, SEC Chairman Paul S. Atkins gave a keynote speech at the Tokenization and Cryptocurrency Working Group roundtable. The theme of his speech revolved around "It is a new day at the SEC," where he indicated that the SEC would not approach enforcement and regulation the same way as before but would instead pave the way for cryptocurrency assets in the U.S. market.
With signs of cryptocurrency compliance such as the SEC's "NEW DAY" declaration, an increasing number of traditional brokerages are attempting to enter the cryptocurrency industry. One of the most representative cases is the well-known U.S. brokerage Robinhood, which began expanding its crypto business in 2018. By the time of its IPO in 2021, Robinhood's crypto business revenue accounted for over 50% of the company, with a significant boost from the Dogecoin "moonshot" promoted by Musk.
In Q1 2025 earnings report, Robinhood showcased strong growth, especially in revenue from cryptocurrency and options trading. Fueled by Trump's Memecoin, cryptocurrency-related revenue reached $250 million, nearly doubling year-over-year. Consequently, Robinhood Gold subscription users reached 3.5 million, a 90% increase from the previous year, with the rapid growth of Robinhood Gold providing the company with a stable source of income.
Meanwhile, RobinHood is actively pursuing acquisitions in the cryptocurrency space. In 2024, it announced a $2 billion acquisition of the long-standing European cryptocurrency exchange Bitstamp. Additionally, Canada's largest cryptocurrency CEX, WonderFi, which recently went public on the Toronto Stock Exchange, also announced its integration with RobinHood Crypto. After obtaining virtual asset licenses in the UK, Canada, Singapore, and other markets, RobinHood has taken a proactive approach in the compliant cryptocurrency trading market.
Furthermore, an increasing number of brokerage firms are exploring the same path. Futu Securities, Tiger Brokers, and others are also dipping their toes into cryptocurrency trading, with some having applied for or obtained the VA license from the Hong Kong SFC. Although their user bases are currently small, traditional brokerages have a natural advantage in user trust, regulatory licenses, and low fee structures. This could pose a threat to native cryptocurrency platforms in the future.
In April 2025, security researchers discovered that some Coinbase user data was leaked on the dark web. While the platform initially responded by attributing it to a "technical misinformation," it still raised concerns among users regarding its security and privacy protection. Just two days before Dow Jones Indexes announced Coinbase's addition to the S&P 500 Index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to have obtained customer account information and internal documents, demanding a $20 million ransom to keep the data private. Subsequent investigations confirmed the data breach.
Cybercriminals obtained the data by bribing overseas customer service agents and support staff, mainly in "non-U.S. regions such as India." These agents abused their access to Coinbase's internal customer support system and stole customer data. As early as February this year, blockchain detective ZachXBT revealed on X platform that between December 2024 and January 2025, Coinbase users lost over $65 million to social engineering scams, with the actual amount potentially higher.
Among the victims was a well-known figure, 67-year-old Ed Suman, an established artist in the art world for nearly two decades, having been involved in the creation of artworks such as Jeff Koons' "Balloon Dog" sculpture. Earlier this year, he fell victim to an impersonation scam involving fake Coinbase customer support, resulting in a loss of over $2 million in cryptocurrency. ZachXBT critiqued Coinbase for its inadequate handling of such scams, noting that other major exchanges have not faced similar issues and recommending Coinbase to enhance its security measures.
Amidst a series of ongoing social engineering incidents, although there has not been any impact on user assets at the technical level so far, it has raised concerns among many retail and institutional investors. Especially institutions holding massive assets on Coinbase. Just considering the U.S. BTC ETF institutions, as of mid-May 2025, they collectively hold nearly 840,000 BTC, and 75% of these are custodied by Coinbase. If we price BTC at $100,000, this amount reaches a staggering $63 billion, which is equivalent to the nominal GDP of two Iceland in the year 2024.
In addition, Coinbase Custody also serves over 300 institutional clients, including hedge funds, family offices, pension funds, and endowments. As of the Q1 2025 financial report, Coinbase's total assets under management (including institutional and retail clients) reached $404 billion. The specific amount of institutional custodied assets was not explicitly disclosed in the latest report, but it should still be over 50% based on the Q4 2024 report.
Once this security barrier is breached, not only could the rate of user attrition far exceed expectations, but more importantly, institutional trust in it would undermine the foundation of its business. Therefore, after a hacking event, Coinbase's stock price plummeted significantly.
Facing a decline in spot trading fee revenue, Coinbase is also accelerating its transformation, attempting to find growth opportunities in derivatives and emerging assets. Coinbase acquired a stake in the options platform Deribit at the end of 2024 and announced the official launch of perpetual contract products in 2025. This acquisition fills in Coinbase's gap in options trading and its relatively small global market share.
Deribit has a strong presence in non-U.S. markets, especially in Asia and Europe. The acquisition has enabled Coinbase to gain a dominant position in bitcoin and ethereum options trading on Deribit, accounting for approximately 80% of the global options trading volume, with daily trading volume remaining above $2 billion.
Meanwhile, 80-90% of Deribit's customer base consists of institutional investors, with their professionalism and liquidity in the Bitcoin and Ethereum options market highly favored by institutions. Coinbase's compliance advantage, coupled with its already robust institutional ecosystem, makes it even more suitable. By using institutions as an entry point, it can face the squeeze from giants like Binance and OKX in the derivatives market.
Facing a similar dilemma is Kraken, which is attempting to replicate Binance Futures' model in non-U.S. markets. Since the derivatives market relies more on professional users, fee rates are relatively higher and stickiness is stronger, making it a significant source of revenue for exchanges. In the first half of 2025, Kraken completed the acquisition of TradeStation Crypto and a futures exchange, aiming to build a complete derivatives trading ecosystem to hedge the risk of declining spot transaction fee income.
With the surge of Memecoin in 2024, Binance, OKX, and various CEX platforms began massively listing small-market-cap, highly volatile tokens to activate active trading users. Due to the wealth effect and trading activity of Memecoins, Coinbase was also forced to join the battle, successively listing popular tokens from the Solana ecosystem such as BOOK OF MEME and Dogwifhat. Although these coins are controversial, they are frequently traded, with fee rates several times higher than mainstream coins, serving as a "blood-boosting" method for spot trading.
However, due to its status as a publicly traded company, this practice is a riskier endeavor for Coinbase. Even in the current crypto-friendly environment, the SEC is still investigating whether tokens like SOL, ADA, and SAND constitute securities.
In addition to the forced transformation strategies carried out by the aforementioned CEXs, they are also starting to lay out RWAs and the most talked-about stablecoin payment fields, such as the PYUSD launched through a collaboration between Coinbase and Paypal, Coinbase's support for the Euro stablecoin EURC by Circle that complies with EU MiCA regulatory requirements, or the USD1 launched through a collaboration between Binance and WIFL. In the increasingly crowded trading field, many CEXs have shifted their focus from just the trading market to the application field.
The golden age of transaction fees has quietly ended, and the second half of the crypto exchange platform game has silently begun.
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