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Deconstructing Binance Alpha2.0's New "Asia-Led Liquidity Mining" Model
Original Article Title: "In the Fractured Narrative Market, Binance Alpha's Synthetic Bull Run Finds Itself in a State of Ambivalence"
Original Article Author: Kevin, the Researcher at Movemaker
The Failure of Binance Alpha 1.0 and the Strategic Shift to Alpha 2.0
Due to a setback in the Binance wallet, Binance Alpha 1.0, serving as a liquidity bridge on the Binance Chain, was declared a failure. The pre-upgrade trading volume and user numbers plummeted to historic lows, with the daily trading volume of all tokens on Alpha totaling less than $10 million, daily transactions falling below 10,000, a stark contrast to the volume within the Binance trading platform. Instead of attracting on-chain users and corresponding liquidity to the trading platform, it had a negative impact on marketing efforts.
Therefore, at the end of March, Binance Alpha upgraded to Binance Alpha 2.0. Alpha was directly integrated into the Binance app, in contrast to 1.0, which could only be accessed through the Binance Web3 wallet. After the upgrade, users could purchase Alpha tokens with funds from the trading platform.
The inability to expand the wallet user base meant that Binance's strategy to compete for on-chain liquidity through Binance Alpha was ineffective, failing to attract liquidity while enhancing BSC's visibility. In other words, when Binance's on-chain growth could not naturally form a positive feedback loop, it had to reverse course by injecting traffic from the trading platform into Alpha, allowing Binance Alpha to achieve quantitative transformation, attract market attention, leverage a significant wealth effect, and become a frontline hub for Binance to attract on-chain liquidity, amplifying BSC's presence.
Waiting Period Without Consensus Confirmation: The Trough Before the Starting Gun of Alpha 2.0
This scenario is plausible, but for it to work, there needs to be a major precondition: providing a consensus for funds on the sidelines in a market with insufficient liquidity, acting as a catalyst to ignite market attention towards Binance Alpha 2.0. Without such a trigger, even with the upgrade to Alpha 2.0, data from the end of March to mid-April shows that efforts to deepen order books and promote the wealth effect could only briefly spark less than a week of market discussion heat, quickly returning to silence, falling back into the trough in early April.
Of course, this is not a failure of the Alpha 2.0 upgrade or a strategic policy mistake. In order to expand Alpha's scale, that is, Alpha's total transaction volume, apart from introducing liquidity in the DEX, the only option is to inject liquidity into Binance's own trading platform. The reason why version 1.0 chose the former solution is twofold. On the one hand, this is a ready-made strategy for second-tier trading platforms, and the market can quickly accept the transfer of Binance. On the other hand, Binance, as a leading trading platform, has absolute confidence, and the starting point of second-tier trading platforms is different. The latter sees the introduction of on-chain liquidity as the basis or foundation, so they can react quickly in terms of user experience or marketing response. In contrast, Binance's introduction of on-chain liquidity is more of a precautionary measure rather than an urgent matter. Therefore, the poor experience of the Binance Wallet and the sharp downturn in the Q1 market trend made it difficult for Binance to adjust quickly, leading to the collapse of Alpha 1.0.
Therefore, it can be said that reverse liquidity injection from the trading platform is Binance's final move and the most powerful upgrade. However, looking at the Alpha 2.0 data from 3.20 to 4.20, it can still be described as bleak. Why is that? Because even though the pipeline or path for injecting liquidity has been successfully established, the influx of liquidity still needs a signal, a gunshot. In the current atmosphere of despair where all narratives in the crypto market are declared shattered, only Bitcoin can play the role of this starting gun.
Bitcoin Signal Launched, Alpha 2.0 Trading Ecosystem Sees a Turning Point
And Bitcoin's price has become closely linked to the macroeconomic trends of the United States. For Bitcoin to embark on a new trend, it also needs support from macro market confidence. In the previous article, Bitcoin lingered around $85,000 for a week, waiting for macroeconomic confidence confirmation. Therefore, when the market was deeply immersed in the fear brought by the double blow of tariffs and recession, and because of the favorable news of the 90-day tariff truce, strong performance of the U.S. economy, and progress in U.S.-China negotiations, a brief market easing cycle appeared. In the coming days, which are neither long nor short, the bearish headwinds are firmly contained, which is full confirmation of confidence for Bitcoin. The market started on the 21st of April, and from Ethereum's strong three-day breakout, it can be seen that large funds are rushing in, entering the second phase of the market.
Therefore, when Bitcoin sends a signal, thirsty liquidity will first flow into high-risk assets, and the pipeline created by Alpha 2.0 will start to show its effect.
Incentive Points and Token Bubble: The Dual-Drive Strategy of Alpha2.0
Looking back at Alpha2.0 itself, its main role, besides attracting face liquidity as mentioned earlier, is also to serve as a Binance reservoir function. To weaken Binance's listing effect, the liquidity at the time of listing needs to be pre-diverted while ensuring that this liquidity is indeed within Binance and not overflowing to other exchanges. Therefore, when Bitcoin sends a signal and the short-term consensus in the market is strong, the direction for Alpha2.0 is very simple. It is about how whales hype the narrative in each cycle, which is how to create a bubble in the reservoir. Alpha2.0 chooses two ways to create a bubble:
Bottom-Up Incentive Promotions
· Alpha Points are a direct incentive to increase trading volume and liquidity, obtained by adding Balance Points and Transaction Volume Points within a 15-day period.
· Balance Points: Users holding different asset balances in exchanges and wallets receive daily points based on their balance, for example: $10,000 to <$100,000 = 3 points/day.
· Transaction Volume Points: Points are awarded based on the buying volume of Alpha tokens, for example: 1 point for every $2 purchased, and an additional point for each doubling of the purchase amount (e.g., $2 = 1 point, $4 = 2 points, $8 = 3 points, and so on).
· The level of Alpha Points is related to eligibility for airdrop events. For example, owning 142 Alpha Points can qualify for airdropping 50 ZKJ tokens.
· The difficulty of earning points increases as both the balance and transaction volume increase. The goal of Alpha2.0 is to provide incentives to the widest range of users. Through a carefully designed incentive mechanism, users are encouraged to maintain a certain asset balance in exchanges and wallets and actively participate in Alpha token buying transactions, ultimately driving market depth and activity. The double transaction volume points event launched on April 30 spurred the enthusiasm of a longer tail of users, where placing orders or directly buying BSC tokens will earn double points. By offering double points, Binance allows a larger range of users to qualify for airdrops, creating market enthusiasm and activity, providing the main force behind the Alpha token with more comprehensive pumping power.
· Looking at the trading volume of Alpha2.0 since April 20, Binance has effectively increased the asset holdings and trading volume within the platform, further enhancing the overall market activity and depth. As more users actively participate, the market liquidity of the Alpha token will be significantly enhanced. This continuous operation of a virtuous cycle will be a key factor for Binance to stand out in future market competition.
Liquidity Convergence Forming Headwinds Effect
Observing the Alpha 2.0 transition, the daily trading volume trend of the Alpha token, it can be seen that the rule change itself did not provide sufficient stimulus or generate interest from the on-chain funds. However, Bitcoin's signal is strong consensus. Observing the tokens that primarily contribute to the Alpha token's daily trading volume: $KMNO, $B2, $ZKJ.
$KMNO: DeFi protocol Kamino Finance on Solana, entered Binance Alpha on February 13 and began a unilateral downtrend, with trading volume starting to increase during the week of April 28, growing 40 times compared to two weeks ago, but the price fluctuated only between 0.065 and 0.085. Until May 6, when it was listed on Binance spot, the trading volume returned to normal levels.
$B2: L2 protocol in the Bitcoin ecosystem, issued tokens on April 30 and entered Binance Alpha. Its market cap only reached $30 million at its peak, currently at $27 million. The trading volume gradually increased after the token issuance, showing a clear pattern where trading volume expands during the daytime in the Asian time zone and weakens at night.
$ZKJ: ZK protocol Polyhedra Network, issued tokens on May 6 and entered Binance Alpha. Market cap is $130 million. The fluctuation in trading volume is similar to $B2, with trading volume expanding during the daytime in the Asian time zone and weakening at night.
Asian Daytime Driving Model: A Realistic Portrait of Alpha Liquidity
From the hourly trading volume chart, it is clear that the main trading volume-contributing tokens of Alpha 2.0 exhibit strong intraday cyclical volatility characteristics. This regular trading behavior was repeated from May 8th to May 11th, manifesting a significant increase in trading volume daily from midnight to noon UTC time (roughly from 8:00 to 20:00 Beijing time), while the trading volume significantly fell back or even languished from afternoon to late night UTC time (evening to early morning Beijing time). This rhythm aligns perfectly with the Asia trading time zone's schedule, indicating that the Alpha 2.0 trading ecosystem is highly dependent on liquidity support from the Asia market at this stage. Especially during the active Asian daytime period, the total hourly trading volume has repeatedly surpassed $25 million, even approaching $30 million at times, showing highly concentrated market-making and trading operations.
In addition, looking at the transaction volume distribution structure of each token, ZKJ (in yellow) is the absolute main force of the transaction volume, occupying a dominant position for the vast majority of the time period. Its transaction volume changes synchronously with the overall market rhythm, further strengthening the inference of "systematic market-making." In addition to ZKJ, tokens such as B2 and SKYAI also showed significant activity during peak periods, forming a "market-making matrix" in the Alpha 2.0 ecosystem. The transaction volume of these tokens fluctuates highly consistently, unlike natural user-initiated transactions, resembling batch orders and matching operations controlled by automated market-making systems or robots. Initiation at a fixed time each day and withdrawal at a fixed time are highly likely to originate from a standardized, automated trading program, possibly indicating a team conducting concentrated operations during Asian daytime and significantly reducing activity or closing strategies at night.
Overall, the current trading activity of Alpha 2.0 exhibits a typical "Asian daytime market-driven model," where its market depth and liquidity largely depend on the market-making behavior of a few leading tokens and global natural user transactions. Although this pattern can support transaction volume and activity through centralized market-making behavior in the short term, it also exposes the platform ecosystem's reliance on a single time zone and limited market-making entities. Once these market-making accounts cease operations, the platform's transaction volume may experience a cliff-like drop. To build a more sustainable trading ecosystem in the future, Alpha 2.0 needs to introduce more time zones and natural trading behaviors from more participants to break free from the current overly singular rhythm and evident market-making traces.
From the graph below, it can be observed that after April 20, the platform's trading activity entered a rapid growth phase, with the number of transactions quickly rising from the early tens of thousands to nearly a million per day on average. However, starting around April 28, although the transaction volume remained high, the daily number of transactions tended to stabilize, and even showed a slight decline in the past few days. This deviation phenomenon of "slowing transaction growth while transaction volume continues to rise," combined with the previous "hourly transaction volume distribution chart," points to a very clear structural change: the trading behavior of the Alpha 2.0 platform is gradually shifting from a high-frequency, low-value "retail wash trading" mode to a low-frequency, high-value "market-making-driven" mode.
The primary driving force behind this change is likely the strengthening of the market-making strategies of leading tokens. The tokens shown in the previous graph, such as ZKJ and B2, experienced a significant increase in trading volume during specific periods (especially during Asian daytime), indicating that such tokens have become the liquidity hub of the platform. The trading of these tokens is usually conducted by a few market makers or automated trading robots, whose strategies may no longer focus on high-frequency matching transactions but rather place orders, match, and arbitrage with larger transaction amounts. Therefore, even with limited growth in the number of transactions, the transaction volume per transaction may significantly increase, thereby driving a continuous rise in overall transaction volume. This structural "quality substitution" phenomenon, combined with the double point event's incentive for user orders, indicates that Alpha 2.0 has entered a new stage characterized by liquidity depth optimization and concentrated trading of core tokens.
Furthermore, this structural change also reflects the development bottleneck and adjustment strategy facing the platform. On the one hand, in the platform's early stages, transaction volume was mainly driven by a large number of small-tail tokens and retail participation, but this growth pattern has gradually weakened in terms of marginal effects. On the other hand, the platform has been attempting to maintain or even increase overall transaction volume by introducing a stable market-making mechanism and a top-tier token ecosystem to attract more liquidity and user attention. If this trend continues, Alpha 2.0 will face a strategic choice in two directions: further expanding market maker participation to encourage the formation of more "high-value, low-frequency" core trading pools, or optimizing user experience and fee structure to reinvigorate retail intraday activity and achieve a new peak in "high-frequency, high-value" trading.
Interchain Switching and Market-Making Structure: Alpha 2.0's Liquidity Migration Logic
As seen in the diagram below, the daily trading volume of the Alpha 2.0 token has undergone significant structural migration between different blockchains, showing clear phase-dominant chain transitions. Starting in mid-March, after the rule change of Alpha 2.0, the BNB chain (orange) became the absolute dominant force, accounting for nearly 100% of the transaction volume. However, at the end of March and the beginning of April, Solana (green) gradually emerged, starting to compete with the BNB chain for dominance and completing a "comeback" against BNB in mid-April, stabilizing its share of daily transaction volume at 60%-80% for about two weeks, becoming the main liquidity venue for Alpha 2.0. This period marked a market lull, which I believe can be seen as the true traffic level of Alpha 2.0.
Then, during the late April to early May period, the BNB chain reclaimed its dominant position, with its share rising back to nearly 60%-70%, signaling a round of interchain liquidity inflow.
From this trend, several key changes can be observed: first, the liquidity of Alpha 2.0 is highly migratory, and it can be seen that BSC's activity is highly dependent on market makers and bots; second, Solana briefly became the preferred choice for accommodating Alpha's transaction demand due to its high-speed, low-fee on-chain performance, but this lead is not stable. Whenever market sentiment reverses, a massive volume of transactions can be re-injected into BSC.
Overall, the pace of Alpha 2.0's transaction volume migration between chains reflects a typical "liquidity arbitrage + incentive migration" driving model, rather than being entrenched in long-term cultivation on a particular chain. This also suggests that the future traffic construction of the Alpha platform will continue to be constrained by external variables such as interchain competition, cross-chain deployment costs, incentive strategies, and does not rule out the possibility of the next round of new main chain switching.
If we only compare the trading volume and transaction count of the Alpha 2.0 token on BSC and SOL, we can observe that overall, Binance Alpha 2.0 saw explosive growth after mid-April, and this growth trend continued until mid-May.
In terms of transaction count, Solana's performance was particularly outstanding in the early stages (especially in late April), with its transaction volume significantly higher than BSC, indicating that at this stage, Alpha 2.0's primary liquidity was still on Solana. However, by early May, BSC's transaction count quickly caught up and even surpassed Solana, showing that as time progressed, Alpha 2.0's activity on BSC rapidly increased, possibly related to changes in liquidity provision strategies. While Solana still maintained a stable transaction volume, its growth rate appeared to slow slightly.
Opportunities and Risks During the Sentiment Repair Period: Alpha 2.0's Next Challenge
During the current downturn and recovery period following the tariff shock, the crypto market has fallen into a stalemate of lacking a breakthrough narrative: without a new mainstream story, it is impossible to generate market momentum, and the typical leading effect seen in mainstream narratives is difficult to manifest, making it challenging to create a true wealth effect. Despite an ample supply of USDT in the market, overall liquidity remains relatively tight when compared horizontally. At this moment, with no other narratives able to take on the responsibility of driving the overall market, only Ethereum can play the dual role of "narrative core" and "liquidity reservoir" in the fleeting trend. Although it is difficult to say with certainty whether the network upgrade expectations or the actual implementation of ETF staking have brought buying pressure to Ethereum, from another perspective, the current market has deteriorated to the point where Ethereum needs to become the primary carrier of market sentiment and fund flows, the bull of the past bull runs, a role often undertaken by leading projects.
When Ethereum or some meme coins or other hot assets experience a short-term explosive price increase, strong project teams and top-tier exchanges (such as Binance) must promptly follow this wave of enthusiasm without hesitation, as they cannot afford to stand aside or miss the opportunity due to indecision. Because of the uncertainty surrounding whether this round of small-cycle bull market catalyzed by sentiment repair can further evolve into a larger-scale bull market. If a strong project team or trading platform fails to respond promptly to price action or trading volume, they can easily be judged by the market as "lack of energy" and subsequently abandoned. Even if the current small bull market ultimately fails to upgrade, there are still many potential benefits (such as liquidity recovery) to trigger a market rally in the future.
In this context, market makers and trading platforms should take full advantage of each upward cycle to foster market confidence and solidify wealth consensus: by continuously injecting liquidity before market pullbacks and actively generating trading volume, a positive image of "well-funded and market-savvy" can be established in the minds of investors. On the contrary, choosing to "stand still" at a critical juncture can easily be perceived as lacking sustained driving force, making it difficult to muster sufficient market momentum when a larger-scale market trend emerges in the future.
For Alpha 2.0, the current period of emotional recovery presents both opportunities and hidden concerns. Looking at the real on-chain activity, the activity on BSC is almost negligible—clearly not the ideal outcome Binance and its ecosystem would like to see. The current vibrancy and buzz of Alpha 2.0 rely more on the centralized manipulation of market makers and projects, rather than the spontaneous participation of global retail investors. This appearance of "artificially stacked" trading volume is highly likely to experience a cliff-like decline once external stimuli are lost. How many more mini-bull or mega-bull trends will the future need to go through to gradually cultivate a truly spontaneous, positive liquidity ecosystem? This is a key variable that we need to focus on when observing the development of Alpha 2.0 in the future.
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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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