A subscription model for crypto
Coinbase’s first-quarter earnings report showed a $430 million loss in revenue and a 19% drop in users, going from 11.4 million to 9.2 million MTUs – monthly transacting users. It also showed that in 2021 subscription and services revenue grew by 10x over 2020, generating $500 million ($200 million in Q4) representing 7% of the total revenue, compared to 4% in 2020. If we also look at Q1 2022, we’ll see that subscription and services revenue was $152 million, 13% of the total revenue for the quarter.
So what does this mean?
Fewer users means less revenue from transactions. Well, that explains the loss in revenue for the quarter – a 56% drop from the fourth quarter of last year. But we are also seeing subscriptions and services double from 2020 to 2021, as a percentage of the total revenue, and it looks like this trend is continuing in 2022.
It’s no surprise that at the end of Q1 Coinbase rolled out Coinbase One, a subscription-based “zero-fee” trading, to diversify from its trading fee revenue.
Currently, it is in beta and not offered to all users, Coinbase One costs $29.99/month and promises users fee-free trading. Instead of paying a fee for each transaction, the user pays a monthly subscription fee for being part of the program. In addition to zero trading fees, the program also includes dedicated 24/7 phone support and insurance of up to $1m against “unauthorized access” to the account or in the event Coinbase ever declared bankruptcy (just to throw in my two cents, you wouldn’t need insurance if you lost your assets to hackers, bankruptcy or other unforeseen events if you used a non-custodial wallet).
Is the future of crypto services subscription-based?
Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet.
Subscription services boomed during the pandemic. At the end of 2021, the average U.S. consumer had five retail subscriptions, up from fewer than two in 2020 before the pandemic hit, according to pymnts.com. Overall, consumers were spending an average of $38 per subscription, and close to $200 per month for all their subscriptions.
But subscriptions are nothing new. From 2012 to 2021, the subscription economy has exploded nearly sixfold, according to the Subscription Economy Index by Zuora. UBS estimates that the subscription market will reach $1.5 trillion by 2025, more than double the market size in 2020. Consumers want to set their payments up, forget about them and just use the service.
When you look at the fintech market, one of the ways that neobanks have flipped the switch on traditional banks is by luring in customers with subscriptions. Revolut, N26, Chime, and others offer subscription or membership plans in exchange for some of their services and perks. Because the subscriptions are optional, neobanks market their services as fee-free. It may sound like semantics — what’s the difference between a subscription and a usage fee? — but it works for modern consumers.
For as long as crypto has been around, just about every exchange has used a pay-per-trade model, charging customers a percentage on each transaction.
Some crypto trading platforms like Robinhood, eToro, and Voyager offer commission-free trading. While commission-free transactions may seem appealing, never forget that there is no free lunch. For example, Robinhood sends trades from its customers to market makers, who pay Robinhood for sending customer orders to them and split the trading profits with Robinhood.
But beyond commission-free trading, since 2016 Robinhood has been offering Robinhood Gold, a subscription service that costs $5 a month. The service lets users have larger instant deposits, based on how much they keep in their portfolio, professional research from Morningstar, higher-level market data from Nasdaq, and access to margin trading (regular customers that are using Robinhood’s free service are limited to $1,000 in instant deposits and can’t invest on margin).
It was only a matter of time before more companies offered subscriptions for crypto services.
Coinbase has been planning its subscription service for a while and was only waiting for the right time to launch it. In 2018, it sent out a survey to some of its users, asking if they would be interested in paying a “modest subscription fee” in exchange for lower “maker” or “taker” fees.
And it’s not just Coinbase.
Eve Exchange is a new exchange that will be launching soon and will be charging users $19.99 for a monthly subscription to trade. It’s also going to be offering a “gold” subscription completely free when users buy an NFT for a fixed price.
Exchange subscription services are only the beginning.
As the differences between wallets and exchanges blur, we will also see wallets changing their revenue models. Most wallets today make money from affiliate fees through third-party integrations with services that let their users buy crypto with a credit card, or take out loans and things like that. We will see wallets offer subscriptions to generate “native” revenues from their core offerings.
Will subscriptions work in the crypto market?
Market conditions can affect an exchange’s bottom line. When the market is up revenue grows, and when it’s down it drops. Subscriptions offer a way around it. From a business perspective, it would allow the company to charge a set fee to use their services, regardless of transaction volume and value.
While it’s difficult to tell how subscriptions will work out, we do know when fees are low, people trade more. We also know that subscriptions have worked well in other markets. A user will likely pay a monthly or annual fee to gain access to lower overall fees and perks. As more companies move in this direction, it’s only a matter of time before subscriptions become the norm in crypto.
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