Coinbase Analyzing the North Star Metric and Proposing Strategic Changes for Growth

1. Coinbase: Analysing the North Star Metric
and Proposing Strategic Changes for
Growth
Author: Prasanna Hegde

2. Contents
Introduction ............................................................................................................................................3
1.1 Overview of Coinbase .............................................................................................................3
1.2 Significance in the Cryptocurrency Industry .................................................................................3
Business Model.......................................................................................................................................4
2.1 Revenue Streams ..........................................................................................................................4
2.2 Target Audience and Value Proposition........................................................................................5
North Star Metric....................................................................................................................................8
3.1 Definition of North Star Metric - Monthly Transaction Volume (MTV).........................................8
3.2 Importance for Growth and Success.............................................................................................8
Metrics Contributing to North Star Metric .............................................................................................9
4.1 Active Users...................................................................................................................................9
4.2 Trading Frequency.......................................................................................................................10
4.3 User Retention ............................................................................................................................10
4.4 Conversion Rate ..........................................................................................................................10
One Thing to Change.............................................................................................................................11
5.1 Identified Aspect for Change.......................................................................................................11
5.2 Reasoning and Potential Impact .................................................................................................11
Hypothesis.............................................................................................................................................12
6.1 Statement of the Hypothesis ......................................................................................................12
6.2 Expected Outcomes and Alignment with Objectives..................................................................13
Experiment............................................................................................................................................13
7.1 Outline of the Experiment ..........................................................................................................14
7.2 Experimental and Control Groups...............................................................................................14
7.3 Variables for Measurement.........................................................................................................15
7.4 Duration and Scope.....................................................................................................................15
Conclusion.............................................................................................................................................15
8.1 Summary of Key Points ...............................................................................................................15
8.2 Reiteration of North Star Metric and Proposed Change.............................................................16
8.3 Potential Implications of Experiment Outcomes ........................................................................16
References.............................................................................................................................................16

3. Introduction
1.1 Overview of Coinbase
Coinbase is a leading cryptocurrency exchange platform that was founded in 2012 by Brian
Armstrong and Fred Ehrsam. The company is headquartered in San Francisco, California, and it has
become one of the most recognizable and user-friendly platforms for buying, selling, and storing
various cryptocurrencies. Coinbase offers a wide selection of digital assets, including popular
cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and more. The platform caters to
both retail investors and institutional clients.
Coinbase's mission is to "create an open financial system for the world." The company has played a
significant role in bringing cryptocurrencies and blockchain technology into the mainstream. Its user-
friendly interface and straightforward approach to crypto trading have attracted millions of users
worldwide. Coinbase is a trusted and influential platform for both retail and institutional investors.
1.2 Significance in the Cryptocurrency Industry
Coinbase's impact on the cryptocurrency industry has been profound. As one of the earliest and
most successful cryptocurrency exchanges, it has been instrumental in driving adoption and
acceptance of digital assets.
Some key aspects of Coinbase's significance in the industry include:
• Pioneering role: Coinbase played a pioneering role in simplifying cryptocurrency trading for
the masses. The company introduced a user-friendly platform that lowered the entry barriers
for newcomers, contributing to the democratization of cryptocurrency investments.
• Regulatory compliance: Coinbase has emphasized regulatory compliance and security, which
has earned it a reputation as a trustworthy platform. The company's commitment to
adhering to regulatory requirements has set a standard for other exchanges to follow.
• Institutional presence: Coinbase has actively engaged institutional investors and large
corporations, provided custodial services, and facilitated large-scale investments in
cryptocurrencies. This institutional involvement has added credibility to the entire
cryptocurrency market.
• Listing of new assets: Coinbase has been at the forefront of listing new cryptocurrencies,
helping to boost the visibility and liquidity of emerging projects. The company's listing
decisions have often been seen as an indicator of a project's legitimacy and potential.

4. • Global expansion: Over the years, Coinbase has expanded its operations to serve customers
in various countries, becoming one of the most globally accessible cryptocurrency
exchanges.
• IPO and public recognition: Coinbase's decision to go public through a direct listing in 2021
further cemented its status as a significant player in the financial world. The IPO drew
attention to the entire cryptocurrency industry, showcasing its growth and potential to a
wider audience.
Overall, Coinbase's role in the cryptocurrency industry has been transformative. The company has
played a key role in shaping the way people perceive and interact with digital assets. Coinbase's
commitment to security, regulatory compliance, and user experience has made it a trusted and
influential platform for both retail and institutional investors.
Business Model
2.1 Revenue Streams
Coinbase generates revenue through multiple streams, leveraging its position as a leading
cryptocurrency exchange platform. The primary revenue sources for Coinbase include:
• Trading Fees: Coinbase charges fees for every cryptocurrency transaction made on its
platform. The fee structure varies depending on the user's location and the type of
transaction. Typically, Coinbase charges a percentage-based fee for both buying and selling
cryptocurrencies. These fees serve as a substantial revenue stream for the company, as the
trading volume on the platform continues to grow.
• Spread: Coinbase earns revenue from the "spread" on cryptocurrency prices. The spread
refers to the difference between the buying and selling prices of cryptocurrencies offered on
the platform. Coinbase quotes slightly higher prices for buying and slightly lower prices for
selling, allowing the platform to make a profit on each trade.
• Coinbase Pro: Coinbase Pro (formerly known as GDAX) is a separate platform designed for
more experienced traders. It offers advanced trading features and lower fees compared to
the standard Coinbase platform. Coinbase generates revenue from trading fees on Coinbase
Pro, attracting active and professional traders.
• Coinbase Earn: Coinbase Earn is an educational program that rewards users with
cryptocurrency for learning about various digital assets. Coinbase partners with blockchain
projects, which provide rewards in their tokens to users who participate in educational
activities. Coinbase generates revenue through these partnerships, helping blockchain
projects gain exposure to a wider audience.

5. • Custodial Services: Coinbase provides custodial services to institutional clients, including
hedge funds, asset managers, and corporations. These services involve secure storage and
management of their digital assets. Coinbase charges a fee for these custodial services,
catering to the needs of institutional investors.
Coinbase quarterly revenue 2020 to 2022 ($mm)
2.2 Target Audience and Value Proposition
Coinbase caters to a diverse range of users, including retail investors, individual traders, and
institutional clients. Its target audience can be summarized as follows:
• Retail Investors: Coinbase targets individuals who are new to the cryptocurrency space or
those seeking a user-friendly platform to buy, sell, and store digital assets. The platform's
intuitive interface, ease of use, and accessible features make it an ideal choice for retail
investors who want a straightforward way to enter the cryptocurrency market.

6. • Individual Traders: Coinbase Pro serves as a platform for more experienced traders who
require advanced trading tools, lower fees, and access to a more extensive range of
cryptocurrency trading pairs. Individual traders appreciate the robust features and flexibility
provided by Coinbase Pro.
• Institutional Clients: Coinbase's custodial services cater to institutional clients, such as hedge
funds, family offices, and corporations, who seek secure and compliant storage solutions for
their digital assets. The platform's emphasis on regulatory compliance and security makes it
an attractive option for institutional investors looking to diversify their investment portfolios
with cryptocurrencies.
Coinbase annual users 2014 to 2022 (mm)
Value Proposition:
Coinbase's value proposition revolves around several key aspects:
• Trust and Security: Coinbase prioritizes the security of user funds and complies with
regulatory standards. Its emphasis on safety has earned it the trust of millions of users
globally.

7. • User-Friendly Interface: The platform's simple and intuitive interface appeals to both
newcomers and experienced traders, enabling easy navigation and cryptocurrency
transactions.
• Range of Cryptocurrencies: Coinbase offers a diverse selection of cryptocurrencies, providing
users with access to popular assets as well as emerging projects.
• Educational Initiatives: Through Coinbase Earn and educational resources, the platform
educates users about cryptocurrencies and blockchain technology, fostering greater
understanding and adoption.
• Institutional Services: Coinbase's custodial services cater to the needs of institutional clients,
providing them with secure storage and seamless access to the cryptocurrency market.
Different features of Coinbase and User Segments
Conclusion
Overall, Coinbase's business model and value proposition have contributed significantly to its success
as a leading cryptocurrency exchange platform, appealing to a broad spectrum of users and investors
in the digital asset space.

8. North Star Metric
3.1 Definition of North Star Metric- Monthly Transaction Volume (MTV)
The North Star Metric for Coinbase is defined as Monthly Transaction Volume (MTV), which
represents the total value of cryptocurrency transactions conducted on the platform within a given
month. It measures the aggregate volume of buy and sell orders processed through Coinbase's
exchange services during that period. MTV serves as a fundamental indicator of the platform's
overall performance and growth.
Monthly Transaction Volume (MTV) = Total Value of Buy Orders + Total Value of Sell Orders
By tracking MTV, Coinbase can gauge the level of user activity and engagement on the platform, as it
directly reflects the number and value of transactions being executed. A rising MTV indicates a
higher demand for cryptocurrency trading on Coinbase, while a declining MTV may signal reduced
user engagement or shifts in market sentiment.
Exchange Trade Volume (1y):
3.2 Importance for Growth and Success
The Monthly Transaction Volume (MTV) holds immense importance for Coinbase's growth and
success for several reasons:
• Revenue Generation: MTV is directly linked to Coinbase's revenue streams, as the platform
generates income from trading fees and spreads on transactions. An increase in MTV leads to
higher transaction-related revenue, contributing to the company's financial growth.

9. • Market Presence: A higher MTV reflects a robust presence in the cryptocurrency market. As
one of the largest cryptocurrency exchanges, Coinbase's strong market presence attracts
both retail investors and institutional clients, further enhancing its reputation and influence.
• User Engagement: MTV is a key indicator of user engagement on the platform. A growing
MTV suggests that users are actively buying, selling, and trading cryptocurrencies on
Coinbase, indicating high user satisfaction and ongoing interest in the platform's services.
• Platform Health: MTV serves as a health check for the platform. A healthy MTV indicates
that Coinbase's services are meeting user needs and effectively serving the cryptocurrency
trading community.
• Attracting Partnerships: As a leading exchange, Coinbase's MTV can influence potential
partnerships with blockchain projects and other players in the cryptocurrency industry.
Higher MTV values can attract more projects to list their tokens on Coinbase, broadening the
platform's offerings.
• Long-Term Sustainability: A consistent and increasing MTV signifies long-term sustainability
for Coinbase. By maintaining a healthy MTV, the platform can continue to invest in
technological advancements, security measures, and user experience enhancements.
• Strategic Decision-Making: MTV plays a pivotal role in strategic decision-making for
Coinbase. It helps the company assess the impact of changes, initiatives, and new features
on the platform's growth and user engagement.
In summary, the Monthly Transaction Volume (MTV) serves as the guiding metric for Coinbase's
growth trajectory and overall success. It not only indicates the platform's financial performance but
also reflects its competitiveness, user engagement, and market influence within the dynamic and
ever-evolving cryptocurrency industry. By focusing on increasing MTV, Coinbase can continue to
solidify its position as one of the leading cryptocurrency exchange platforms worldwide.
Metrics Contributing to North Star Metric
4.1 Active Users
Active Users refer to the number of unique individuals who engage with Coinbase's platform by
performing transactions, accessing their accounts, or using any of its services within a specific time
frame, typically measured monthly. Active Users are a critical metric as they represent the size and
vibrancy of Coinbase's user base.
Importance:
• Active Users directly contribute to the Monthly Transaction Volume (MTV) since every
transaction is initiated by an active user.
• A growing number of Active Users indicates a broader customer base and potential for
increased transaction volume over time.

10. • Higher Active User counts reflect greater user satisfaction and loyalty, leading to enhanced
brand reputation and word-of-mouth referrals.
4.2 Trading Frequency
Trading Frequency measures how frequently individual users conduct cryptocurrency transactions on
Coinbase within a given period. It provides insights into the engagement level of users with the
platform and how often they participate in trading activities.
Importance:
• Trading Frequency influences the MTV as users who trade more frequently contribute to a
higher overall transaction volume.
• Higher Trading Frequency indicates increased user activity and engagement with the
platform.
• Analysing trends in Trading Frequency helps identify peak trading periods and user behaviour
patterns, enabling targeted marketing strategies.
4.3 User Retention
User Retention measures the percentage of users who continue using Coinbase over an extended
period. It reveals the platform's ability to retain its user base and sustain long-term relationships with
customers.
Importance:
• High User Retention is crucial for maintaining a steady MTV, as retained users are more likely
to engage in frequent transactions.
• Retaining existing users is more cost-effective than acquiring new ones, making User
Retention a key factor in maximizing revenue.
• Positive User Retention indicates that users find value in Coinbase's services, leading to
positive reviews and referrals.
4.4 Conversion Rate
Conversion Rate refers to the percentage of new users who become active traders and contribute to
the Monthly Transaction Volume (MTV). It is the ratio of new users who complete a significant
number of transactions compared to the total number of new users acquired.

11. Importance:
• Conversion Rate directly impacts MTV, as a higher rate leads to more new users actively
participating in trading, contributing to the overall volume.
• A growing Conversion Rate reflects the effectiveness of Coinbase's onboarding process and
user engagement strategies.
• Improving the Conversion Rate can be more cost-effective than increasing user acquisition
efforts, making it essential for sustainable growth.
Conclusion
By tracking and analysing these metrics, Coinbase can gain valuable insights into the performance of
its platform, user behaviour, and areas that may require improvement. A holistic approach to
monitoring these metrics allows Coinbase to optimize its strategies, enhance user experience, and
drive long-term growth, ultimately contributing to the success of the North Star Metric - Monthly
Transaction Volume (MTV).
One Thing to Change
5.1 Identified Aspect for Change
One aspect that Coinbase could change to improve its North Star Metric is its trading fees. Coinbase's
trading fees are relatively high compared to other cryptocurrency exchanges. For example, Coinbase
charges a 0.50% fee for maker orders and a 0.50% fee for taker orders. This means that if a user buys
or sells $100 worth of cryptocurrency on Coinbase, they will pay $0.50 in fees.
5.2 Reasoning and Potential Impact
In comparison, other cryptocurrency exchanges have lower trading fees. For example, Binance
charges a 0.10% fee for maker orders and a 0.10% fee for taker orders. This means that if a user buys
or sells $100 worth of cryptocurrency on Binance, they will pay $0.10 in fees.
Lowering Coinbase's trading fees would make it more attractive to users compared to other
exchanges. This could lead to an increase in Active Users, Trading Frequency, and Conversion Rate. As
a result, the Monthly Transaction Volume (MTV) would likely increase.

12. For example, if Coinbase lowered its trading fees to 0.25% for maker orders and 0.25% for taker
orders, this would be in line with the fees charged by other major exchanges. This could lead to an
increase in Active Users, as more people would be willing to trade on the platform if they were not
paying as high of fees. It could also lead to an increase in Trading Frequency, as users would be more
likely to make smaller trades if they were not paying as high of fees. Additionally, it could lead to an
increase in Conversion Rate, as more new users would be willing to start trading on the platform if
they were not paying as high of fees.
In a study by Messari, it was found that a 1% reduction in trading fees can lead to a 10% increase in
trading volume. This means that if Coinbase lowered its trading fees by 0.25%, it could potentially
lead to an increase in MTV of 2.5%.
Of course, the actual impact of lowering fees on the North Star Metric would depend on several
factors, such as the current level of fees, the competitive landscape, and user behaviour. However, it
is reasonable to assume that lowering fees would have a positive impact on the North Star Metric, as
it would make the platform more attractive to users.
Here is a table that compares the trading fees of Coinbase and other major cryptocurrency
exchanges:
Exchange Maker Fee Taker Fee
Coinbase 0.50% 0.50%
Binance 0.10% 0.10%
Kraken 0.16% 0.26%
Huobi 0.20% 0.20%
Bitfinex 0.10% 0.07%
As you can see, Coinbase's trading fees are higher than those of other major exchanges. This could
be a factor that is deterring some users from trading on the platform. By lowering its fees, Coinbase
could make it more attractive to users and increase its MTV.
Hypothesis
6.1 Statement of the Hypothesis
The hypothesis is that lowering Coinbase's trading fees from 0.50% to 0.25% will lead to an increase
in the platform's Monthly Transaction Volume (MTV). This is because lower fees will make the
platform more attractive to users, leading to an increase in Active Users, Trading Frequency, and
Conversion Rate.

13. 6.2 Expected Outcomes and Alignment with Objectives
The expected outcomes of lowering Coinbase's trading fees are:
• Increase in Active Users: As lower fees make the platform more attractive to users, more
people will start trading on Coinbase.
• Boost in Trading Frequency: With reduced fees, existing users may be more inclined to make
smaller trades or engage in more frequent trading activities.
• Improvement in Conversion Rate: A more competitive fee structure can be a persuasive
factor for potential new users to choose Coinbase over other exchanges.
• Positive Impact on Monthly Transaction Volume (MTV): The cumulative effect of increased
Active Users, higher Trading Frequency, and improved Conversion Rate is expected to drive a
substantial boost in the MTV. As more users actively trade on the platform, the total value of
transactions processed by Coinbase is likely to experience significant growth.
Alignment with Objectives:
The hypothesis aligns with Coinbase's growth objectives, as it directly targets the North Star Metric -
Monthly Transaction Volume (MTV). By reducing trading fees, Coinbase aims to create a more
competitive and user-friendly environment, fostering greater user engagement and overall platform
activity.
The expected outcomes of the hypothesis are closely aligned with the objectives of maximizing the
MTV and promoting sustainable growth. The increase in Active Users, Trading Frequency, Conversion
Rate, and subsequent rise in MTV are all vital contributors to Coinbase's success in the highly
competitive cryptocurrency exchange market.
Moreover, the hypothesis supports Coinbase's mission to make cryptocurrencies and the crypto
economy accessible to a broader audience. By offering more competitive fees, Coinbase
demonstrates its commitment to enhancing user experience and promoting broader adoption of
cryptocurrencies.
Experiment
To assess the impact of lowering its trading fees on user activity and MTV, Coinbase will conduct an
experiment. The experiment will be conducted over a period of 3 months, and will involve two
groups of users:

14. • Group 1: Users in this group will be charged the current trading fees of 0.50% for maker
orders and 0.50% for taker orders. This group will be used to measure the baseline level of
activity on the platform.
• Group 2: Users in this group will be charged the proposed trading fees of 0.25% for maker
orders and 0.25% for taker orders. This group will be used to measure the impact of the
lower fees on user activity.
The experiment will be conducted using a randomized controlled trial. This means that users will be
randomly assigned to either Group 1 or Group 2. This will ensure that the two groups are as similar
as possible, except for the difference in trading fees.
7.1 Outline of the Experiment
The experiment will be conducted as follows:
• A group of users will be randomly assigned to either Group 1 or Group 2.
• Group 1 will be charged the current trading fees of 0.50% for maker orders and 0.50% for
taker orders.
• Group 2 will be charged the proposed trading fees of 0.25% for maker orders and 0.25% for
taker orders.
• The experiment will be conducted over a period of 3 months.
• During the experiment, the following variables will be measured:
▪ Monthly Transaction Volume (MTV)
▪ Active Users
▪ Trading Frequency
▪ Conversion Rate
▪ User Retention
• The results of the experiment will be analysed to determine the impact of lowering the
trading fees on user activity and MTV.
7.2 Experimental and Control Groups
The experimental group will be charged the current trading fees of 0.50% for maker orders and
0.50% for taker orders. This group will be used to measure the baseline level of activity on the
platform.
The control group will be charged the proposed trading fees of 0.25% for maker orders and 0.25% for
taker orders. This group will be used to measure the impact of the lower fees on user activity.

15. The two groups will be as similar as possible, except for the difference in trading fees. This will ensure
that the results of the experiment are not due to other factors, such as differences in user
demographics or trading behaviour.
7.3 Variables for Measurement
The following variables will be measured during the experiment:
▪ Monthly Transaction Volume (MTV): The total value of all trades processed on the platform
during the month.
▪ Active Users: The number of unique users who make at least one trade on the platform
during the month.
▪ Trading Frequency: The average number of trades per month per Active User.
▪ Conversion Rate: The percentage of new users who make at least one trade on the platform
within 30 days of signing up.
▪ User Retention: The percentage of users retained in both groups throughout the experiment,
reflecting the platform's ability to retain engaged users.
These variables will be measured to assess the impact of lowering the trading fees on user activity
and MTV.
7.4 Duration and Scope
The experiment will be conducted over a period of 3 months. This will allow enough time to collect
data on the impact of the lower fees on user activity. The experiment will be conducted on a global
scale, with users from all over the world participating.
The duration and scope of the experiment will ensure that the results are representative of the
overall user base and that the experiment is conducted in a rigorous and scientific manner.
Conclusion
8.1 Summary of Key Points
The key points of this document are as follows:
▪ Coinbase is considering lowering its trading fees in order to attract more users and increase
its Monthly Transaction Volume (MTV).

16. ▪ A randomized controlled trial will be conducted to assess the impact of lowering the trading
fees on user activity and MTV.
▪ The experiment will be conducted over a period of 3 months, and will involve two groups of
users: Group 1 will be charged the current trading fees, and Group 2 will be charged the
proposed lower fees.
▪ The following variables will be measured during the experiment: Monthly Transaction
Volume (MTV), Active Users, Trading Frequency, Conversion Rate, and User Retention.
8.2 Reiteration of North Star Metric and Proposed Change
The North Star Metric for Coinbase is Monthly Transaction Volume (MTV). The proposed change is to
lower the trading fees in order to attract more users and increase MTV.
8.3 Potential Implications of Experiment Outcomes
The potential implications of the experiment outcomes are as follows:
If the experiment is successful, Coinbase may decide to lower its trading fees permanently.
If the experiment is not successful, Coinbase may decide to keep its trading fees at the current level
or even raise them.
The results of the experiment will be important for Coinbase to make informed decisions about its
fee structure and to optimize its platform for growth.
References
• Coinbase: https://www.coinbase.com/
• Messari: https://messari.io/
• The Block: https://www.theblockcrypto.com/
• CoinMarketCap: https://coinmarketcap.com/
• CryptoCompare: https://www.cryptocompare.com/
• CoinGecko: https://www.coingecko.com/
• Bloomberg: https://www.bloomberg.com/
• CNBC: https://www.cnbc.com/