S&P 500 entry ticket cannot hide the crisis: Coinbase's "external and internal troubles"

On May 13, S&P Dow Jones Indices announced that Coinbase will officially replace Discover Financial Services in the S&P 500 index on May 19. Previously, while companies strongly related to Bitcoin like Block and MicroStrategy were in the S&P 500 index, Coinbase is the first cryptocurrency exchange to join the index, which means cryptocurrency is gradually moving from the margins to the "main table" in the United States. On the day of the announcement, Coinbase's stock price surged 23%, breaking through $250. Just three days later, Coinbase faced consecutive incidents, including hackers bribing employees to steal customer data and demanding a $20 million ransom, as well as an SEC investigation into the authenticity of its claim of over 100 million "verified users" during its 2021 listing. These events, like miniature bombs, have caused Coinbase's stock to drop by over 7.3% at the time of writing. Interestingly, Discover Financial Services, which Coinbase is replacing, can be considered the "Coinbase" of the previous payment era. Discover is a digital bank and payment services company headquartered in Illinois, USA, founded in 1960. Its Discover Network is the fourth-largest payment network after Visa, Mastercard, and American Express. In April, after Capital One, the sixth-largest US bank, was approved to acquire Discover, this 60-year-old digital banking company smoothly passed its S&P 500 "seat" to this emerging cryptocurrency "bank". This unexpected coincidence creates a sense of a changing of the guard between old and new eras, but this relay also brings Coinbase's accumulated internal and external challenges to a critical point. [The translation continues in this manner for the entire text, maintaining the specified translation rules for specific terms.]

User Information Leaked, Is Coinbase Still Safe?

In April 2025, security researchers discovered that some Coinbase user data was leaked on the Dark Web. Although the platform initially responded that it was a "technical misunderstanding," it still raised user concerns about its security and privacy protection. Just two days before the Dow Jones Index company announced Coinbase's inclusion in the S&P 500 index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to possess customer account information and internal documents, demanding a $20 million ransom to not disclose the data. Coinbase confirmed the data breach during subsequent investigations.

Cybercriminals obtained data by bribing overseas customer service agents and support personnel "primarily in non-US regions like India". These agents abused their access to Coinbase's internal customer support system to steal customer data. As early as February this year, on-chain detective ZachXBT had disclosed on X platform that Coinbase users lost over $65 million due to social engineering scams between December 2024 and January 2025, with the actual amount potentially being higher.

Among the victims was a notable figure, 67-year-old Ed Suman, a renowned artist with nearly two decades of experience in the art world who participated in Jeff Koons' "Balloon Dog" sculpture. In early this year, he fell victim to a fake Coinbase customer support scam, losing over $2 million in cryptocurrency. ZachXBT criticized Coinbase for not properly handling such scams, pointing out that other major trading platforms do not have similar issues, and suggested that Coinbase strengthen its security measures.

The continuous social engineering incidents, while currently not technically affecting user assets, have caused concern among both retail and institutional investors. This is especially true for institutions with large asset holdings on Coinbase. Calculating only US BTC ETF institutions, by mid-May 2025, they held nearly 840,000 BTC, with 75% custodied by Coinbase. At a BTC valuation of $100,000, this amounts to an astonishing $63 billion, equivalent to the total nominal GDP of two Iceland in 2024.

Graphic: ChatGPT, Source: Farside

Additionally, Coinbase Custody serves over 300 institutional clients, including hedge funds, family offices, pension funds, and endowment funds. According to the Q1 2025 financial report, Coinbase manages total assets (including institutional and retail customers) of $404 billion, with the specific amount of institutional custody assets not clearly disclosed in the latest report, but according to the Q4 2024 report, it should still exceed 50%.

Graphic: ChatGPT

Once this security barrier is breached, user loss could far exceed expectations, and more importantly, institutional trust would destroy the company's foundation. Consequently, Coinbase's stock price plummeted after the hacking incident.

CEXs Are Trying to Save Themselves

Facing declining spot transaction fee income, Coinbase is accelerating its transformation, seeking growth opportunities in derivatives and emerging assets. Coinbase acquired part of Deribit's shares in late 2024 and announced the launch of perpetual contract products in 2025. The acquisition fills Coinbase's weaknesses in options trading and global market share.

Deribit has a strong influence in non-US markets (especially in Asia and Europe), and the acquisition gives Coinbase its dominant position in Bitcoin and Ethereum options trading (about 80% of global options trading volume, maintaining daily trading volume above $2 billion).

Meanwhile, 80-90% of Deribit's customer base consists of institutional investors. Its professionalism and liquidity in Bitcoin and Ethereum options markets are highly favored by institutions. Coinbase's compliance advantages and existing institutional ecosystem make it well-suited, allowing it to enter the derivatives market through institutional channels and face competition from giants like Binance and OKX.

Kraken, facing similar challenges, is attempting to replicate Binance Futures' model in non-US markets. Since the derivatives market relies more on professional users with higher and stickier transaction fees, it is an important profit source for exchanges. In the first half of 2025, Kraken completed acquisitions of TradeStation Crypto and a futures exchange, intending to build a comprehensive derivatives trading ecosystem to hedge against declining spot transaction fee risks.

With the MEME coin boom in 2024, Binance, OKX, and other CEX platforms began massively listing tokens with smaller market caps and high volatility to activate active trading users. Due to the wealth effects and trading activity of Memecoins, Coinbase was forced to join the battle, successively listing popular Solana ecosystem tokens like BOOK OF MEME and Dogwifhat. While these coins are controversial, they trade frequently and have transaction fees several times higher than mainstream tokens, serving as a "blood replenishment" method for spot trading.

However, as a listed company, this approach is riskier for Coinbase. Even in the current crypto-friendly environment, the SEC is still investigating whether tokens like SOL, ADA, and SAND are securities.

Besides the aforementioned forced transformation strategies, CEXs are also beginning to layout RWA and the most discussed areas like stablecoin payments. Examples include Coinbase and Paypal's PYUSD, Coinbase supporting Circle's Euro stablecoin EURC that meets EU MiCA regulatory requirements, and Binance's collaboration with WIFL on USD 1. In the increasingly crowded trading market, many CEXs have shifted their focus from pure trading markets to application domains.

The golden age of transaction fees has quietly ended, and the second half of crypto trading platforms has silently begun.