The largest U.S. cryptocurrency exchange, amid a struggling crypto market and swirling regulatory uncertainty, posted second-quarter revenue of $708 million, beating analyst predictions of about $631 million. Coinbase notched a net loss of $97 million, or 42 cents per share, compared with an estimated loss of 76 cents.
In after-hours trading, shares rose more than 10% to above $100 before immediately dropping back closer to $88.
Despite surpassing analysts’ predictions, the overall picture for the exchange was still muddled, as revenue saw an 8% decline from the prior quarter and a year-over-year drop of 12%.
Falling cryptocurrency trading volume partly drove Coinbase’s revenue decrease, as it nose-dived 37% from $145 billion in the first quarter to just $92 billion. Transaction revenues accordingly decreased from approximately $375 million to $327 million.
“Coinbase’s key strength has always been its high penetration among retail users and an ability to monetize them,” Kunal Goel, a senior research analyst at Messari, told Fortune. “An improving retail consumer mix helped Coinbase’s quarter with transaction revenue only falling by 13% even as volume fell by 37%.”
Coinbase’s faltering revenue was also the result of a drop in the interest income it nets—from $241 million to now $201.4 million—mainly from its partnership with Circle on USDC, the second-largest stablecoin by market capitalization. In the past three months, USDC has lost ground to Tether, which saw a record-high market capitalization in June after USDC briefly depegged from the U.S. dollar in March.
The second quarter “was a strong quarter for Coinbase as we executed well and showed resilience in a challenging environment. We’ve cut costs, are operating efficiently, and remain well positioned to build the future of the crypto-economy and help drive regulatory clarity,” Brian Armstrong, founder and CEO, said in a statement.
Declining trading volume and interest income add further pressure to Coinbase to look for other revenue streams not solely dependent on the ups and downs of volatile markets. And this all comes as the company and chief legal officer Paul Grewal face a blockbuster showdown with the Securities and Exchange Commission after the agency sued the exchange in June for allegedly selling unregistered securities.
Perhaps this is why Coinbase is looking elsewhere to make its mark in the world of Web3. Its revenue from staking, where investors receive interest for putting crypto in escrow to secure proof-of-stake blockchains, jumped up from $74 million in the prior quarter to now about $88 million. And on Aug. 9, the company plans to publicly launch its Ethereum layer-2 chain, Base, which may yield fees from future transactions.