Coinbase says derivatives and prediction markets generated a quarter of transaction revenue

Coinbase said derivatives and prediction markets supplied 25% of its transaction revenue in the third quarter, a sharp change from virtually no contribution a few years earlier. The combined category accounted for about one-quarter of $590 million in quarterly transaction revenue.

Prediction markets alone surpassed $200 million in annualized revenue during the quarter and were among the fastest-growing products in Coinbase’s history by revenue, with 82% quarterly compound growth. Daily prediction-market traders increased by more than 60%.

More than half the contracts traded on Coinbase’s prediction markets were outside sports, including crypto-related events and elections. The company said growth continued even during quieter periods for sports contracts and was partly driven by crypto contracts.

The figures point to a diversification of Coinbase’s business as wider crypto-market trading volume fell 10% in the quarter. Coinbase generated roughly $1.2 billion in total revenue, split broadly evenly between transaction revenue and subscription and services revenue. Subscription and services revenue rose 3% from the previous quarter to $570 million, or 49% of net revenue.

Coinbase also recorded a fourth consecutive quarter of crypto trading-market-share gains. Its share doubled from a year earlier to 10.7%, with advances in both spot and derivatives trading, while derivatives volume had risen 179% over the preceding two years.

Shan Aggarwal, the chief business officer, said the growing product mix had reduced the company’s exposure to swings in spot crypto trading and that prediction-market participants went on to generate additional spot-trading volume. Coinbase has received Commodity Futures Trading Commission approval to list its own prediction-market contracts, which it said should improve the economics of the business.

The company forecast fourth-quarter adjusted expenses of $1.07 billion to $1.157 billion, including discretionary marketing investment in products such as prediction markets.

The expansion has also met state-level limits on sports contracts. Michigan’s Gaming Control Board said Coinbase Financial Markets agreed in October to stop offering new sports-related event contracts to customers in the state and close remaining positions. The agreement did not settle the underlying question of whether Michigan can regulate CFTC-registered event contracts as gambling, while Coinbase’s appeal remained before the Sixth Circuit.