The Coinbase exchange announced the arrival of Coinbase Cloud, the company’s new service. The new product will allow the company’s customers to build tools aimed at the cryptocurrency market.
Coinbase Cloud was announced by Aaron Henshaw, the division’s chief engineer. According to Henshaw, the platform will provide agile means for developers to be able to create their own tools.
However, the executive went further and revealed ambitious plans for Coinbase Cloud. With that, the exchange intends to target nothing less than the retail giant Amazon.
“We want to be the AWS of cryptocurrencies. We’re building this entire Coinbase Cloud suite of products you can think of into Crypto Computing Services, to help developers build their apps faster,” said Surojit Chatterjee, Head of Products at Coinbase.
Staking in the cloud
The first application of Coinbase Cloud will be aimed at staking cryptocurrencies, that is, leaving them locked in exchange for receiving income. The service is already born big, with US$ 30 billion bet on 60 thousand nodes, belonging to 30 different blockchains.
The service has some advantages over traditional platform staking. For example, the fee charged on Coinbase Cloud is 8%, against 25% on exchange. Furthermore, despite the high value arousing fears, the exchange does not carry out the custody of the cryptocurrencies
To the general public, Amazon is known for its strength in retail, particularly for selling books, and for Amazon Prime. However, many of these services generate negligible profit or even loss.
The company’s real goose that lays the golden eggs is the Amazon Web Service (AWS), its cloud service. Launched 15 years ago in 2006, AWS is a cloud-based client-server online service provider for websites or applications.
Most of these services are not accessible over the internet, but they do offer functionality that other developers can use in their applications. Thus, it is clear that Coinbase Cloud seeks to replicate exactly the same proposal, but aimed at applications in cryptocurrencies.
The service delivered total revenue of $45.3 billion in 2020. That figure accounts for 63% of all Amazon revenue last year. AWS also proved profitable, with operating profits of $13.5 billion in 2020.
So the cloud business is indeed a very profitable application. In addition to serving as a future revenue mine, the service is part of Coinbase’s diversification strategy.
Today, the company has custody services for cryptocurrencies, staking and custody, among others. But about 90% of the profit still comes from transaction fees paid by users. Before the company’s IPO on the stock exchange, the concentration was even higher (97%).
For other giants, such as Google and Facebook, this concentration means high profitability, as in the case of ads. But the excess in Coinbase makes the exchange hostage to market fluctuations. For example, when the cryptocurrency market was less volatile, trading volume and Coinbase revenue dropped 29% and 39%, respectively, in the third quarter.
Consequently, the company had a strong negative impact on its financial results. While the third quarter was profitable at $406 million, it was down nearly 75 percent from the $1.6 billion profit recorded in the second quarter.
In short, Coinbase Cloud, unlike fees, has less seasonality and more regularity in revenue generation. With this, the service can generate greater profits and also more stable for the company.