There is a pattern that appears repeatedly across various industries, eras, and markets. First, there is explosive growth. Countless products emerge like mushrooms after rain, each claiming to do one aspect better than any other product.
Article author: Thejaswini M A
Source: Block unicorn
Specialized tools are emerging endlessly, and niche tools are also emerging endlessly. Consumers are told that choice is freedom, customization is power, and the future belongs to those who break traditional monopolies.
Then, quietly yet inevitably, the pendulum begins to swing back.
Not because the experts were wrong, nor because the overall system was so good, but because the costs of fragmentation would quietly accumulate. Each added tool means needing to remember one more password, learn one more interface, and add one more point of failure in the system you were responsible for maintaining. Autonomy begins to feel like a burden, and freedom turns into an extra expense.
In the integration phase, the ultimate winners are not those who do everything perfectly, but those who do enough things well enough that the friction of leaving (to rebuild the entire system elsewhere) becomes insurmountable. They won't bind you with contracts or lock-up terms, but will capture you with convenience. This convenience comes from the accumulation of countless small integrations and efficiencies, which might not be worth giving up individually, but collectively form a moat.
We have seen this happen in e-commerce, cloud computing, and streaming. Now we are witnessing this happen in the financial sector.
Coinbase has just made a bet on which side of the cycle we are about to enter.
Let me start in reverse.
Throughout most of its development, Coinbase has been clear and understandable. It is the preferred platform for Americans to buy Bitcoin, allowing them not to feel like they are doing anything suspicious. It has regulatory licenses, a straightforward interface, and although customer service often performs poorly, it at least exists in theory. The company went public in 2021 with a valuation of $65 billion, and its core philosophy was to be the entry point for cryptocurrency, which indeed held true for a time.
But by 2025, the positioning of the 'cryptocurrency gateway' began to look less favorable. Spot trading fees were continuously compressed. Retail trading volumes exhibited severe cyclical fluctuations, soaring in bull markets and plummeting in bear markets. Bitcoin whales increasingly tend to use self-custody wallets. Regulators are still prosecuting the company. Meanwhile, Robinhood, which initially started as a stock trading app and later ventured into cryptocurrency, saw its market value suddenly soar to $105 billion, nearly twice that of Coinbase. Over 90% of Coinbase's revenue in 2021 came from trading. By the second quarter of 2025, that proportion had dropped to below 55%.
So, when the core product is under pressure, Coinbase took the strategy you would take: it tried to become everything else.
They call it the theory of 'everything exchanges', which posits that aggregation will surpass specialization.
Stock trading means users can react to Apple's earnings report at midnight using USDC without leaving the app. Prediction markets mean they can check the price movement of 'Will the Fed cut interest rates?' during lunch. Perpetual futures mean they can leverage their Tesla positions 50 times on a Sunday. Each new market that emerges is a reason to open the app, an opportunity to capture spreads, fees, or interest on idle stablecoin balances.
Is this strategy 'Let's be Robinhood' or 'Let's ensure users never need Robinhood'?
There has been a prevailing view in the fintech space that users need specialized applications. For example, one app for investing, one for banking, one for payments, and one for cryptocurrency trading. Coinbase, however, takes the opposite approach: they believe that after a user completes KYC verification and links a bank account, there is no need to repeat that process nine times elsewhere.
This is the argument for 'aggregation over specialization'. In a world where underlying assets are increasingly just tokens on the blockchain, this argument makes sense. If stocks are tokens, prediction market contracts are tokens, meme coins are also tokens, why can't they all be traded in the same marketplace?
The operational mechanism is: you deposit dollars (or USDC), trade all assets on the exchange, and then withdraw dollars (or USDC). No need to transfer funds between different platforms. No minimum deposit requirements for multiple accounts. There is only one pool of funds flowing between all asset classes.
The more Coinbase resembles traditional brokers, the more it needs to compete under the rules of traditional brokers. Robinhood has 27 million funded accounts, while Coinbase has about 9 million monthly active users. Therefore, Coinbase's differentiation advantage cannot be merely about 'we now also offer stock trading' but must be reflected in the trading platform itself.
Commitment to providing around-the-clock liquidity without interruption, covering all types of trading. No trading time limits, no settlement delays, and no need to wait for brokers to approve your margin application when the trade is unfavorable for you.
Does this matter to most users? Probably not at the moment. Most people don't need to trade Apple stocks at 3 AM on a Saturday. But some people do. If the platform you provide allows them to trade, you can capture their trading flow. Once you capture their trading flow, you can obtain their data. Once you have their data, you can build better products. Once you have better products, you can gain more trading flow.
This is a flywheel, provided the flywheel can start turning.
Prediction market games
Prediction markets are the most unusual part of this set of offerings, and perhaps the most important. They are not 'trading' in the traditional sense, but structured bets on binary outcomes. For example: Will Trump win? Will the Fed raise interest rates? Will the Lakers make the playoffs?
These contracts will disappear after settlement, so there is no long-term holder group. Liquidity is event-driven, which means liquidity is volatile and hard to predict. However, platforms like Kalshi and Polymarket saw their trading volume soar to over $7 billion in November.
Why? Because prediction markets are a social tool. They allow people to express their opinions and take on corresponding risks. They make people unable to resist checking their phones during the fourth quarter of a game or on election night.
For Coinbase, the prediction market solves a specific problem: user engagement. When cryptocurrency prices are stagnant, users may feel bored. When your stock portfolio is not moving, stock trading can also become tedious. But there will always be some events that capture people's attention. Integrating Kalshi can provide users with a reason to remain in the app even when Bitcoin prices are not fluctuating.
The bet is that users who come from the election markets will continue to engage in stock trading, and vice versa. The bet is that the broader the coverage, the higher the user stickiness.
The business model centers on profit margins.
Setting aside the narrative of innovation, you'll find that this is actually a company trying to profit from the same user in more ways. Stock trading fees, decentralized exchange (DEX) swap spreads, interest on stablecoin balances, cryptocurrency mortgage fees, Coinbase One subscription income, and infrastructure fees for developers using the Base blockchain.
I'm not criticizing. Exchanges operate this way. The best exchanges are not those with the lowest fees, but those users are reluctant to leave, because leaving means rebuilding the entire system elsewhere.
Coinbase is building a closed ecosystem, but these walls are not meant to lock users in, but to provide convenience. You can still withdraw your cryptocurrency and transfer your stocks to Fidelity. You just might not want to do it, because why would you?
Coinbase's advantage lies in its on-chain technology, which can offer tokenized stocks, instant settlement, and programmable money. But for now, its stock trading is very similar to that of Robinhood, just with longer trading hours. Its prediction markets are also very similar to Kalshi, but embedded in different applications.
The true differentiation advantage lies in the Layer 2 blockchain Base built and controlled by Coinbase. If stock trading really happens on-chain, payments truly use stablecoins, and AI agents actually start trading autonomously using the x402 protocol, then Coinbase has created products that Robinhood would find hard to replicate.
But this is a long-term consideration. In the short term, the key to competition lies in whose app has the highest user stickiness. Adding more features does not automatically increase the app's user stickiness. On the contrary, it may make the app interface more cluttered and complicated, leaving new users who just want to buy Bitcoin feeling overwhelmed.
Some cryptocurrency users will be dissatisfied with this. They are true believers. They want Coinbase to be the gateway to decentralized finance, not a centralized super app with some DeFi features hidden in submenus.
Coinbase clearly chooses scale over purity. What it wants is a billion users, not a million purists. It aims to be the default financial platform for the masses, not the preferred exchange for those running self-hosted nodes.
This may be the right business decision. The mass market does not care about decentralization. They care more about convenience, speed, and avoiding financial losses. If Coinbase can meet these needs, then the underlying philosophy becomes irrelevant.
But this does create a peculiar contradiction. Coinbase is trying to be both the infrastructure of the on-chain world and a centralized exchange competing with Charles Schwab. It is trying to be both an advocate for cryptocurrency and a company that makes cryptocurrency invisible. It is trying to maintain its rebellious spirit while accepting regulation.
Maybe it can be like that. Perhaps the future will be a regulated on-chain exchange that is as convenient to use as Venmo. Or perhaps trying to please everyone will ultimately make you irrelevant to everyone.
This is Amazon's strategy. Amazon is not the best at anything. It is not the best bookstore, nor the best grocery store, nor the best streaming service. But it does well enough in all areas that most people are too lazy to go elsewhere.
However, many companies have attempted to create an all-encompassing application, but most have ended up with a chaotic application.
If Coinbase can control the entire cycle from making money, trading, hedging, lending to payments, then it doesn't matter if some specific features are slightly inferior to those of specialized competitors. The switching costs and the hassle of managing multiple accounts will keep users in its ecosystem.
This is all about Coinbase's universal exchange.
