The crypto sale The last few days have been preceded by staff cuts at several companies that facilitate the trading of decentralized assets and tokens. Discounts at Gemini and Crypto.com were replaced today by the news that Coinbase is going to cut more than 1,000 employees. Considering that Coinbase and other crypto exchanges were high-flying success stories from 2021, the retreat may feel surprising.
How could companies like Coinbase, which reported massive growth and huge profits last year, now be in a position where they would have to cut back on staff? This is not to focus our attention too much on exchanges; other companies in the larger web3 space are also under fire, including BlockFi, which also recently cut staff.
However, the response to the sharp shift from rapid staffing to staff reductions in exchanges is something we can understand with reasonable clarity. The bottom line is this: fees scale up at crypto exchanges as their revenues grew. With their sales shrinking due to declining trading volumes, those previously justified costs have become a burden.
Drawing on May data from consumer commerce service Robinhood, performance data from Coinbase, and public layoffs from crypto exchanges, let’s take a look at how things turned upside down so quickly.
Growing revenues, costs
Coinbase just had an excellent 2021. Net revenue grew from $1.14 billion in 2020 to $7.36 billion last year, while net revenue grew from $322 million to $3.62 billion over the same period. Such growth and profitability impressed investors and potential employees alike, with both groups flocking to the company.
In its final 2021 earnings report, Coinbase indicated it had invested heavily to sustain its revenue expansion, citing both hiring and cash position as potential growth levers: