👉 Background: Coinbase is one of the OG crypto exchanges that really put crypto in mainstream. It was launched back in 2012, went public in 2021 and grew to over 103 million users by the end of 2022.

👉 What happened: While Coinbase was flying in 2021, it was a different story in 2022. Its retail trading volumes dropped 50%. Its losses ballooned to $2.6 billion USD and it reduced headcount by 18% in June last year and another 20% in January this year.

👉 What else: But what was most interesting and concerning for investors was Coinbase's stock-based compensation. The compensation for 2022 was $1.56 billion USD - that is just under 50% of the company’s total revenue.

What's the key learning?

💡 Companies use stock-based compensation as a way to incentivise and reward their employees.

• For the employee, it gives them an ownership stake in the business and means their interests are aligned with the company's goal.
  
• For the company, stock-based compensation can help to conserve cash because they don’t need to pay out as much in cash-based remuneration.

💡 The problem for companies like Coinbase is that they are dishing out so much stock…which is now worth significantly less than what it was worth 12 months ago. So the incentive becomes a whole lot less sexy for employees.

💡 And for Coinbase investors, all these new stock-based compensations means new shares are issued. And their shares get more and more diluted.

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