Renowned short-seller and founder of Kynikos Associates, Jim Chanos, criticized Coinbase Global Inc. (NASDAQ:COIN) and its users under the guise of his @WallStCynic Twitter account on Thursday.

What Happened: Chanos called the platform's users "clueless," claiming Coinbase earns a significant portion of its revenue from interest income generated by customer deposits left in non-interest-bearing accounts.

The short-seller highlighted Coinbase's recent private talks on the possibility of moving the exchange offshore amidst an intensifying U.S. regulatory crackdown on cryptocurrencies.

Coinbase has been discussing plans with institutional clients, market makers and investment firms to set up a new crypto-trading platform overseas, according to a Bloomberg report. The location of the alternative venue has yet to be determined.

Chanos slammed Coinbase for generating 30% of its fourth-quarter revenue from interest income, emphasizing that a large chunk of the income comes from customers leaving their funds in non-interest-bearing accounts.

However, savvy reader @DJohnson_CPA, who described himself as a "CPA who's familiar with financial disclosures, a heavy crypto user who understands the flows of that ecosystem, and also have read the Circle S-4 from when they were trying to SPAC," said Chanos is wrong.

@DJohnson_CPA stated the interest income primarily comes from the USD Coin (CRYPTO: USDC) stablecoin issued by Circle, not customer balances at Coinbase.

Why It Matters: @DJohnson_CPA provided a detailed explanation, which pointed out that Coinbase earns interest on the USDC stablecoin from short-term treasuries held as reserves.

This interest income is not directly linked to customers' holdings but rather to the USDC in circulation, 95% of which is in actual crypto wallets and not on centralized exchanges like Coinbase.

After conducting a “reasonableness check” using estimated figures, @DJohnson_CPA concluded that Coinbase mainly earns interest income from short-term U.S. treasuries held in reserves for USDC, with the majority of USDC being in circulation in the broader crypto ecosystem.

Even still, Chanos responded and told Benzinga, "Anyone holding USDC, even in a wallet, is a Coinbase/Circle customer. They are providing 'float' income to both companies, wherever the stablecoin is held."

He further explained, while confirming Kynikos still has a short position on the company, "Circle Internet Financial LLC splits revenues with Coinbase. If you hold USDC anywhere, you enter into this agreement with them. And thus become a 'customer'."

Chanos' additional perspective emphasizes the intricacies of the crypto landscape, shedding light on the multifaceted relationship between Coinbase, Circle, and their respective customers.

Photo: Marten Newhall on Unsplash