Coinbase's crypto trading revenue dropped in the second quarter as regulators turned up the legal pressure on the largest US cryptocurrency exchange, leading to a net loss that widened from the first quarter.

The slowdown in a key moneymaker for Coinbase (COIN) came as the exchange squared off with the Securities and Exchange Commission, which sued the exchange in June. A key client, giant money manager BlackRock, is also awaiting approval from the same agency to list a spot bitcoin ETF.

Fees earned from customers trading crypto on the Coinbase platform fell by 13% from last quarter and 50% from a year ago to $327 million, the lowest such sales since the end of last year.

That led to a $97 million net loss, slightly higher than the first quarter. It was still better than expected and much smaller than the billion-dollar hit the exchange took during a rough second quarter last year. Its revenues were also better than expected.

The company said it has brought down expenses by 50% since last year, including letting go 30% of staff over the past year.

"These last few quarters have been challenging and invigorating alike," Coinbase told shareholders in a letter it released Thursday.

"But by strengthening our financial health we are well positioned to generate the resources we need to keep investing as we build the future of crypto and help drive regulatory clarity to update the financial system."

The stock of Coinbase was up more than 2% in after-hours trading as of 5:15 p.m. ET following the release of its results. Bitcoin hangs above $29,200, up slightly for the past 24 hours.

The decline in Coinbase's trading came during a three-month period of low activity and heightened US regulatory uncertainty. That legal action from the SEC has not to date hurt Coinbase's stock performance, however.

The SEC is accusing the company of operating an unregistered exchange, broker dealer, and clearing agency by offering certain crypto tokens the agency has claimed are securities. Coinbase disagrees.

"It's actually not really a regulatory issue. It's a political one. It's a battle of political will and political power amongst the federal regulators, which is not doing anybody in the US any good," CEO Brian Armstrong said Wednesday during a regulation discussion over Twitter.

"We will not allow American leadership here to be destroyed by a few outliers in our government painting outside the bounds of the law," Armstrong said during Thursday's earnings call.

Chief legal officer Paul Grewal said during the call that lawyers for Coinbase plan to introduce an order Friday to dismiss its case with the SEC entirely. Grewal said Coinbase expects the order to be "fully submitted and taken under consideration" by the end of October.

BlackRock (BLK) and other asset managers are also seeking approval from the SEC to list a spot bitcoin ETF. All of the applications include a market-sharing agreement that names Coinbase as a key infrastructure partner. When BlackRock filed its application in the middle of June, Coinbase's stock began rising.

Year to date as of Thursday's close, it's up over 156%, though it remains 73% below where it began trading after its April 2021 IPO.

The company is also expanding internationally with plans for crypto derivatives exchange for non-US investors as well as further developing its Layer 2 blockchain, Base.

The major silver lining for Coinbase in the second quarter came from non-trading revenue.

Coinbase reported a better-than-expected $335 million from subscriptions and services. The amount is 137% higher than the revenue stream from a year ago, contributing to more of total revenue than trading fees for the first time.

"A big focus for us over the next year is how we're going to be driving utility in crypto that goes beyond just trading," Armstrong added.

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