Coinbase Launches Base: A New Era for Ethereum Layer-2 Networks

Coinbase is launching a new Ethereum Layer 2 called Base using the technology powering Optimism.

Coinbase Launches Base: A New Era for Ethereum Layer-2 Networks
Photo by Alex Knight / Unsplash

Coinbase introduced its own Ethereum layer-2 (L2) network called Base. With ambitions to enable the next million decentralized applications within the next five to ten years, Coinbase obviously thinks it can leverage its over 100M users to take a significant portion of the L2 market. There’s reason to be excited–and skeptical.

What Is Base and Why Is It Important for the DeFi Market?

Base is a fork of popular Ethereum L2 Optimism, or as Base puts it: "a rollup agnostic superchain powered by Optimism" which processes batches of transactions on a separate chain and pushes information about those transactions to the mainnet, making transactions faster and cheaper than Ethereum. A testnet for Base has been live since the beginning of February, and Coinbase hopes to launch the mainnet in the next few months.

The L2 market is pretty crowded at this point, but Base is launching without a network token, which is a notable departure from the norm. From being heavy in the DeFi space, I’ve come to believe that having a token is often not a positive for the project. Also, dangling the possibility of an airdrop can help bring on early adopters.

The Future of Base: Decentralization and Partnerships

Coinbase intends to make the governance of Base fully decentralized, although that won’t be the case initially. Many L1s have launched in a highly centralized space and are still working towards promises of becoming decentralized, and most have made no meaningful progress towards that.

Coinbase is launching Base with dozens of partners committed to building and supporting the ecosystem, including Chainlink, Etherscan, and Aave. I often dismiss “partnerships,” but it feels a bit more meaningful in this case, since we’re talking about Coinbase.

The real thing to pay attention to here is how much of the network value add Coinbase is going to be able to capture. If you’re a major company looking to move onto an L2, I’m very confident you’d rather be able to tap into Coinbase’s 100M users who are covered by the industry leader’s KYC and AML protocols than a random L2. My prediction is that Coinbase’s L2 will be the top dog for big industries, assuming the tech is solid, and that means Coinbase would be in a good position to capture a lot more revenue than they already do.

This is part of an ongoing push by Coinbase to diversify out of a trading volume based revenue model. With the cyclical nature of cryptocurrency trading, that really puts the company in a tough position to predictably plan and grow. Their previous attempt at this was staking services for its customers to bring in “subscription revenue.” Turns out the SEC doesn’t like that model.