Why Coinbase's 'Base' L2 Blockchain Launch is a Big Deal for Crypto
What is Base? and Why did Coinbase decide to develop its own L2?
Coinbase is the first US publicly traded company to launch its own L2.
Base will launch in the upcoming months and will be:
Open source;
Based on Optimism;
EVM Compatible;
Transaction Settlement on ETH.
Base will not have a native tokens and transactions will be settled on ETH, contrary to other L2s who have arguably attracted an initial user base on expectations of a token drop.
Why Base? Why now?
The previous endeavors by Coinbase, notably the NFT market (eventually closed for lack of volume) were of questionable success. However, it would be wrong to underestimate the impact of Base, for it is a much bigger deal.
Brian Armstrong had already said in many interviews they’d launch their own chain once the tech was ready, the development of L2 is what they’d be waiting for.
Strategically, exchanges want to have users conduct as many operations in-house, to get transaction fees. The development of Base contributes to:
Diversifying revenues sources away from exchange transaction fees;
Allowing Coinbase to retain users on its own L2 instead of having them withdraw funds to move them on OP, Polygon, Arbitrum, etc.;
Providing a place to launch all future Coinbase products on-chain, benefiting from modularity and composability;
Interconnection with other OP-based chains.
While most of us degens travel with ease through different blockchains, let’s not forget that the majority of users don’t, especially those using Coinbase. Base will be able to provide easy onboarding to all dApps, particularly in DeFi.
Furthermore, the lack of a token and reliance on ETH also shows the good intent of Coinbase and will mean they will focus on building a blossoming ecosystem to attract users.
Why is Base relevant?
Users can benefit from Base by being able to have self-custody over their assets, while still being inside the Coinbase ecosystem.
At the moment Coinbase has over 110 million users and more than $80b AUM, which could eventually be onboarded to DeFi. Exit liquidity incoming?
Why Optimism?
The Coinbase and Optimism teams collaborate together on EIP-4844. According to the Bankless podcast, that’s when the conversation started.
At that point, Coinbase has already planned for a few years to develop its own blockchain.
By building on the OP tech stack, Base will route a % of transaction fees to OP governance. Coinbase will be the only (permissioned) sequencer on Base. Similarly to other L2 (Arbitrum, OP) Base plans to eventually move to a permissionless sequencer.
Being a publicly regulated company, launching an L2 has fewer legal implications than launching an L1.
Launching on an L2 is also a strategically different choice from its competitors (notably Binance), who launched L1s. Those blockchains never truly gathered institutional and mainstream usage, mainly due to issues revolving around centralization (e.g. all BNB chain all validators are controlled by Binance).
Yes, Coinbase controls the sequencer, but transactions settle on Ethereum, ensuring consistency and non-tampering.
According to Coinbase team, building on L2 means:
“building a bridge, not an island”.
Base Ecosystem
dApps are trying to capture market share by trying to be the first movers on Base. In the upcoming weeks, several protocols will have governance votes to launch on Base.
Food for Thought
All Base users will have to be AML/KYC’d: there may be some limitations to onboarding in some smaller nations, as well as general spitefulness by the crypto niche. Being pragmatic, Base is a net positive for the industry with the potential of onboarding many more millions of users to DeFi.
The Base launch is a first in the exchange world. If proven to be successful, others might likely replicate the model;
What does this mean for other L2? Will they move along a similar path? Or will OP become the choice for “institutional” L2 development?
This is the sort of news that would have made crypto pump in a bull market, Base is incredibly positive news that can be very important to build a new user base for the next bull market;