The largest cryptocurrency exchange in the US, Coinbase, has finally announced the mainnet launch of its new blockchain Base this week. With this launch, Coinbase is heralding the start of a new era of public companies running their own distributed networks.
The company held a direct listing of its shares on the Nasdaq under the ticker COIN in April 2021. In reaction to this news, Coinbase’s share price jumped to $88.50, only to drop soon after, and is currently trading at $83.36. COIN prices are down 18.4% from the 2023 high of $114.46 hit on July 14 but still up more than 130% in 2023 so far though still well below its initial offering price of $381.
The Layer 2 blockchain Base was finally opened to the public at 12 p.m. ET on Wednesday after being already live for developer testing for weeks.
Base marks the company’s fourth development phase as per Coinbase CEO Brian Armstrong’s “secret master plan” written in 2016. This phase is characterized by “decentralized apps,” or dApps, designed to reach one billion people.
In connection with the Base launch, Coinbase also announced plans for an “Onchain Summer” promotion with corporate partners to show off the new project’s capabilities. The initiative consists of a series of events in which creators and developers can make art or build applications on Base.
At the time of the launch of this initiative, Coinbase vice president of Product Max Branzburg shared that the company will be giving away more than 100 Ethereum in grants to teams building apps on Base.
Given Coinbase’s large user base, the new network is expected to help onboard more users into crypto protocols.
Last month, Jesse Pollak, who is overseeing Base as Coinbase’s head of protocols, said in an interview with Decrypt at EthCC in Paris that crypto adoption would see considerable growth over the next decade. “We have less than 10 million people on-chain today. There’s going to be 8 billion people on-chain over the next decade,” he said at the time. This, according to him, will put everyone on a level playing field, describing on-chain services as “fundamentally global by default.”
Talking about Base, which improves on the cost and efficiency of Ethereum transactions using Optimism’s OP Stack, he said this would provide people with “more opportunities to use Coinbase,” beyond just speculation and trading to also cover art, music, gaming, and other consumer products.
Base Mainnet: Open for Everyone
After spending a few weeks in an “open for builders only” phase, Coinbase’s Base network is finally ready for onboarding users. Base’s beta version was first released on February 23, then its mainnet version “for builders” launched on July 13, and on August 9, the network became available for all users.
Base is technically an L2 built on top of the Ethereum blockchain, using another popular layer 2 network Optimism’s OP Stack software. Powered by Optimism, Base is defined as a rollup agnostic superchain, and it aims to bring the next million developers and billion users onchain.
It is an open, permissionless blockchain that is an “extension of Ethereum” and leverages the underlying security of the second-largest cryptocurrency. The blockchain is touted as hyper-scalable by Coinbase, which says it is faster and cheaper than Ethereum. At the movement, though, Base is processing about six transactions per second (TPS), about half of Ethereum.
Explaining the difference between layer 1 Ethereum blockchain and Coinbase’s layer 2, Pollak described Base as a “public transportation” which can “fit hundreds of people into a single train” as opposed to Ethereum, where “everyone’s driving in a single car,” making it expensive.
Besides, Base provides dApps a stellar opportunity to access Coinbase’s vast ecosystem, which includes seamless product integrations, easy fiat onramps, and powerful acquisition tools to serve it's over a hundred million verified users and to access tens of billions of dollars worth of assets on the platform.
On the Base network, users can currently bridge Ether from the mainnet to the L2 blockchain using the official Base bridge. A user interface for the bridge was launched on August 3, and about a week later, the cross-chain bridging protocol Wormhole also announced it is available on Base.
With the largest decentralized exchange (DEX), Uniswap running a Base version along with several other DEXs, users can now swap tokens or become liquidity providers. Additionally, users can make payments, register a username, launch a DAO, and mint NFTs on Base. When it comes to NFTs, multiple brands, including Coca-Cola, Coinbase’s Stand With Crypto campaign, Showtime, Atari, OpenSea, Optimism, and others, will allow users to mint NFTs exclusively on Base throughout August and early September.
Base’s Adoption Accelerating
The launch of Base has been a successful one, but the traction actually started before it even made its public debut. Ahead of its launch, the L2 already had $139 million locked into protocols and apps built on the Base network.
Base has been garnering substantial attention and liquidity thanks to a string of meme coins launching on the network. However, it hasn’t been without its issues. BALD token launch on Base is one prominent example where $1.9 million were lost due to the developer pulling liquidity.
Based on the “total value locked” or TVL, a common but flawed metric for evaluating blockchains and protocols, Base is currently ranked as the 5th largest layer-2 blockchain. At the top is Arbitrum with about $6 billion in TVL, followed by OP Mainnet at $2.9 billion, zkSync Era at $430 million, and then dYdX with $336 million. Meanwhile, Base has $169 million in TVL, which is an increase of more than 80% over the past week, according to the crypto analysis firm L2beat.
However, other metrics also paint a similar picture, including the daily transactions per second (TPS) based on which Base is at 4th place among layer 2 solutions, behind zkSync Era, Arbitrum, and Optimism.
Now, if we look at daily active users on Base, they have exceeded 100,000 just a day after the network's official launch.
On August 10, the network recorded a total of 136,047 daily users, according to Dune Analytics. This was the network’s highest daily number after having 99,758 active users a day prior, i.e., on its launch. Nearly 42,000, or about 30% of the daily users on August 10, were new users, though less than the 60,000 records on July 31.
Several Web3 development teams such as Brave, Sequence, 0x Swap, Trust Wallet, CyberConnect, Moonwell, Aragon, deBridge, Sushi, and Nouns DAO also came forward to announce that they are releasing apps for Base. From DeFi protocols and wallets to cross-chain bridges, oracles, and analytics providers, projects from varied categories are building on Base. The network’s team, in response, has released a schedule of upcoming events to celebrate its launch.
Ahead of Coinbase’s new Ethereum layer-2 solution, the decentralized oracle network, Chainlink also announced the implementation of price feeds into the chain. This integration enables developers with the tools they need to port existing applications over to Base.
Base to Expand Coinbase’s Revenue Streams
The blockchain’s launch comes after Coinbase reported a 20% loss in its active users last quarter and a sixth consecutive quarter of losses. For Q2 of 2023, Coinbase reported revenue of $662.5 mln, down 18% from 2Q 2022, and a net loss of $97.4 mln, also down by 91% from 2Q 2022.
The company’s total revenue of $708 million beat analyst estimations. However, trading volume saw a decline of 57.6% year over year at $92 billion. Both retail and institutional trading volumes took a hit. The company’s total operating expenses also declined 57.8% year over year to $782 million.
As of June 30, 2023, Coinbase’s cash and cash equivalents were $5.2 billion, and total assets were $137.7 billion, an increase of 16.5% and 53.4%, respectively, from 2022 end.
In the company’s Q2 2023 earnings call, CEO Armstrong shared that the company’s workforce remains robust, with 3,400 employees working on Coinbase's mission. According to him, the future of crypto will see a shift from trading to other utilities, with payments being a significant use case.
Addressing Base, Armstrong pointed out the growing interest from developers and emphasized its decentralization which will be achieved over time. As for monetization, he explained that the L2 would generate revenue through sequencer fees, which are incurred for every transaction executed on Base.
Base is seen as another business push for Coinbase, which could ultimately allow the company to generate fees from not just running its own blockchain but potentially an even more lucrative stream of revenue from applications built on top of it. In an interview with CoinDesk earlier this week, Pollak said that 100 dApps were already deployed or ready to go on the new network.
“Historically, the aperture of what people can do with crypto has been relatively limited, mostly speculation,” Pollak said. “In order for Coinbase and crypto and this work that we’re doing to have the impact that we all want, we need to move from the place where this is speculation to a place where this is integrated into every part of someone’s day-to-day existence.”
So, with Base, Coinbase aims to enable that next wave of utility and innovation in crypto. This is why, according to Pollak, revenue is not the product's primary focus but increased utility. This, in turn, will increase the number of use cases for Coinbase and the opportunity for the platform to provide “easy-to-use, trusted experiences that we can monetize,” he said.
As for the token, the company has said, in no unclear terms, that there would not be one. The roadmap for the project clearly states that “Base has no plans to issue a network token,” rather, it will be leveraging ETH for transactions and covering gas fees.
Pollak also touched upon not having a token on or for Base, as he stated that ETH, USDC, and all other tokens are already deployed on the network. Looking at the regulatory environment and the impact of having tokens, the company found that “they’re more confusing for finding product-market fit than helpful,” he said.
Base in Regulatory Context
This launch comes as the San Francisco-based company faces increased regulatory scrutiny. Coinbase attracted the attention of the Securities and Exchange Commission (SEC), which has filed a lawsuit against the company for operating as an exchange, clearing house, and broker without registering with the agency and selling unregistered securities.
Coinbase recently filed a motion in federal court in Manhattan, asking a judge to drop the SEC lawsuit, arguing that the SEC lacks authority over its activities. The exchange also referred to the US District Judge Analisa Torres’ ruling in the Ripple case that differentiated between institutional XRP sales, which are considered securities, and public sales, which are not deemed securities.
While arguing about the legality of its secondary trading service, Prime, Coinbase likened crypto’s sale to selling a parcel of land, a condo in a new development, a baseball card, and even a Beanie Baby.
Now, when it comes to Base, a decentralized open, permissionless blockchain being launched by a public centralized company, Pollak talked about how it hasn't been done before, so “there’s no playbook.”
However, he does stress that mediocre efforts just wouldn't do, as he said: “We have really gone above and beyond to make sure that we’re doing this in the right way.”