Coinbase is looking to onboard its approximately 110 million customers to the world of decentralized finance and has launched a layer 2 sidechain – Base – to respond to that. The company says Base will be the new home for Coinbase’s on-chain products and – it hopes – an open ecosystem for millions of new decentralized apps. Coinbase announced that the testnet of this sidechain had been developed since the beginning of February this year.
What is Base Blockchain?
Coinbase describes Base as an Ethereum Layer 2 (L2) chain that offers a safe, low-cost, developer-friendly way to build on-chain. This chain is built on Optimism’s OP stack with the vision of creating a standard, modular, rollup agnostic Superchain powered by Optimism. The OP stack is a developer toolkit for the Optimism network. It intends to power next-gen decentralized applications while leveraging the security of Ethereum. Given Coinbase’s robust experience in offering traditional finance services like fiat on- and off-ramp, this could be the perfect marriage between web2 and web3 that eventually brings about the best of both. Base makes it easy to build decentralized apps with access to Coinbase’s products, users, and tools. Seamless Coinbase product integrations and powerful acquisition tools enable developers to serve its users and $80 billion+ assets in the Coinbase ecosystem.
Since launching, multiple household web3 names have deployed on Base. Covalent, Chainlink, Euler Labs, QuickNode, Transak, The Graph, Ubiquity, Third Web, Aave, 0x project, and LayerZero Labs, amongst others, have all started developing and integrating their products with Base. Coinbase has built this new product to offer full EVM compatibility and intends to be open source. With this, it is entering a crowded and rapidly growing cohort. Last week, there was more than $6 billion worth of ETH on layer 2s, a 17% increase from a month ago, according to L2Beat. Important to note that two networks outside Polygon, Arbitrum One, and Optimism, currently account for 56% and 29% of the L2 market share, respectively.
Coinbase said it intends for the governance of Base to be fully decentralized, although it would not be that way at the start. Initially, Base will be incubated inside Coinbase but will become more decentralized over time.
“Coinbase is going to gradually transition into a role where we are a contributor to Base, we provide services and products that are built on top of Base, and we are not the decision maker for everything in the Base network—that’s being done through more decentralized governance,” Pollak, the company’s Head of Protocols said.
How they intend to go about governance without tokens is still being determined, but best believe the future will tell.
How To Deploy on Base
For now, using thirdweb is the best way to go about this. You can find a link to thirdweb here. Thirdweb is an all-in-one platform that provides an easily customizable software development kit for developers to quickly build on the EVM-compatible branch of web3. If you are using this path, remember to first add the Base Goerli testnet as a network to your thirdweb dashboard. After that, you will have to get some Base Goerli ETH.
Base Goerli ETH can be obtained directly from Coinbase’s Faucet if you have a Coinbase wallet (recommended). Alternatively, you can bridge regular Goerli (testnet) ETH to Base Goerli ETH through Coinbase’s Base Bridge if you have some or don’t have a Coinbase wallet. Every other step from there is pretty straightforward if you have any prior experience working in web3. If not, you can find a complete guide from thirdweb here.
Other options include; Infura, Chainstack, Alchemy, and Quicknode.
Does Base Have a Token?
The team behind Base has repeatedly said throughout their campaign that they do not plan to issue a network token. One would understand why. Given the Securities and Exchange Commission intensified clampdown on crypto securities with Kraken and Ripple, Coinbase is not ready to face any further scrutiny. Meanwhile, Coinbase announced that it was launching the Base Ecosystem Fund, which will invest in and support early-stage projects building on Base that meet predetermined investment criteria.
However, as the chain continues toward decentralization, one could predict that the token conversation will come up at some point.
What to Expect
Given Coinbase’s industry expertise and wide-reaching success, they are expected to leverage this properly as they introduce the new product line – Base – to the millions of customers they currently serve. Asides from that, they also serve a vast institutional client base who might be looking to solve specific needs using Base. Coinbase-wrapped ETH, cbETH, and its staking services can be conveniently moved to its chain and maintained in-house.
It is not unusual to see centralized exchanges diversifying and succeeding in decentralized finance. Binance, the world’s largest exchange, launched its decentralized layer 1 network – BNB Chain (previously known as Binance Smart Chain) – in September 2020. It has since grown to become the second-largest programmable blockchain after Ethereum. The exchange also has a decentralized exchange, Binance DEX, while Crypto.com, a Singapore-based exchange, launched a layer 1 blockchain, Cronos, in October 2021. Huobi has Huobi Eco Chain, a layer 1 chain rolled out in December 2020. Safe to say Coinbase is following in the footsteps of competitors in a regulatory-compliant way with a web3 portal for users in an environment where they can safely make their first baby steps.
Anchoring on the industry-grade security level of the Ethereum blockchain, risks on Base is minimized. This venture can be seen as Coinbase’s way of testing the waters before launching its native layer 1 chain. Several market analysts expect Base to be a resounding success. However, it is early to start conjuring network activity estimates nonetheless.
Currently, the total value locked across layer 2 protocols on Ethereum is approximately $7 billion. If Base can capture a similar market share to what its parent company controls (3%) in global exchange volume, that will translate to about $210 million. That results in a yearly transaction volume of $6.3 billion by extrapolating the annual TVL utilization rate of roughly 3000% on Ethereum.
Base promises very cheap transaction fees. If it can extract revenue from transaction fees at an average rate of 0.01%, that’s $630,000. That pales next to Coinbase’s $3.2 billion in revenue from 2022. Nonetheless, the L2 market is developing, and the decentralized internets have enormous growth potential. This step is not just a bold one for Coinbase but also a very promising one.
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