Original Author: Mary Liu
Original Source: BitpushNews
Coinbase (COIN), the largest cryptocurrency exchange in the United States, has announced the launch of Base—a Layer 2 network built using Optimism’s OP Stack.
Base will be incubated internally at Coinbase but is planned to become fully decentralized in the future. It will join as the second core contributor to the OP Stack—the developer toolkit for the Optimism network. However, Base will not be limited to Ethereum alone; it will also provide easy and secure access to other Layer 2 networks (such as Optimism) and additional blockchain ecosystems (including Solana, Avalanche, and Polygon). Ultimately, Base aims to onboard one billion people into crypto by enabling them to “buy, build, or invest” in projects within an “open financial system.”
Coinbase’s Diversification Strategy Attempt
The new announcement arrives at a critical juncture as Coinbase faces growth bottlenecks—its latest quarterly report shows its core trading revenue gradually drying up amid the crypto bear market. Meanwhile, other potentially profitable business lines, such as staking and other services, are beginning to grow. As a protocol that Coinbase intends to “decentralize” over time, Base could become a cash cow for the company, which has long sought to diversify its balance sheet.
According to TechCrunch, Base will initially charge fees of $0.10 to $0.50—comparable to mainstream Ethereum Layer 2 networks such as Arbitrum and Optimism. Moreover, despite still being only a testnet, Base appears to have no shortage of early adopters: established projects including Chainlink, Etherscan, Aave, Animoca Brands, Dune, Nansen, Magic Eden, and Wormhole have publicly expressed support. Crucially, Coinbase has explicitly stated it has no plans to issue a new network token, avoiding the “airdrop-driven” traffic-generation model—and thereby signaling its sincere commitment to “build.”
To stimulate development, Coinbase and its venture capital arm, Coinbase Ventures, will launch a grant program for software engineers building on Base—though the specific funding amount remains undisclosed.
Competitive Landscape
Coinbase has long pursued a strategy of contributing technology and guidance to the crypto industry—including allocating 10% of its cash holdings to venture investments—but not all initiatives proceed smoothly. For example, its non-fungible token (NFT) marketplace, launched last year, has struggled to capture market share despite bearing the prestigious Coinbase brand.
Base’s launch also coincides with an increasingly intense and complex competitive landscape in the Ethereum scaling market. Earlier this week, data from L2BEAT showed that Arbitrum One processed more transactions than Ethereum itself—becoming the first Rollup to surpass Ethereum’s mainnet in daily transaction volume. Its parent company, Offchain Labs, was valued at $1.2 billion in its Series B round in August 2021. Meanwhile, Optimism—the second-largest Rollup and Arbitrum’s primary competitor—was valued at over $1.6 billion in its Series B round last March.
Meanwhile, several competing projects are developing Ethereum-compatible “zero-knowledge Rollups,” or zkEVMs—such as Scroll, Polygon, Matter Labs, and ConsenSys—which could reshape the Layer 2 landscape. Some industry experts consider ZK-powered Rollups the most promising approach to scaling Ethereum, as they hold potential to improve upon existing Layer 2 blockchains in both speed and security.
Polygon announced that it will launch its zkEVM on March 27. Last week, Matter Labs invited developers to register to deploy their applications on its zkEVM zkSync.
Despite the rapid advancement of zk technology, Jesse Pollak, Protocol Lead at Coinbase, stated in an interview with Blockworks that technical differences alone do not define a product—how implementation details are deployed is key. A core objective for Base is to build technology that can be easily upgraded. This goal was one of the primary reasons Coinbase chose Optimism as its partner, particularly due to the modular solution offered by the OP Stack.
Pollak said: “We believe that in the future, we may launch rollups that incorporate both zk and Optimism components. What matters today is building our tech stack in a way that allows for easy upgrades. The reality is that you need to build infrastructure that enables blockchains to function well.”
Pollak also noted that since last year, Coinbase has been working on proto-danksharding (EIP-4844), an Ethereum upgrade that will reduce Layer 2 network fees by 10–100x compared to current levels. EIP-4844 is expected to be completed this summer.
Additionally, growing awareness of the risks centralized entities pose to decentralized finance (DeFi) could potentially hinder Base’s development. It remains unclear how long Base’s planning or development timeline will be (Coinbase is the first centralized exchange to launch a Layer 2 network). In recent months, Coinbase has exited markets including India and laid off hundreds of employees—whether Coinbase possesses sufficient developers or resources remains unknown.
Coinbase’s ultimate vision is to become a “contributor” to the network and delegate governance decisions to the community. How each of these details will be implemented remains to be seen—and time will tell.