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Last month, Coinbase unveiled its Ethereum layer-2 scaling solution called Base. The network, built on the MIT-licensed OP Stack in collaboration with Optimism, aims to make it easier for developers to build decentralized apps or “dApps” on-chain. 

This article will explain how Base works from a technical standpoint and how it could fall within Coinbase’s business model. 

Base to Enjoy Seamless Interoperability with Other Chains with OP Stack

Coinbase’s network Base has been created as a fork of Optimism, an Ethereum Layer-2 scaling solution that helps reduce the transaction fee and time by handling transactions off the blockchain. The L2 still uses Ethereum’s mainnet while processing transactions to enjoy its security and decentralization.

Optimism is powered by rollups, which bundle up hundreds of transactions before posting them on Ethereum’s mainnet in a single transaction. This allows the chain to socialize gas costs and offer cheaper ways to transact.

Furthermore, the network is called Optimism because it assumes all transactions are valid unless challenged otherwise by so-called “watchers.” If a watcher proves instances of fraud, the transaction is reverted, the bad actor gets penalized, and the watcher is rewarded.

The Base team chose Optimism “as the EVM offered the “path of least resistance” and OP’s codebase enabled a fast path to launch,” according to Amey Dandawate, a research analyst at Delphi Digital. 

Notably, Coinbase had previously collaborated with Optimism to accelerate the development of the EIP-4844 upgrade, which will introduce data availability for rollups, leading to reduced fees and more transaction throughput. More recently, the exchange also joined Optimism as a Core Dev on the open-source OP Stack.

This would further Optimism’s vision of being a “super-chain,” where the OP codebase is continuously forked to create new chains optimized for different use cases, Dandawate said in a recent note. He added:

“These new chains, such as Base, will have seamless interoperability with one another since they all use the OP Stack. The OP Stack provides standardized, open-source modules for layer-2 chains to provide shared security, composability, and coordinated sequencing of transactions.”

Coinbase Can Use Base to Bring On-chain Experience to Retail Customers

Coinbase has been looking for new ways to diversify its revenue. That’s because crypto exchanges usually suffer during bear markets when prices drop and trading volume decline — and having other streams of income independent of market conditions could prove vital in such situations. 

As reported, Coinbase reported around $600 million in revenue for the last quarter of the year, down more than 75% year-over-year from $2.5 billion in Q4 2021. The exchange’s revenue could have come far less if it wasn’t for other ancillary services. 

For instance, Coinbase offers coin custody, delegated staking, the USDC stablecoin, payment service, debit card, and subscription services. In its latest quarterly filing, these ancillary services constituted 47% of the total revenue, up from 9% in the same quarter last year. 

Meanwhile, Base could further help Coinbase expand as it allows the exchange to introduce an on-chain experience to its current user base, which spans over 110 million verified users. 

Coinbase has revealed that it does not plan to issue a token for its L2 network. ETH, the native token of the Ethereum blockchain, will be used as the gas token of Base. Moreover, the exchange is already publicly traded with shares listed on Nasdaq. 

It is worth noting that the introduction of Base has benefited Coinbase’s stock price, which is up roughly 6% since the company revealed the new network. Currently, Coinbase shares are down around 3% in pre-market trading. 

Do you think Coinbase will be able to benefit financially from Base? Let us know in the comments below.

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