Coinbase Unveils Its Own Blockchain
Coinbase, a prominent player in the cryptocurrency realm, has long been recognized for its user-friendly platform facilitating cryptocurrency trading, storage, and exploration of novel digital asset opportunities. What once set Coinbase apart from its peers was its strategic choice to abstain from direct ownership of a blockchain, distinguishing it from many other major exchanges. However, everything changed on August 9th when Coinbase introduced Base, a layer-2 blockchain built on the Optimism technology for the Ethereum network.
Regrettably, as of now, there is no token associated with the Base blockchain. Although Coinbase asserts that there are no plans for a token, it's quite likely that a token will be introduced in the coming years.
At its core, Base functions as an Ethereum Layer 2 solution, emphasizing key qualities such as security, stability, and scalability. It is compatible with the Ethereum Virtual Machine (EVM) and is designed to facilitate a smooth transition for developers and users from the Ethereum chain.
Positioned as a cost-effective alternative, Base provides the general public with access to the EVM environment while maintaining low transaction fees. Leveraging the resources of its parent company, Base serves as a bridge for decentralized applications to tap into Coinbase's extensive product range and distribution network. The platform seamlessly integrates with Coinbase, simplifying the process of converting fiat currency into cryptocurrency and granting direct access to millions of verified users within the Coinbase ecosystem. This strategic alignment enhances Base's potential to foster adoption and awareness, ultimately attracting a wave of new users to the Ethereum ecosystem.
An effective measure for assessing new blockchain networks is to examine the amount of funds that have been bridged to them.
Base has seen an impressive surge of over $300 million in bridged funds since its launch just last month. Such rapid growth is quite noteworthy for a newly established blockchain. As we observe the initial excitement surrounding this development subside, it will be interesting to see if Base can harness the influence of Coinbase's popularity to encourage their exchange-only users to take advantage of their secure fiat platform in order to increase their on-chain funds.
Adoption
We have a preference for blockchains that demonstrate actual profitability. Base has already begun to generate income from fees, reaching a peak of $1.2 million in weekly fees and approaching $800,000 in weekly revenue in early August.
Base averaged about 450,000 transactions per day in its first month. Compare this to the most popular blockchain in Binance Smart Chain with around 3.2 million per day on average.
A significant portion of the initial trading activity on Base can be attributed to a solitary project known as friend.tech.
For approximately a week, this Dapp accounted for more than 50% of the on-chain trading volume. friend.tech is a decentralized social network aiming to tokenize the relationship between followers and influencers, essentially treating interactions with creators as tradable assets. However, it has experienced a significant decline in activity since then.
Who Benefits?
Coinbase is clearly positioning itself to become the leading Layer 2 (L2) solution provider for Ethereum. If this vision becomes a reality, it could serve as a significant catalyst for sustained growth for this premier player in the retail cryptocurrency space. Brian Armstrong's impressive track record, both in terms of what he has built and, perhaps even more crucially, what he has managed to weather, cannot be understated. The tumultuous crypto markets and the prevalence of fraudulent activities and scams caused the downfall of many major players, yet Coinbase and Armstrong remain resilient.
Once the dust settles on the regulatory battle with the SEC, Coinbase as a company might regain its attractiveness to investors.
While Base's success may certainly be a victory for Coinbase, it is undeniably a triumph for the Ethereum ecosystem as a whole. It has the potential to facilitate a substantial migration of cryptocurrency assets from off-chain to on-chain. While it may not be the sole driver of adoption, a Coinbase fiat on-ramp into the Ethereum network could establish an expressway of liquidity on-chain, creating an unprecedented landscape for cryptocurrency transactions.
Competition?
The number of individuals actively engaging with blockchains on a daily basis has stagnated, despite the existence of numerous cost-effective and high-speed Layer 2 solutions already in place. Competition in this landscape is undeniably fierce. Nevertheless, if there's one entity capable of attracting significant attention to the public blockchain sector, it's Coinbase.
It's evident that all Layer 2 solutions, except for Optimism (OP-USD) and Base, should be prepared for intensified competition. Our evaluation of Arbitrum (ARB-USD) and Polygon (MATIC-USD) will require a fresh perspective as we gain more insights into Base.
Analyst's Disclosure: I/we have a beneficial long position in the shares of ARB-USD, OP-USD, MATIC-USD, ETH-USD, BTC-USD either through stock ownership, options, or other derivatives.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor.