Coinbase Enters Fierce Battle for Layer 2, Do You Have a Win?[Column]| coindesk JAPAN | Coindesk Japan

Coinbase has big plans for its recently announced Ethereum Layer 2 blockchain.

Developed in partnership with Layer 2 Optimism and using Optimism’s open-source tool OP Stack, Base lowers Ethereum (ETH) transaction fees to 1 cent and Solana It aims to work with other blockchains such as , Avalanche, and Polygon.

It is also expected to be the starting point for the company’s “Master Plan” to bring one billion people into crypto-assets through “acquire, build and invest” in projects in the “open financial system” field. there is

A new revenue stream?

The announcement comes at a crucial time for Coinbase, the largest cryptocurrency exchange in the United States. Coinbase is in a transitional period, according to its latest quarterly results, as its key revenue source, trading volume, has dried up in a “crypto winter.”

At the same time, other businesses that could generate revenue, such as staking and service fees, are growing. Base, which aims to “diversify” over time, may become a new earnings pillar for the company, which has long sought to diversify its balance sheet.

Base will initially charge transaction fees of between 10 and 50 cents, in line with leading Layer 2 networks Arbitrum and Optimism, according to TechCrunch.

It’s currently in the testnet stage, but already some prominent projects are among the early adopters. Supported by Chainlink, Etherscan, Aave, Animoca Brands, Dune, Nansen, Magic Eden, Wormhole and more is expressed. Big news, given that “Coinbase has no plans to issue new network tokens.”

Coinbase’s Experimental Efforts

Over the years, Coinbase has adopted strategies that contribute to the cryptocurrency industry, such as allocating 10% of its cash assets to venture businesses. Of course, not all experimental efforts have been successful. For example, the NFT platform has struggled to gain market share since its launch last year, despite its brand strength.

Base is an entry into the increasingly competitive and complex Ethereum scaling tool market. Arbitrum, a major Layer 2 network, surpassed the Ethereum blockchain in daily trading volume on February 21.

Meanwhile, multiple competing projects are working on Ethereum-compatible “zkEVM,” the so-called “zero-knowledge proof rollup,” and the world of Layer 2 has evolved significantly.

Major projects such as Polygon and ConsenSys are working on breakthrough zero-knowledge proof technology. ZK Rollup differs from existing ‘optimistic’ products such as Arbitrum and Optimism that immediately approve transactions through ‘Validity proof’.

new user journey

Base, which will be integrated across Coinbase’s exchanges, wallets, and developer products, is a way for existing users to get “where they want to be, not controlled by Coinbase,” and the project’s Head of Development Jesse Pollak said. This is amazing.

Łukasz Anwajler, chief technology officer at crypto infrastructure firm Ramp, also said that people need to be able to control their assets “from on-chain to off-chain,” and that more is being done across the crypto ecosystem. They say they want a safe “user journey.”

The need for scaling products and further experimentation is clear. Ethereum co-founder Vitalik Buterin’s “roadmap” for the Ethereum blockchain looks less like a roadmap than a route map of American highways, branching and merging.

Can we expect growth?

But Base has concerns about the incentives for sustained use of the protocol. Other Layer 2s have encouraged usage by issuing tokens or implicitly promising future airdrops. For Coinbase, which is known not to have a “native token” under the current regulatory regime, that is not an option.

Additionally, there is growing awareness of the risks centralized organizations pose to DeFi (decentralized finance), which could create headwinds for Base.

I don’t know how long Base was planned and prepared, but its start coincided with the scale reduction of Coinbase.

Coinbase has pulled out of markets like India and laid off hundreds of people in recent months. If Base becomes the core of its growth, it is uncertain whether it will cover all the resources needed to fully develop.

The ultimate vision seems to be for Coinbase to become a “contributor” to the Base network, leaving the community to make decisions about governance.

That process is often heard in the crypto industry. But in the absence of details, the message might sound like “develop it, the users and use cases will follow.”

It sounds hollow in an industry that is still exploring use cases.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
| Image: Coinbase CEO Brian Armstrong (CoinDesk)
｜Original: Coinbase Joins the Ethereum Layer 2 Rat Race – Can It Grow?