Coinbase's BASE: Welcome to Crypto Incorporated

BbyA...nMtW
17 Apr 2023
69

Coinbase is building a new Layer 2 on Ethereum called Base. It's a it's a chain in the OP (Optimism) stack so the same mechanics apply here, aka it's copy of the existing Optimism Layer 2.
Wouldn't be surprised if we saw more of these OP Stack Layer 2 chains over the next 2-3 years. Their post announcing the chain and detailing the vision and theory behind it is a good read, as are the few posts so far on the Base Mirror blog: Decentralizing Base with the OP Stack and Optimism

I got one of the commemorative NFT mints when the post was first published.


You can also find more information at:
Base docs https://docs.base.org/
Base main site https://base.org/



Welcome to the Superchain

It all forms part of their Superchain thesis, which is clearly a direct competitor to something like Cosmos, Polkadot, or Avalanche subnets.
Paramount to this vision is the Ethereum upgrade: EIP-4844: Reducing Fees for Ethereum Layer 2 Rollups.

To get a full story on the Superchain, why Coinbase are developing Base, and why they're doing it now; listen to this podcast episode from Empire: NEWS Coinbase launches L2

Two of the key architects of Base talk on about the development of Base within Coinbase and why Coinbase is doing it. It's an in-depth discussion and they really do give their honest opinions about what Base is and isn't for and what the future could be.

It's hard to be that optimistic about Base in terms of advancing decentralisation after listening to this. I think it's going to be a good revenue source for Coinbase but it's not an ecosystem helper.


Why do developers in crypto/web3 need it?

We have successful decentralised Layer 2s with vibrant ecosystems. The idea that the ecosystem desperately needs another one, this time owned by a publicly listed company, seems strange.
I don't buy any of the arguments this unlocks creativity in the way the Apple app store did. Apple delivered a product no one else had and enabled a connection from developer to user (financially) which was magnitudes less friction than had previously existed.
Base is another Optimism. Which is identical, from an end user's experience, to all the other Layer 2s.


A Layer 2 doesn't help the onboarding to web3. Other stuff Coinbase is already building does though

The argument was made that this Layer 2 will help onboard many more people to web3. If that was the case then Optimism, Polygon and Arbitrim would be onboarding significant numbers of non web3 people now (maybe Polygon is, but it's mostly onto centralised, permissioned blockchains).

However I think Coinbase has already built a much better onboarding product: Coinbase Wallet (self custody). It's is good. I use it.

Whilst I don't think it's better than other wallets I use on other chains e.g., Solflare/Phantom (Solana), Keplr (Cosmos.. gawd I love Keplr) and Core on Avalanche, it is a better experience than the number one Ethereum wallet Metamask.
Coinbase are positioned to build tight integrations with their off chain services directly into that self custody wallet. Those will offer Coinbase way to value capture but they'll also be (likely) valuable to users.


Coinbase will compete with their partners. Just like Apple does.

One non developer friendly thing that came out of the above discussion was would Coinbase use Base to build competitive services (think a Uniswap like DEX) which they could then integrate into Coinbase wallet, and even the Coinbase CEX, to capture market share. The Coinbase people were super cagey about that question and largely deflected by saying they thought that growing the entire ecosystem would benefit everyone.

Reading between the lines: Yes, Coinbase will do that where it can drive shareholder value. The Apple and Mac app stores are great places to be UNLESS you do something that directly competes with a product Apple decides they want to build. Then they are not so great places to be.


Cross Chain swaps don't make sense for an Ethereum Layer 2

The argument was made that Base would eventually enable cross chain movement of value. Doing things like moving funds from Solana to Avalanche and similar.

I find this weird as Coinbase already has products, good products, that do this.

One such product is the Coinbase CEX. Most of us who have used crypto have used a CEX to cheaply convert one token into another and send it cross chain. Often where those tokens were inoperable otherwise. I think this is one of the main use cases for CEXs after being the on/off ramp to fiat.

Another product being developed by Circle (which is 50% owned by Coinbase) is a cross chain bridge for USDC using an innovative (and very efficient) 'burn-to-mint' mechanism meaning you can transfer value cheaply and safely between any chain that has USDC officially deployed on. They're calling it: Cross-Chain Transfer Protocol.



Coinbase are not the first

Coinbase isn't the first exchange to build their own chain. Chains such as Cronos (Cosmos chain of Crypto.com) and BNB chain (EVM compatible and very Ethereum-like Layer 1 from Binance) have existed for quite a while now.

In the case of BNB chain it's a massive ecosystem.

According to some sources, BNB chain has a daily transaction volume of about 3.75 million transactions as of April 8, 2023, which is down from 5.51 million transactions one year ago
Ethereum has a daily transaction volume of about 956,899 transactions as of April 8, 2023, which is down from 1.08 million transactions one year ago.
This means that BNB chain has about four times more daily transactions than Ethereum as of April 8, 2023.

But that's not to say it's entirely rosy over at BNB chain.
BNB chain has a limited validator set at present (29 validators! TWENTY NINE!) and decentralization advocates have decried BNB Chain for being secured by a permissioned cohort of validators, arguing that the structure allows Binance to exercise control over their respective chains.

BNB chain are working at expanding out that validator set in the near future, albeit slowly (to 100): BNB Chain Tech Roadmap 2023



Base don't seem to want/need decentralisation

How many people can become a sequencer on Base. None.

Coinbase has complete control of all transactions on Base. It's the same design as Optimism's Mainnet but whereas Optimism is run by a DAO and Coinbase is a publicly traded, fully regulated, US company.
There is no indication Coinbase will ever make this a decentralised blockchain or fully  permission-less.
That's unlike Optimism who's stated goal is to decentralize their base layer: Optimism’s Path to Technical Decentralization



Don't be surprised if Coinbase acts like a large corporate company

I applaud the move to provide lower cost, higher performance infrastructure. The Ethereum blockchain is frequently inaccessible to all but high net worth users due to the high gas fees and it's widely acknowledged rollups/layer 2 chains are essential to scaling the network whilst maintaining security guarantees.
As a billion dollar company Coinbase has the resources to support this development. This is pretty commonplace in technology in the same way we have large web2 and web1 companies to thank for supporting the open source software movement we see today.

There is a key difference though.

Unlike companies like Google, Facebook, etc.. who supported open source development as a broad ecosystem investment, Coinbase are looking to directly monetise Base. Whereas Google supported Angular.js but never owned Angular.js (nor was a gatekeeper) Coinbase owns Base and they're going to have final say on who's let in.

Through things like USDC (Coinbase 50%, Circle 50%) we're seeing these centralised players look to centralise large parts of the decentralized finance and web3 ecosystem.
With that control comes permissioned access. Ultimately it's the US govt deciding who gets to participate and the rules of the game (hello GFC!).

Should your country's politics not align with US's or your business threaten a politically well connected US business.....might not be so great for you.



Base is like....

If I were to use an analogy I'd say Base is like the Windows app store. It's far from useless but it's not a widely applicable piece of infrastructure for the internet or personal computing.

It's definitely not where most of the innovation will happen nor will it be an ecosystem driver. But for particular applications and use cases it will be very good. I would posit those applications are those highly regulated by the US govt. That's not a bad thing. You could make a very strong argument to say that undercollateralised lending and most forms of insurance can only exist in a permissioned ecosystem that enforces a base set of rules.
You would probably find plenty of builders for those products would actually prefer Base if they were offered an easy and cheap way to KYC and access basic regulatory protections (for both business and consumer).

A very interesting titbit that came out during the discussion with the Coinbase devs, on the Empire podcast, was one of the things they discussed and prototyped before deciding on Base was an ad network. Whilst the team building Base didn't follow through with that, Coinbase is still building an ad network in crypto. An ad network is likely something that works really effectively under a centralised and permissioned (sorry Basic Attention Token!). Things like those could be broadly ecosystem helpers even if they don't further the core goals of censorship resistance and decentralisation.

I'm bullish on Coinbase as a company. It's the reason I hold COIN shares and continue to add to them. So whilst I'm highly sceptical of their stated altruistic intentions, I'm not sceptical of the potential revenue here for them nor am I broadly sceptical of the effectiveness of a technology like Base to bring net value to the crypto ecosystem as a whole.




Follow me on Solarplex

Solarplex referral link

Enjoy this blog? Subscribe to andrewsaul

2 Comments

B
No comments yet.
Most relevant comments are displayed, so some may have been filtered out.