Coinbase rolls out new Layer 2 blockchain, Base
Coinbase Global (COIN) on Thursday announced a new Layer 2 blockchain called Base.
Initially incubated at the company, the protocol is intended to improve data processing and transaction costs across Ethereum and other blockchains, allowing software developers to more easily build other crypto applications.
Building new and better applications is the crucial next step in attracting crypto’s next wave of users, Coinbase said.
“We’ve done a really good job of doing it on trade and speculation,” Jesse Pollak, project manager and Coinbase’s senior director of engineering, told Yahoo Finance. “But we haven’t seen the really useful applications emerge yet.”
The Base protocol is built using open source software created by Layer 2 blockchain Optimism. The company has no plans to issue a token associated with the new protocol.
During the hour after the announcement, the original symbol of Optimism – OP – jumped 7%.
In recent weeks, Coinbase opened up its blockchain to 48 other crypto-collaborators in DeFi, NFT, gaming and infrastructure, including Chainlink, Animoca Brands, Nansen, Magic Eden, Ribbon Finance and Wormhole.
Coinbase’s announcement comes two days after the company reported a surprise fourth-quarter revenue growth and a narrower-than-expected loss for 2022. However, Wall Street’s reactions were mixed, with some analysts arguing that the surprise increase was ancillary to the company’s core business.
Shares of Coinbase rose more than 5% at Thursday’s open. The stock has lost more than 60% from a year ago; nevertheless, it has almost doubled so far this year.
‘The gateway to Web3’
Coinbase also announced the Base Ecosystem fund on Thursday, which will invest in early-stage projects that build on the protocol in partnership with Coinbase Ventures. The company will not share the amount of capital it plans to distribute through the fund.
Bitcoin, ether and other major cryptocurrencies represent units of account for Layer 1 blockchains. These digital ledgers are used less to build consumer applications, such as for mobile games and social networks, with developers often citing computing efficiency or scalability limitations.
Layer 2 blockchains are often more experimental, next-generation protocols are typically focused on scaling while deriving security and decentralization from one or more Layer 1 blockchains.
Pollak said Coinbase will earn revenue from Base, although the amount is expected to be “relatively small” as the company’s primary goal is to make Layer 2 blockchain transactions “as cheap as possible.” The company will also reinvest some of the income back into Optimism.
“We feel like this is really a statement that Coinbase is not just an exchange, but really is the gateway to Web3,” Pollak said.
With the announcement, the practice stage, or so-called testnet, of Base is now available to any software developer in the world. Without offering a firm date, Pollak said Coinbase is working toward the protocol’s mainnet launch in the next few months.
“As we are the gateway to Web3, investing in the underlying infrastructure to make it easier for developers to build the applications that users will use fits directly into our narrative of where we are going long term,” Pollak added.
Updated to show OP performance after announcement.
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