Coinbase, the second largest crypto exchange by trading volume, is diving into the world of blockchain in an attractive move for some market players.
has recently launched Base, an Ethereum-focused Layer 2 (L2) blockchain, in an effort to break into the decentralized ecosystem through its own chain and further expand into the developer space according to Jesse Pollak, lead at Coinbase and chief of protocols.
Base's L2 is a "safe, low-cost, and developer-friendly" chain that aims to help developers create dApps on the chain, the company said. Several crypto companies, platforms, exchanges, and infrastructure companies have committed to building on Base, Coinbase representatives claimed.
Some of them are Blockdaemon, Chainlink, Etherscan, QuickNode, Aave, Animoca Brands, Dune, Nansen, Magic Eden, Pyth, Rainbow Wallet, Ribbon Finance, The Graph, Wormhole, and Gelato, among others.
“The launch of Base reinforces the importance of L2 in the growth of the blockchain ecosystem,” said Dmitry Shklovsky, co-founder of QuickNode, which is a partner and provider of blockchain nodes. Base. “More on-ramps and more equitable and developer-friendly L2 are key indicators that we are moving in the right direction.”
L2 blockchains are built on top of Layer 1 (L1) blockchains such as Ethereum, Solana, and Avalanche in an effort to reduce bottlenecks, restrictions, and other network-clogging effects. Instead of putting each transaction in an L1 chain, L2s bundle transactions together so that tasks can be delivered more efficiently.
L1s like Ethereum are secure but impractical for high throughput volumes due to their prohibitive cost. Gas rates, or transactionsaid spokespersons for The Graph Foundation and Edge & Node. “L2s make the blockchain space more accessible to a broader range of developers and users, allowing for cheaper and faster transactions that still take advantage of the security of L1s like Ethereum.”
L2s are essential for accessibility and scalability in the space, Shklovsky said. “L1s typically prioritize security and decentralization over scalability. L2s reduce the workload on the mainchain, making the network faster and easier to use, allowing chains to scale quickly without compromising decentralization or security.”
Grow L2 space
Base is based on OP Stack licensed from MIT in collaboration with Optimism of the layer 2 blockchain, which is also focused on the Ethereum blockchain. “Optimism is not a competitor [to Base]but more of a collaborator,” Shklovsky said.
The battery Optimism it is open source and is trusted by many in the web3 space, spokespersons for The Graph and Edge & Node said. “This demonstrates the positive sum and collaborative spirit of web3, in contrast to the competitive landscape that has become the norm in web2. When developers build openly, everyone benefits without having to reinvent the wheel from scratch every time new technology is created.”
Coinbase's new chain won't affect the crypto ecosystem any more or less than any other L2, Shklovsky thinks. "Since there is no plan to issue a network token, Base's only impact on the broader crypto ecosystem is to create another on-ramp for new users, which is good for everyone."
Coinbase is the trusted place for over 110 million verified users and is a well-known entry point for new people looking to enter the web3 space. This launch could be a connection point with the Wild West of cryptocurrencies.
The new chain will help “bring new users into the crypto ecosystem who will engage in decentralized applications, at a deeper level than surface-level engagement on exchanges,” spokespersons for The Graph and Edge & Node said.
“By launching an L2, Coinbase creates a bridge between exchange users and the decentralized web,” they said. "It's encouraging to see centralized organizations build on decentralized infrastructure, introducing their users to more native web3 experiences."
reinforcing beliefs
In general, Offchain Labs (the team behind the L2 Arbitrum scaling solution) and QuickNode also find Coinbase's involvement exciting. “It reinforces what we have always believed: blockchain is much more than just cryptocurrency,” Shklovsky said, referring to tokens that are often associated with particular chains.
Coinbase's participation also validates L2's vision, said Steven Goldfeder, CEO of Offchain Labs. “Scaling Ethereum is a team sport and we welcome them to this important space.”
There are dozens of L2 blockchains in existence today, with over $6.34 million in total value locked (T) on the networks, an increase of about 3% in the last seven days, according to L2BEAT data.
Arbitrum, which is the largest L2 scaling system, has more than $3.350 billion in TVL and surpassed Ethereum in daily transactions on Tuesday with more than 1,1 million transactions, according to the block explorer. arbiscan. This growth points to the demand for scalable solutions as the Ethereum ecosystem continues to grow.
“We have long believed in the importance of L2 technologies as the future of our Ethereum and indeed we have seen this vision play out with Arbitrum experiencing explosive organic growth, surpassing the number of transactions on Ethereum for the first time. weather this week,” Goldfeder said.
While Base is incubated within Coinbase, his plan is to decentralize it “in the coming years,” Pollak said. The team has worked "a lot in the last six months" to address some of the biggest third-party concerns, including how a large centralized company can participate in a decentralized way.
This effort to fully decentralize “shows their commitment to the ethos of the blockchain space,” Shklovsky commented.
Market players need to look at the L1 and L2 spaces with an abundance mindset, Shklovsky said. “With billions of potential users around the world, there is a place and a use case for every L2, as long as they are secure, easy to use and scalable.”
vigilant regulation
As all of this plays out, regulation takes a backseat to the entire industry.
The Securities and Exchange Commission has been making the rounds in the crypto space as it focuses on staking businesses like Kraken, which was fined $30 million by the agency earlier this month.
In other news, in early 2023, New York financial regulators discovered that Coinbase violated anti-money laundering laws by failing to perform proper background checks. Coinbase has agreed to pay a $50 million penalty to the New York State Department of Financial Services and must also spend $50 million to improve its compliance program.
A series of US crackdowns are underway across the crypto space, and the question of how major crypto companies and exchanges like Coinbase will navigate these new waters is unclear. Adding a new decentralized blockchain to a centralized entity could cause some headaches for the exchange if they stray in the eyes of regulators.
But whether regulation will carry deeper weight in this space has yet to be determined.
