Coinbase Launches Base: A Scaling Solution to Reverse Losses
Coinbase is set to launch its Ethereum layer-2 scaling solution called Base, which aims to tackle the company’s consecutive quarters of losses. This new platform will empower developers to create their own crypto applications, thus expanding Coinbase’s revenue streams beyond its core trading business.
What is Base?
Base will function as a blockchain, providing investors with the ability to send money, trade on decentralized exchanges, borrow and lend cryptocurrencies, and even create non-fungible tokens. Alesia Haas, Coinbase’s chief financial officer, emphasized in a recent interview that the exchange will earn fees from every transaction made on the network if developers build popular applications. However, Haas acknowledges that it may take some time before Base generates substantial revenue.
Addressing Losses and Expanding Revenue
This launch comes after Coinbase reported six consecutive quarters of losses, primarily due to lower trading volumes and a decline in active users. Historically, Coinbase relied on fees from customer trades as its primary revenue source. However, non-trading revenue surpassed trading revenue for the first time last quarter, signaling a shift in the company’s business model.
With Base, a layer-two blockchain built on top of Ethereum, Coinbase aims to enhance transaction costs and speed. The platform achieves this by batching and compressing a large number of transactions before publishing them to the Ethereum blockchain. Jesse Pollak, leading Coinbase’s efforts on the blockchain, explained, “On Ethereum, everyone’s driving in a single car, that’s really expensive because everyone has to pay for their own car.”
Investors have already transferred over $130 million worth of cryptocurrencies from Ethereum to Base in anticipation of its launch. In fact, Base witnessed over $200 million in trading volumes and more transactions than established networks like Arbitrum in just two days.
“While Base holds promise, Coinbase faces reputational risks due to its open and ‘permissionless’ nature, meaning anyone can participate anonymously on the blockchain.”
– Jesse Pollak
Recently, the Base blockchain was involved in a scam that resulted in significant losses for investors, specifically related to a meme coin called BALD token. In response, Coinbase plans to introduce additional tools to help users assess the trustworthiness of products on the Base platform without compromising its open and permissionless nature.
Furthermore, Coinbase’s launch of Base occurs amidst heightened regulatory scrutiny. The Securities and Exchange Commission (SEC) filed a lawsuit against Coinbase in June, alleging a violation of exchange registration rules. As Coinbase plays a central role in creating Base, the company could potentially be held accountable for any illicit activities on the blockchain, according to Omid Malekan, an adjunct professor at Columbia Business School.
