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On February 23, a cryptic tweet from Coinbase sparked a flurry of speculation.
🔵 2.23.23 pic.twitter.com/DRvvBS5y9v
— Coinbase (@coinbase) February 22, 2023
9 hours later, they introduced Base, their very own layer 2 scaling solution.
1/ 🔵 We’re excited to announce @BuildOnBase.
Base is an Ethereum L2 that offers a secure, low-cost, developer-friendly way for anyone, anywhere, to build decentralized apps.
Our goal with Base is to make onchain the next online and onboard 1B+ users into the cryptoeconomy. pic.twitter.com/RmwZFJzGGs
— Coinbase (@coinbase) February 23, 2023
What is Base? What does it mean for crypto? Can we make money from it?
Let’s find out!
Disclaimer: This is not investment nor investment advice. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.
TLDR
- Coinbase is launching Base, a layer 2 scaling solution designed to integrate with and boost the existing Ethereum ecosystem. Base is Coinbase’s way of future-proofing by making the platform a gateway for Web 3, keeping customers in the Coinbase ecosystem even if they move away from centralised exchanges.
- The implications of Base for crypto as a whole cannot be understated. It has the potential to onboard huge numbers of retail and institutional users.
- Coinbase is taking on the regulators with this move, and clearing a path for others. By operating a permissionless layer 2 blockchain as a centralised company, they’re an easy target for regulators. If they succeed, other centralised entities will be able to create dApps and blockchains without fear.
- There are going to be many new protocols launching on the Base chain (with potential airdrop opportunities!).
- Other protocols and stocks are likely to benefit from the success of Base, including Ethereum, Optimism, and DeFi tokens that launch on the chain. We expect opportunities here in the future too.
Behold… the master plan!
In 2016, Coinbase founder Brian Armstrong created a “master plan” for a global open financial system:
1. Develop protocols (such as Bitcoin and Ethereum, the foundations for crypto growth).
- Targeted user number: 1M.
2. Build an exchange (Coinbase).
- Targeted user number: 10M.
3. Build interfaces for dApps (and other essential infrastructure, e.g. Coinbase wallet, USDC, and non-Coinbase products like Lido, Aave, Synthetix etc.)
- Targeted user number: 100M.
4. Build dApps to power a decentralised open financial system to onboard the next 900M people.
- Targeted user number: 1B.
According to the team, Base represents step 4. The goal is to make it easy for developers to build, and users to access, the dApps which will onboard billions of people into the crypto economy.
The Base case
So, what is Base?
Base is an Ethereum layer 2 scaling solution blockchain built on top of the OP Stack (Optimism’s tech stack). Its EVM (Ethereum Virtual Machine) compatibility means it’s easy for dApps on Ethereum and other EVM chains to deploy on Base.
To understand Base, you first need to understand Optimism’s plans to become a “super-chain.” The OP codebase (the “OP Stack”) will be forked (code will be copied to create a new project) to create new chains, each specialised for different use cases.
Think of Ethereum, Solana, Avalanche, Base and others, all using the same codebase. This will offer seamless interoperability (meaning dApps live across them all, with shared liquidity and easy integration).
Initially, the Coinbase core development team will incubate Base, but it plans to eventually decentralise the chain fully. The chain is currently on a testnet, with mainnet due in the next few months.
What does it mean for crypto, and you?
This is where it gets interesting. Before we get any further, let’s get the bad news out of the way: there will be no Base token.
Coinbase and Base made this very clear, even stating this directly in Base’s Twitter bio.
No token. Damn. No airdrop or price action. Without these, how can we benefit?
Well, actually, that’s easy…
1. New projects (and airdrops?)
With any new ecosystem comes new projects. Base’s launch will be no different.
Although Base itself may not have a token, its protocols certainly will!
When its mainnet launches, we expect a flurry of new protocols, many of which will be tokenless and planning to airdrop.
And don’t worry, we’ll be keeping an eye out, and will share the promising ones!
2. The greater good
If you’re a true believer in crypto, this is going to be incredibly exciting for you…
If you aren’t, that’s okay. Just focus on the pot of gold at the end of the rainbow.
Coinbase having its own layer 2 blockchain has some massive benefits for the future of crypto. You see, there are over 108M verified KYC’d (Know Your Customer: a process used to collect users’ identifying data and contact information) users, and $80B worth of assets on Coinbase’s platform.
Base will be a fully permissionless, open-source blockchain (exactly like Ethereum). This means any dApp can be deployed on the chain, and any token can be bought and sold through it.
Free, open DeFi, for over 100M people!
The chain will be integrated with Coinbase’s existing products and include:
- DeFi wallets that use an email address and password (rather than a seed phrase) and can be recovered to prevent loss of funds.
- Easy DeFi onboarding and use of dApps on a trusted platform.
- The ability to bring real-world assets on the chain. Given Coinbase’s regulatory status and their ability to KYC, we could see stocks, bonds, even real estate move on-chain.
- KYC data and zero-knowledge verification, allowing KYC-gated DeFi apps (which is the key to institutions being onboarded to DeFi!).
Let us paint you a bullish picture
If you don’t see the bigger picture yet, allow us to set the scene…
The year is 2024. All Coinbase customers have easy, trusted access to a DeFi wallet.
Institutions are involved in gated DeFi thanks to Coinbase’s KYC data, allowing huge capital flows.
Real-world assets are moving on-chain, bringing masses of capital with them.
Ethereum’s price is $50,000. DeFi tokens prices have skyrocketed. This is the key that can unlock the doors allowing a tsunami of capital to flow into the DeFi ecosystem.
A wise man once said, “A rising tide lifts all ships.” As the money flows in, all assets benefit.
Regulatory implications
It’s clear that Base will put Coinbase front and centre in the regulatory spotlight. The regulators aren’t going to be happy that a centralised firm they’ve authorised is launching a permissionless blockchain, and with it allowing easier access to DeFi.
Coinbase is taking on a battle. It’s extremely likely that they will get heat over Base and will have to fight their way out.
This is huge.
Coinbase has some of the best lawyers in the world and are showing a willingness to fight.
Base will act as a proof of concept. If it works, others will follow!
The success of Base will clear a path for institutions and centralised entities to dive in.
We think that with Coinbase’s lawyers, funding, and motivation, they have the tools needed to clear the path. They will work with regulators where possible, but are showing they aren’t afraid to fight against them.
The success of Base will be a fundamental pillar in crypto going mainstream.
Cryptonary’s take
Coinbase has taken a unique approach. Unlike Binance with BNB Chain, which operates in a silo (it doesn’t complement Ethereum, Solana, or any others. It operates in its own ecosystem). Base is designed to complement the existing ecosystem.
Coinbase is evolving from an exchange and custodian to a Web3 gateway. They’re future-proofing and ensuring relevance as people move away from centralised exchanges.
The benefits for crypto are clear – onboarding new users and institutions, and clearing the regulatory path for others.
CeFi and DeFi will meet on a major scale.
Can I make money from it?
Yes. Right now, Base is adding value to Ethereum, Optimism and Coinbase. All of these have tradable tokens, and if Base is a success, these will see huge upside.
Our favourite horse to back given the current, early state of Base – and the one we already have huge conviction in – is Ethereum.
Some small-cap gems will benefit massively from Base. And of course, we’re keeping a close eye on the ecosystem as it develops, and will deliver a watchlist (similar to our Arbitrum Watchlist, part 1 and 2) when the time is right.
The launch of new projects on Base will involve new tokens, and there’s vast potential for many airdrops in the future.
Action Points
- Look out for new protocols building on Base as they may offer great investment opportunities and airdrops.
- Base will not have a native token, but its success will help $ETH (Ether), $OP (Optimism) and COIN (Coinbase’s Stock) accrue value. Pick your poison; we’re going with $ETH.
- Watch out for regulatory battles. Coinbase is baiting regulators by launching Base. It will likely simultaneously pave the way for both new regulations and institutional money flows.
- Test Base as soon as it goes live. There’s no better way to judge a chain than by using it.
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