Base(d)
Coinbase building onchain
AB updates are for informational purposes only. Do not construe any of the following as investment, financial, or other advice. You make your own decisions.
Disclaimer: AB Research is a culmination of research & insights from the diverse capacity of the AB Team. Ultimately our focus & mission is financial freedom. This is a special edition. Whitetail owns Basegods (pfp>) and $Miggles.
Base is the official Ethereum Layer 2 of Coinbase and the brainchild of Jesse Pollack. Launched in August 2023, Base recently hit one billion transactions and released fraud proofs. By almost every metric, it is one of the leading Layer 2s.
Base has seen success using the legitimacy of the Coinbase brand. Legitimacy in crypto is a scarce resource. Coinbase users are funneled directly onto Base. It begs the questions: Is distribution or technology more important?
In 2017 the Binance ICO raised $15M and launched Binance Smart Chain as a fork of Ethereum. This was very centralized and made Binance a lot of money. It was not Ethereum aligned but onboarded millions into crypto. CZ will go down as one of the GOATs. Base is taking a different approach and building with core Ethereum ethos: open source, open standards, decentralized, and positive sum towards Ethereum.
Transaction costs matter, so with similar fees, I’d argue that distribution is more important than tech. At the industry’s current stage, most users are human. When discovering crypto, they go to the app store on their phone and download the first or second app they see. Most of retail has not and never will hear about zero-knowledge or why fraud proofs are a step towards decentralization. They just want to buy coins and make money.
Some metrics show Base is the leading layer 2:
Others have it trailing Arbitrum:
A crypto friendly Congress, CFTC, and SEC are tailwinds for Base. Price goes up is the best marketing. AB’s macro to micro thesis: When Bitcoin & Ethereum pump, it generates more revenue for Coinbase. When Coinbase feels wealthier, they’re going to pump the coins on Base. It’s natural that Coinbase would drive more resources to incentivize their onchain ecosystem to outperform.
So what is Base today?
Base is a general purpose blockchain with 6.4M weekly active addresses (a single user can have multiple addresses). At launch, in exchange for a grant of 118M OP tokens ($183M at the time), Base agreed to give 2.5% of sequencer revenue or 15% of net profits to the Optimism Collective. Base is a signatory of the The Law of Chains which creates guiding principles for Optimism Governance and the Superchain. The vision is to create a nation of network states that adhere to certain standards.
Initially there was skepticism around Base due to the lack of a native token. In hindsight, removing the token narrative from ecosystem development has been beneficial as it allows Coinbase to focus on products and user experience.
Decentralized Finance on Base is flourishing; total value locked reached $10.2B and stablecoin supply reached $3.3B. Aerodrome, the leading decentralized exchange, continues to generate impressive cash flows as the liquidity hub for the network. Aero does over billion dollars of volume daily.
Lending applications such as Moonwell & Morpho Blue are making onchain banking easy. Onchain banking is a trend that we believe will continue to accelerate. It starts with humans (present) and will rapidly evolve to be the standard for onchain AI agents (future).
Onchain AI agents have become prevalent on Base. Thanks to the success of Virtuals Protocol, we’re seeing a proliferation of these new users. As the cost to launch onchain AI agents decreases and utility increases, agents will use lending markets to operate at peak capital efficiency. Few saw the AI x crypto intersection being AI cults. The Coinbase Developer Platform has already shipped Agentkit giving devs tools to build.
Base has developed native lore. The $TYBG cult (“Thank You Based God”) has hours worth of materials to read. Base Gods are the leading NFT collection on Base (807 total, 1.15E floor).
The combination of human cult with onchain AI agents (missionaries) is something to watch. Let recruiters be onchain AI agents - would people know the difference?
Coinbase makes Base developer friendly. Coinbase Developer Platform is fantastic. When I registered, they gifted $600 in credits. It incentivizes me to try to build. This is business development other Layer 2’s lack. Coinbase knows how to build a full product suite and friendly UX. The vision for Base as a payments network is clear.
The Coinbase marketing department helps with IP generation for the Base ecosystem. One of their earliest commercials included a Mister Miggles:
Coinbase once again featured this regal feline in their Halloween Remix Challenge, resulting in 1,400 remixes and 24,000 mints. This helps build the community around the $miggles token. The Miggles team recently announced Puur Labs to help monetize IP. Miggles gear is sold in the Coinbase store. Intentional or not, its community is now one of the strongest in the Base ecosystem. Is twice a coincidence?
There is still room to grow. Base is yet to reach stage 1 of decentralization. That is a must in 2025 to still be considered a rollup. Vitalik’s rules. Base is competing with Arbitrum, Solana, Tron, and every other chain. The best blockchains will build what people want, look at USDT on Tron. Coinbase is attracting the users, Base is giving devs easy access to build. Jesse Pollack is on trip promoting Base across the world. The Base team visited Africa, India, DevCon, hosting events and dinners daily.
Community Building.
Coinbase has been around since 2012. It’s alumni roster is the deepest in crypto. Base is giving them a platform to build on. Don’t underestimate the recruitment power of an old friend. The Ethereum roadmap is working. Blobs are reaching target. Layer 2s are competing for users. Let’s build the future.
Cheers,
Whitetail & Co
AB updates are for informational purposes only. Do not construe any of the following as investment, financial, or other advice. You make your own decisions.