Coinbase Global (COIN) on Thursday announced a new Layer 2 blockchain called Base.
Initially incubated inside the company, the protocol is intended to improve data processing and transaction costs across Ethereum and other blockchains, enabling software developers to more readily build other crypto applications.
Building new and better applications is the crucial next step for attracting crypto’s next wave of users, Coinbase said.
“We’ve done a really great job doing that on trading and speculation,” Jesse Pollak, the project lead and Coinbase’s senior director of engineering, told Yahoo Finance. “But we haven’t seen the really useful applications emerge yet.”
The Base protocol has been built using open source software created by the Layer 2 blockchain Optimism. The company has no plans for issuing a token related to the new protocol.
Within the hour following the announcement, the native token for Optimism – OP – jumped 7%.
In recent weeks Coinbase opened its blockchain to 48 other crypto collabortators in DeFi, NFTs, 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 beat and a narrower than expected loss for 2022. Wall Street’s reactions were mixed, however, with some analysts arguing the surprise boost was ancillary to the company’s core business.
Shares of Coinbase spiked more than 5% at Thursday’s open. The stock has lost more than 60% from a year ago; still, it has nearly doubled year-to-date.
‘The gateway to Web3’
Coinbase also announced the Base Ecosystem fund on Thursday, which will invest in early stage projects building on the protocol in collaboration with Coinbase Ventures. The company wouldn’t share the amount of capital it plans to deploy through the fund.
Bitcoin, ether, and other major cryptocurrencies represent units of account for Layer 1 blockchains. These digital ledgers are used less in building consumer applications, such as for mobile games and social networks, with developers often citing data processing efficiency or scalability constraints.
Layer 2 blockchains are often more experimental, next generation protocols typically focused on scaling while deriving security and decentralization from one or multiple Layer 1 blockchains.
Pollak said Coinbase will earn revenue from Base, though the amount is expected to be “relatively small” as the company’s primary goal is making Layer 2 blockchain transactions “as cheap as possible.” The company also will reinvest some of the revenue back into Optimism.
“We feel like this is really a statement about Coinbase not just being an exchange, but really being the gateway to Web3,” said Pollak.
With the announcement, the rehearsal stage, or so-called testnet, for Base is now available to any software developer in the world. Without offering a firm date Pollak said Coinbase is working towards the protocol’s mainnet launch over the next few months.
“Since we’re the gateway to Web3, investing in that underlying infrastructure to make it easier for developers to build the applications that users will use fits directly into our narrative of where we’re going long term,” Pollak added.
Updated to show OP performance after announcement.
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