Understanding Behind Coinbase' Explosive Layer 2
Table of Contents
In the ever-evolving landscape of blockchain technology, Ethereum's Layer 2 (L2) chains have emerged as a pivotal arena for innovation. These chains are not only pushing the boundaries of what's possible but also redefining the way we interact with decentralized finance (DeFi). One name that stands out in this ecosystem is Base, an L2 chain incubated within Coinbase. In this article, we embark on a journey to understand the Base ecosystem in-depth, exploring its architecture, strategic partnerships, and its role in shaping the future of blockchain technology.
I. The Role of CEXs in Ethereum L2 Chains
Coinbase, Bybit, and Binance: Leading the Charge
In the race to capture a share of the burgeoning on-chain market within the Ethereum ecosystem, centralized exchanges (CEXs) are making strategic moves. Coinbase, Bybit, and Binance are among the major players that have recently launched L2 chains like Base, Mantle Network, and opBNB. These exchanges aim to leverage Ethereum's network effects, liquidity, and user base to bridge the gap between CEXs and DeFi.
Bridging the Gap Between CEXs and DeFi
The alignment of CEXs with Ethereum's L2 chains not only provides these exchanges with access to a resilient and growing market but also facilitates user access to DeFi applications. This synergy creates a unique ecosystem where centralized platforms and DeFi coexist, offering users the best of both worlds.
II. Understanding Optimistic Rollups (ORUs)
Rollup Technology Overview
Optimistic Rollups (ORUs) form the backbone of many Ethereum L2 chains, including Base. ORUs are designed to offload computational work from the main Ethereum blockchain (L1) by summarizing transactions and posting a summary, known as a "state root," to the L1 ledger.
Key Players in an Optimistic Rollup Network
Two key roles are essential in an ORU network: sequencers and verifiers. Sequencers organize and summarize off-chain transactions, while verifiers validate state commitments and challenge erroneous ones during a challenge period.
The Absence of Fraud Proof Systems in Base and Other ORUs
Notably, Base and other ORUs currently lack functioning fraud proof systems. Users must trust that the sequencers submit correct state commitments to L1. Despite this, a 7-day challenge period is imposed for withdrawals, serving both as a buffer and a user adaptation period.
III. The OP Stack and the Superchain
Base's Partnership with Optimism
Base has partnered with Optimism to develop the OP Stack, a system powering Base and other L2 chains. This collaboration enhances interoperability and facilitates the creation of new rollups compatible with the Superchain.
The Vision of a Unified Superchain
The Superchain envisions merging Optimism and other rollups into a unified network, sharing infrastructure and resources. However, Base and other OP Stack ORUs currently rely on a centralized sequencer, necessitating a journey towards decentralization.
IV. Adoption Metrics: Gauging Base's Impact
To truly grasp the significance of the Base ecosystem within the Ethereum Layer 2 (L2) landscape, it's imperative to delve into the adoption metrics that shed light on its performance and influence. These metrics provide insights into how Base is shaping the future of blockchain technology and decentralized finance (DeFi).
Daily Active Addresses: A Measure of Engagement
One of the key metrics that indicate Base's impact is the number of daily active addresses (DAA). This metric reflects the engagement and activity of users within the Base ecosystem. As of August 21, 2023, Base has not only achieved parity with competitors but has surpassed both Arbitrum and Optimism in terms of DAA. This achievement signals a growing user base and a community that actively participates in the Base ecosystem.
Daily Transactions: A Vibrant Ecosystem
Daily transactions represent the heartbeat of any blockchain ecosystem. They reflect the volume of activities taking place within the network. Base has demonstrated its vibrancy in this regard as well. With an impressive number of daily transactions, it has solidified its position as a dynamic and active L2 chain. This metric underscores the utility and value that Base provides to its users.
Fees and Revenue: Sustaining the Ecosystem
Transaction fees and revenue are critical aspects of any blockchain ecosystem's sustainability. As of August 21, 2023, Base has not only attracted a significant number of users but has also generated substantial fees and revenue. This financial success is a testament to the ecosystem's vitality and the economic incentives it offers to participants.
Total Value Locked (TVL): An Indicator of Utility
Total Value Locked (TVL) is a pivotal metric in the DeFi space. It represents the total value of assets locked within a blockchain ecosystem. While Base excels in DAA and daily transactions, it lags behind Arbitrum and Optimism in terms of TVL. This disparity suggests that Base serves a different vertical within the L2 landscape compared to its competitors. Arbitrum and Optimism primarily consist of DeFi decentralized applications (dApps) and related activities, while Base's strengths and focus may lie elsewhere.
Insights from Adoption Metrics: Base's Niche
The adoption metrics collectively reveal that Base has carved out a unique niche within the Ethereum Layer 2 ecosystem. Its strength lies in its ability to attract and engage users, fostering a vibrant and active community. While it may not compete directly with Arbitrum and Optimism in terms of total value locked, its emphasis on user engagement and activity sets it apart. Base's impact extends beyond the DeFi realm, suggesting that it caters to a diverse set of use cases and user demographics.
In conclusion, Base's adoption metrics paint a compelling picture of its influence and potential within the Ethereum Layer 2 landscape. Its growing user base, active community, and revenue generation showcase its value proposition. As Base continues to evolve in a competitive environment, these metrics will be instrumental in gauging its sustained impact and contribution to the broader blockchain ecosystem.
V. Friend Tech: A Key Player on Base
Introduction to Friend Tech
Friend Tech has emerged as a game-changer within the Base ecosystem, introducing a captivating social experience that transcends conventional boundaries. This viral social app offers users the opportunity to purchase 'keys' for gated chats, enabling communication via text within exclusive chat groups. This innovative approach to social interaction, integrated seamlessly with Base, has sparked immense interest and activity.
Viral Success and Revenue Generation
Upon its launch on August 10, 2023, Friend Tech swiftly achieved viral success within the Base ecosystem. It garnered the attention of users and traders alike, who speculated on the arrival of influential accounts on the platform. This speculation translated into substantial financial success, with Friend Tech generating over $6.8 million in fees since its inception. At its peak, it accounted for up to 55% of all fees generated on Base, underlining its remarkable contribution to the ecosystem's revenue.
Friend Tech's remarkable feat becomes even more apparent when compared to on-chain perpetual decentralized exchanges (DEXs) across various chains. In fact, it outpaced the combined total of certain prominent DEXs such as GMX and Synthetix during the same period, solidifying its position as a revenue-generating powerhouse within Base.
MEV Bots and Back-Running
Friend Tech's journey was not without its challenges, one of which involved Miner Extractable Value (MEV) bots. These bots took advantage of a vulnerability in the project's RPC nodes, allowing them to back-run key purchases within the same block when a user joined the platform. This back-running strategy is akin to trying to make quick purchases of tokens immediately after their launch on platforms like Uniswap. In the case of Friend Tech, it was used to gain an advantage in securing access to exclusive chats.
However, the project's development team responded promptly and patched the vulnerability. This swift action led to a significant decrease in MEV bot activities, almost entirely eliminating their presence on the platform. This response demonstrated the project's commitment to maintaining a fair and secure environment for its users.
VI. Proxies to a BASE Token
The Absence of a BASE Token
One distinctive aspect of the Base ecosystem is the absence of a proprietary token. While many blockchain projects have their native tokens, Base has taken a different approach. This absence presents both challenges and opportunities for those seeking to invest in or gain exposure to the success of Base.
Exploring Proxies: Optimism, Coinbase, and Aerodrome
Investors and participants interested in aligning themselves with the Base ecosystem's growth and potential have several proxy options to consider:
Economic Partnership with Optimism
Base's economic partnership with Optimism provides a unique avenue for exposure to Base's success. Under this partnership, transaction fees from Base are shared with the Optimism Collective via an on-chain contract. The Optimism Collective receives a portion of Base's total sequencer revenue or a percentage of Base's net on-chain sequencer revenue. This arrangement allows investors to indirectly participate in Base's growth by supporting the broader Optimism ecosystem.
Coinbase's Revenue Share
As the incubator of Base, Coinbase is intricately linked to its success. Coinbase's revenue share from Base provides an avenue for investors interested in Coinbase's performance to indirectly benefit from Base's growth. However, it's worth noting that as Base progresses toward decentralization, revenue distribution may evolve, impacting Coinbase's share.
Aerodrome and the AERO Token
Aerodrome, an automated market maker (AMM) decentralized exchange (DEX) deployed on Base, introduces the AERO token. This token holds a significant role within the Base ecosystem, acting as the de facto financial instrument for ecosystem advancement. With a portion of AERO tokens dedicated to public goods funding, it becomes a tangible way for users and community members to engage with and invest in Base's ecosystem growth. Thus, AERO serves as a proxy for those looking to participate directly in the Base ecosystem's development and success.
In conclusion, the Base ecosystem's absence of a native token doesn't limit opportunities for investment and exposure. Instead, it offers a variety of intriguing proxy options, each with its unique attributes and potential benefits for investors and participants interested in the Base story. These proxies play pivotal roles in the ecosystem's growth and contribute to the ongoing evolution of Base within the dynamic blockchain landscape.
Base's rapid rise in the L2 space, fueled by partnerships, viral apps like Friend Tech, and strategic collaborations, sets it apart from other L2 chains. As Base continues to navigate the competitive L2 landscape, its sustainability and impact on the broader blockchain ecosystem remain to be seen. However, one thing is clear: the Base ecosystem is at the forefront of shaping the future of blockchain technology.
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