Basis: Analysis of the L2 developed by Coinbase

What you need to know 🐳

Base is a layer 2 of Ethereum developed by Coinbase.

The project has quickly established itself as a high activity blockchain thanks to its integration within the Ethereum ecosystem and the Optimism Superchain.

Base focuses on improving the user experience and actively promotes onchain culture.

Overview 🧬

Base's mainnet was launched on 9 August 2023 by Coinbase. Base is a rollup, a type of layer 2 (read our survey on the state of L2s) that inherits all the security properties of its layer 1.

Base is part of the Superchain, a set of layers 2 and layers 3 based on OP Stack, the development tool set up by Optimism. Each project that wishes to join the Superchain undertakes to donate part of its revenue to the collective (2.5% revenue or 15% of gross profits in the case of Base).

In the future, the Superchain aims to create a set of chains with shared security and high interoperability.

Base's great strength is the huge distribution offered thanks to the support of Coinbase, which has a large customer base (110 million) and is developing tools that improve and simplify their onchain experience, such as the Coinbase Smart Wallet.

Base is a generalist blockchain that already has a well-developed DeFi ecosystem, NFT collections, games as well as social networks.

The idea of onchain culture is a central aspect of Base, driven by initiatives such as Onchain Summer, which showcases onchain art and entertainment to users.

Thanks to all this, Base has quickly become the 2nd largest layer 2 behind Arbitrum ($7 billion in stranded value, compared to Arbitrum's $18 billion, according to L2Beat).

Financing 💰

Base did not have a dedicated fundraising round for its development as it is fully funded by Coinbase.

Team and community 👾

Brian Armstrong is the CEO of Coinbase. He worked as a software developer at Airbnb before co-founding Coinbase in 2012. Under his leadership, Coinbase has become a major cryptocurrency exchange platform and a Nasdaq-listed company in 2021.

Jesse Pollak, head of protocols at Coinbase, played a crucial role in the development of Base. Prior to that, Pollak led consumer product engineering at Coinbase, including Coinbase, Coinbase Pro and Coinbase Wallet. He is the central figure in Base's development.

Base has 752,000 followers on X.

Function ⛓️

Transactions in a rollup are executed outside the Ethereum network so that they are not subject to Ethereum network limits, allowing for higher throughput and lower costs. The data from these transactions is then published on Ethereum.

A so-called "optimistic" layer 2 (such as Base) assumes by default that all transactions on its network are executed correctly and therefore does not seek to prove their validity.

The trade-off is that there is a seven-day period during which any of them can be challenged by submitting proof of fraud to undo a dishonest transaction. Because of this, you have to wait until the end of this period to consider a transaction officially validated.

Each rollup has a sequencer that orders, executes and publishes transactions on Ethereum. The sequencer collects all the transaction fees paid by users and uses part of them to pay Ethereum's fees.

The fees collected by the Base sequencer exceed its expenses, allowing it to generate profits from activity on its network. These profits are collected by Coinbase.

Risks 🥵

Layer 2s are technologies under development, the security of which depends on the teams operating them.

In fact, the smart contracts on Ethereum that govern the security of Base and other layer 2s can be modified instantly by the teams of each project, enabling them to recover the funds deposited. This system is in place to ensure the smooth development of layers 2 while the technology matures.

The proof of fraud system is not yet in place on Base. If fraudulent transactions were executed, it would not be possible to reverse them except by updating the smart contracts.

On the other hand, the centralisation of Base's sequencer is not a real problem, since on a rollup, users can always force the execution of their transactions and their funds cannot be seized by the sequencer.

System 🤝

Base hosts most of the flagship EVM (Ethereum Virtual Machine) protocols, which wish to deploy on the network to take advantage of its large user base.

The two pillars of DeFi, Uniswap and Aave, are present on the network.

The most important DEX on Base is Aerodrome, the equivalent of Velodrome on Optimism. It is based on the ve(3,3) model: the AERO token stakers collect the application's transaction fees and distribute AERO tokens to liquidity providers in exchange.

Morpho is a lending protocol that allows you to manage your risk with more flexibility than traditional lending protocols, thanks to separate vaults managed by independent professionals.

Base has a number of applications more or less linked to social networks.

Farcaster is an infrastructure for creating various social applications, the best known being Warpcast, a mix between Twitter and Reddit.

Friend.tech allows content creators to monetise their content and create privileged discussion groups with their community. The app wanted to leave Base to launch its own blockchain, but eventually reversed its decision following criticism from its users.

The BASE token? 🌕

Base does not have a token and it is possible that it will stay that way, whether because of the legal climate in the US and links with Coinbase or simply because a layer 2 can operate without a token.

A layer 2 token is used to decentralise its operation, whether its governance or sequencer, for example. Coinbase is likely to want to retain control over Base's development and continue to collect revenue from the sequencer.

Regulation ⚖️

As Base has not raised any funds or issued any tokens, it has nothing to fear from regulation in the US for the time being.

Roadmap 🗺️

Base is steadily increasing its Mgas/s limit, the unit of measurement reflecting the transaction throughput supported by a blockchain. The aim is to improve Base's performance to accommodate as many users and complex applications as possible without saturating the network.

Base teams are also working on developing Keyspace, enabling the creation of smart wallets, such as the Coinbase Smart Wallet, capable of supporting an unlimited number of chains.

Base is also heavily influenced by advances in OP Stack, the development of which is funded by the Superchain collective.

Competition ⚔️

Base competes with other EVM-based layer 2s. Given that it is fairly straightforward for an application to deploy on any of them, they need to differentiate themselves sufficiently to attract the best applications first.

Arbitrum (read our analysis) remains the leading rollup in terms of locked value and exchange volume. Arbitrum has the lowest latency: 0.25 seconds compared with 2 seconds for Base. This characteristic is very important in DeFi, which is precisely Arbitrum's great strength. Recently, Arbitrum also launched an initiative promoting the development of onchain games.

One of Arbitrum's strategies is to develop layer 3s to favour vertical integration within its ecosystem. In fact, it is the layer 2 with the most layer 3s, with Base in second place.

Optimism has been overtaken by Base in terms of locked-in value. The project is now focusing more on developing the Superchain in general rather than its own network.

Polygon (read our analysis) and ZkSync (read our analysis) are each creating their own layer 2 ecosystem based on zero-knowledge proofs technology: the AggLayer and the Elastic Chain. Ultimately, these solutions appear to be the most optimal for promoting the development of rapid, secure interoperability within an ecosystem.

To communicate securely, two chains must wait until their respective transactions have been finalised, i.e. are irreversible. Layer 2s based on zero-knowledge proofs have a finality time of a few hours or minutes (the aim being to reduce this to less than a second), much shorter than those based on fraud proofs such as Base (7-day delay).

Market analysis by Chadi El Adnani, Head of Content & Research at SUN ZU Lab 📈

As there is no Base token, we have chosen to analyse the dynamics of its competitor Arbitrum.

The price of ARB has fallen by 50% since the start of the year, currently trading at around $0.8. Daily volumes have also halved from levels in the first three months of the year, rarely exceeding $100 million since April.

Comparatively, OP (Optimism) and STRK (Starknet) have fallen by 49% and 78% respectively since the start of the year, while MNT (Mantle) has risen by 37%, and BTC and ETH have risen by 50% over the same period. The two Layer 2 leaders, ARB and OP, did not benefit from the increase linked to the announcements of the validation of ETH spot ETFs at the end of May.

As far as TVL is concerned, Arbitrum is far ahead with $3.25 billion, followed by Base at $1.7 billion, Blast at $1.3 billion and Optimism at $776 million, according to DefiLlama data.

The Big Whale's opinion 🐳

Base has excellent traction thanks to the distribution of giant Coinbase. This attracts users and liquidity, incentivising apps to roll out on the network, creating a virtuous loop.

Base puts the user at the centre of its attention and seeks to create the best possible onchain experience through the Coinbase Smart Wallet, social apps and a focus on culture and entertainment in different aspects.

Coinbase adopts a "super app" logic where its entire ecosystem is integrated: centralised exchange, onchain apps, etc. This extends to the principle of layers 3, which are an extension of the network that is relatively cut off from other ecosystems.

Base has managed to develop without resorting to a token, which in most cases is just used to create artificial incentives while waiting to get more use out of it. It's likely to stay that way.

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