American crypto exchange Coinbase is best known for being a centralized powerhouse—but that narrative started to change in 2023 with the launch of Base, the company’s Ethereum layer-2 network.
Base’s debut has done more than anything else to establish Coinbase not just as a company that enables crypto trades, but a foundational layer for decentralized commerce and activity on par with some of the world’s largest blockchain networks. Its launch has not only redefined one of the biggest crypto exchanges in the world; it’s also redefined, for the industry, what it means to be a crypto exchange—and that’s why it’s our project of the year.
Built atop Ethereum scaling solution Optimism, Base serves as an on-chain ecosystem not just for Coinbase’s own products, but also for millions of other people’s decentralized apps—which Coinbase doesn’t own, and are free to build wherever they like.
“In our first few months of being live, we’re seeing that Base is already much broader than Coinbase,” Base creator Jesse Pollak told Decrypt. “There are hundreds of apps that people are using regularly that aren’t built by Coinbase. [And] millions of users, many of whom are interacting with Base through non-Coinbase products.”
That diversity, paired with Coinbase’s backing, makes Base particularly attractive to third-party developers, says Avichal Garg, co-founder of crypto venture firm Electric Capital.
“Most people don't realize it, but Coinbase is as much a developer tooling company as it is a consumer company,” Garg told Decrypt. “Between their custody, wallets, and Coinbase Cloud, they have a lot of expertise in how to work with developers and partners and build ecosystems.”
At writing, Base boasts a total value locked (TVL) of $419 million, according to DeFi Llama—putting it in the top 10 blockchain networks by size.
Within weeks of Base’s launch in August, the chain ballooned to nearly double the amount of daily activity seen on Optimism—the network upon which Base itself was built. In just 11 days, the network hit one million addresses, the fastest layer-2 to ever do so.
By September, Base overtook Solana in TVL (a substantial accomplishment that was eventually undone by Solana’s recent resurgence). At several points in August, September, and October, Base saw more daily activity than even Ethereum.
Most of that early momentum came courtesy of Friend.tech, a buzzy financialized social networking concept built on Base. That source of traffic fell off in October, once the hype surrounding Friend.tech all but collapsed; but the chain has managed to consistently expand its appeal since then, by attracting prominent DeFi projects including decentralized exchange aggregator 1inch, blockchain oracle platform Chainlink, and lending infrastructure provider Maple Finance.
Base quickly established itself as a decentralized finance (DeFi) hub, generating frenzied meme coin activity, and even a controversial rugged token inspired by Coinbase CEO Brian Armstrong’s bald head that analysts linked to a then-house arrested Sam Bankman-Fried.
Activity on Base has netted Coinbase about $5.8 million worth of profit at a profit margin of nearly 49%. That’s nearly double the profit margins of Arbitrum (26%) and Optimism (28%), and significantly higher than zkSync (37%), according to data compiled by Dune Analytics.
For what it’s worth, Base was built on the OP Stack in collaboration with Optimism. That means a few things for Coinbase: It started building its “rollup agnostic Superchain” on a stack that already had a big community of Web3 developers and it’s now become a core Optimism developer.
That’s helped Base quickly cement a reputation as a hub for decentralized finance and applications in their own right—not just a nifty efficiency tool for Coinbase customers. Base offers far cheaper and faster on-chain transactions than Ethereum as a layer-2, while still running securely on top of the latter network.
In an exclusive interview with Decrypt earlier this month, Coinbase CEO Armstrong said his objective is to “not make [Base] a Coinbase thing, but something that’s much broader.”
“We’re trying to do it in a way that’s interoperable with the rest of the crypto community,” Armstrong said. “It’ll have the full backing of Coinbase, which hopefully gives it some sense of stability and trust.”
The aim appears to be to leverage Coinbase’s mainstream reputation to attract millions of new users on-chain—all the while putting Coinbase at the nucleus of that seismic transition.
Base creator Pollak says his ultimate goal for Base is to onboard one billion users. To attract those masses, he believes the network shouldn’t just offer financial services—it should become the home base for an entire creative economy.
“It's really all about increasing the number of things people can do, so people have more opportunities to use Coinbase,” Pollak told Decrypt in July. “It's not just speculation and trading, it's also art, music, gaming, and other consumer products.”
Indeed, Base has already attracted household brands like Coca-Cola, Showtime, and Atari, and features ample art initiatives and culture projects in addition to DeFi protocols.
Catering to users interested in such brands and projects, who likely have less tech-native experience, is a key element of Base’s broader culture-focused strategy.
“Our north star here is making it so someone can go from never having used crypto to having a funded wallet or deploying a contract in less than 60 seconds,” Pollak said.
The chain’s backers also appear intent on avoiding crypto norms that could threaten its standing with regulators, and thus its ability to target retail consumers: Armstrong recently told Decrypt that Coinbase has no plans to launch a potentially lucrative Base token, which could easily run afoul of American regulators like the Securities and Exchange Commission (SEC).
All in all, Base appears to have discovered a successful recipe for crypto exchanges seeking to both find a steady path forward after last year’s upheaval, and expand their importance at the dawn of a looming age (fingers crossed) of mass on-chain adoption.
Other crypto exchanges have apparently taken note: Last month, Coinbase rivals Kraken and OKX both revealed plans for their own layer-2 networks.
But first-mover advantage is everything, and this year gave Coinbase a substantial head start in what could soon evolve into a key race.
“It does make sense for exchanges to try and build their ecosystems like this,” Electric Capital’s Garg said. “But it's also possible that there is some sort of consolidation or bundling that happens as only a few exchanges are able to command sustainable ecosystems.”
Edited by Andrew Hayward and Stacy Elliott