As well as creating envy among other crypto exchanges, Base appears to out-gunning other secondary Ethereum networks.
Base’s largest DeFi protocol, Aerodrome Finance, shows that almost all of the top markets, especially when excluding stablecoin swaps, are memecoin-linked trading pools.
The ease with which users of Coinbase can onboard to Base has also been a winner, done via a smart contract wallet without the need for seed phrases and the like.
Among the rapidly growing ranks of layer-2 blockchains built atop Ethereum, the U.S. crypto exchange Coinbase’s own version, Base, hardly stands out as a technological pioneer. The entire project was built and launched last year using code borrowed from another team – Optimism, with its OP Stack framework for easily spinning up new layer-2 networks.
That’s partly why it’s so remarkable that Base has shot to the No. 2 spot on the key industry leaderboard L2Beat, with an 18% market share of 74 active layer-2 networks. Top-ranked Arbitrum’s Arbitrum One dominates with a 40% share, but Base has shot past older, competing projects from teams with hard-fought reputations for cutting-edge development, including Starknet, Polygon, even Optimism itself.
These layer-2 networks are designed to execute transactions faster and cheaper than the base Ethereum blockchain. The layer-2 networks use what’s known as a “sequencer” to bundle up transactions and then record or “settle” them on the main blockchain, not too dissimilar from inking records in a county clerk’s office. Sometimes referred to as rollups, layer 2s have become a key element of the broader Ethereum ecosystem’s roadmap for scaling toward a world where more, or maybe someday, most, of finance takes place on the digital rails.
But it turns out that the race for blockchain supremacy, just as in broader industry, is reliant to a large extent on marketing savvy and an ample warchest to spend on attracting new customers – not just whoever has the best tech. And Coinbase has helped to fuel Base’s growth through its own advertising campaigns and promotional events, including the recently concluded “Onchain Summer.”
The question now is whether the activity is sustainable. Are the accounts bona fide users with on-chain needs, or just a flurry of tire-kicking beta testers curious to try out the various protocols built atop Base? Are they opportunistic “degen” crypto traders taking advantage of one-time promotions and quests to collect extra riches, or racking up usage in hopes of eventually collecting tokens rewards?
The company said Monday in a press release that the three-month Onchain Summer event saw participation of over 2 million unique wallets (compared to about 268,000 in 2023), resulting in over $5 million in mint revenue to creators.
“The results really blew us away,” a Coinbase spokesperson said in an email. “The 2.2 million unique wallets participating was about 8x what we saw last year, and more than double our internal expectations.” Base is helmed by Jesse Pollak, who joined Coinbase in 2017 as an engineering manager before moving in 2021 to oversee the company’s protocols development.
Independent blockchain data confirms the growth at Base. A recent chart from on-chain data provider Token Terminal shows the network accelerating in recent months while other layer 2s were experiencing a dropoff.
A quick glance at Coinbase’s most-recent quarterly report, filed with the U.S. Securities and Exchange Commission, shows that the crypto exchange spent over $165 million on sales and marketing during the three months ending June 30, more than double the amount spent during the same period a year earlier.
During the first quarter of 2024, Coinbase reported “other” transaction revenues of $52.5 million, which includes so-called sequencer fees collected by Base.
Memecoin madness
Base has done a good job of competing with the likes of Solana – a layer-1 blockchain that competes with Ethereum but is also known for fast and cheap transactions – as well as other Ethereum layer 2s, particularly when it comes to decentralized finance (DeFi) applications like the swapping of longer-tail assets and money markets, according to Rob Hadick, general partner at VC firm Dragonfly.
On daily active addresses (“DAUs”) and daily transactions, Base has overtaken other layer 2s, and for many of the other important DeFi metrics (like TVL, sequencer fees, etc), the project has moved into the top five, Hadick said.
What are the specific drivers of traffic, though? A close look at Base’s largest DeFi protocol, Aerodrome Finance, shows that almost all of the top markets, especially when excluding stablecoin swaps, are memecoin-linked trading pools. Such activity is notoriously hot-and-cold, and memecoin traders notoriously fickle with their venues.
“Looking at Uniswap on Base, the same thing is true, with two of the top five tokens traded being memecoins,” Hadick said via email. “Not dissimilar to Solana, they’ve competed quite well in these long-tail token-trading markets, as more young users have moved towards speculating on memecoins.”
Also driving the success of Base is the ease of moving tokens over from Coinbase, which is done via a smart contract wallet without the need for seed phrases and the complexity of other wallets.
“The ease of moving through that funnel from Coinbase to Base automatically onboards many of the on-chain curious retail investors who otherwise would need to go through extra steps to participate in DeFi,” Hadick said.
For Oskari Tempakka, head of growth at Token Terminal, it’s down to the foundational strength of the Coinbase-Optimism duo: being a U.S.-listed crypto exchange, combined with Optimism’s scale and expertise in areas like decentralized governance.
The pairing “positions Base exceptionally well by leveraging Coinbase’s brand, distribution and partnerships,” Tempakka said.
