Base: In an Effort to Retain Engineers, Coinbase Accidentally Created the World’s Second Largest Ethereum L2
#608
GM,
Last week, I asked everyone whether they would invest in an Ethereum ETF. So far, 57 people have voted. Among them, 93% will continue to hold ETH, and only 7% would switch to buying an Ethereum ETF. It looks like there won't be any brokers coming to Blocktrend for advertising 🤣.
Next, let me recommend an event offering free flight tickets. This year's Ethereum EDCON conference will be held in Tokyo from July 24th to 30th. The Chinese community funding organization GCC has prepared 25 tickets to give away to individuals, students, and builders who are willing to personally fly to Japan to participate in EDCON. Based on my own experience applying for funding from GCC, they don't require you to submit a bunch of reports just because they give you money. As long as you are an open-source project builder or interested in digital public goods, you can try applying to GCC. Now, let's get to the main topic.
Today, let's start by asking everyone, which Ethereum L2 are you using?
The reason for asking this is because the number of active addresses on Ethereum L2 continues to break historical records. This is similar to the active users of a website or app, except each user may hold multiple addresses. Among them, Arbitrum remains the number one L2 in terms of usage, closely followed by the main subject of this article — the Base chain, led by Coinbase exchange.
Base has been live for less than a year1 but has already surged to become the world's second-largest Ethereum L2. However, in my personal experience, very few people in Taiwan have used Base. After all, if Arbitrum can already meet their needs, why would they go out of their way to use Base? Ethereum founder Vitalik Buterin pointed out that cultural differences are key, and I strongly agree.
But cultural differences are hard to feel out of thin air. Coincidentally, this week marks the official start of Base's annual major event, "Onchain Summer II," which aims to shape the community culture of Base. Their goal is to onboard 1 billion people globally. Behind this ambitious goal, few know that Base was originally conceived by Coinbase to retain an outstanding engineer by giving him a new challenge.
Coinbase Onchain
2021 was the most profitable year in Coinbase's history, with annual revenue reaching $7.8 billion, six times higher than the previous year. Many significant events occurred that year: cryptocurrency prices hit all-time highs, NFTs became hugely popular, and El Salvador made Bitcoin legal tender, becoming the first country in the world to do so.
It could be said that the future of cryptocurrencies looked incredibly bright. This was the happiest time for the company's bosses, but also the moment when the best employees were the most restless. At that time, Jesse Pollak, who served as a technical lead at Coinbase, had already witnessed two bull markets at the company and was responsible for core products such as the Coinbase exchange and wallet. He also expanded Coinbase's engineering department from three people to 250, making him the company's most relied-upon engineering talent.
How to retain outstanding employees is always a challenge for bosses. Jesse Pollak needed a new challenge, or he was ready to resign. He approached CEO Brian Armstrong for a new task. To keep him, Brian Armstrong assigned him a new mission: "Go away and find me a way to bring Coinbase on-chain!"
This task tested Jesse Pollak’s understanding of "Coinbase" and "on-chain." Most people might be confused, thinking Coinbase is just a cryptocurrency exchange. What does bringing it on-chain mean? A more advanced guess might be that Brian Armstrong wanted to create a decentralized exchange, like Uniswap.
Not only could outsiders not guess the plan, but even Jesse Pollak, a key player at Coinbase, was somewhat unclear. He pondered deeply and eventually arrived at a revolutionary direction — transforming Coinbase into a decentralized autonomous organization (DAO)2.
At that time, Coinbase was already a Fortune 500 company. Jesse Pollak, in front of a row of Coinbase senior executives, proposed that the company give him 60 people and $1 billion to bring Coinbase on-chain and turn it into a DAO. Personally, I would love to see his proposal, but if I were one of the executives in the audience, my first question would undoubtedly be, "Are you trying to put me out of a job?"
Unsurprisingly, the idea was rejected, and Jesse Pollak had to go back to the drawing board. Over the next year and a half, he proposed various ideas, such as on-chain advertising, an app store, and decentralized identity. Unfortunately, all were rejected. Jesse Pollak recalled that the common factor in these failed attempts was that they were all single products.
But every product needed a platform. This realization led him to the idea of creating the Base chain. In other words, the conclusion Jesse Pollak reached after a year and a half, in hindsight, was remarkably simple — Coinbase is not just an exchange or a specific function; it is an ever-evolving organism. The Base chain could meet various needs. Reviewing the mission again, "bring Coinbase on-chain" made much more sense.
However, it was already common for exchanges to build their own blockchains. Binance had launched the Binance Smart Chain in 2019, three years ahead of Coinbase's attempt. Was it too late? Moreover, Base did not issue its own coin but used ETH. No one understood it, and no one was optimistic about it.
Oddly enough, Base started making money almost from the first day after launch and even organized the perplexing Onchain Summer event.
Onchain Summer
According to the event announcement:
"Onchain Summer is back. We invite builders, creators, brands, and artists to join us in creating Onchain Summer to help onboard 1 billion people. This summer, everyone can be a builder, with Base and our partners offering over 600 ETH ($2 million) in prizes, grants, and gas credits.
Onchain Summer is an annual event that brings us closer to the next phase—onchain as the future of online. We invite creators and builders from around the world to co-create a new chapter of the internet and help the next billion users get onchain by showcasing new possibilities. Onchain Summer kicks off with a month-long online hackathon, followed by a series of new experiences in July and August that Coinbase will showcase to make going onchain easier and more fun than ever before."
I've read this description many times, but I still can't quite understand what Onchain Summer aims to achieve. The quickest way to understand it is to look at the events directly. Recently, I participated in a peculiar event called "Let’s Get Jesse Bald!" featuring Base chain's "Employee No. 1," Jesse Pollak. Why shave his head?
Because Jesse once promised at an event that if Base chain’s assets reached $10 billion, he would shave his head. There are two ways to participate in this event. One way is to be a spectator, staking 0.002 ETH to receive a "SupaBald Jesse NFT" and witness Jesse’s commitment together. The other way is to be a builder, creating better experiences to boost Base’s asset size and make Jesse bald faster.
That is? Yes, that is 🤣
This aligns with the three criteria of the Onchain Summer event:
Do Something No One Has Done Before: Create captivating on-chain experiences, the more innovative, the better.
Everyone Can Participate: Whether it's games, social activities, art, or business, keep it affordable and easy to use.
Keep It Simple: To onboard a billion people, the experience should be welcoming and seamless for new users.
If there's something more appealing than making money, it's having fun. Opportunities to make money might decrease as more people join, but fun activities become even better with more participants. Onchain Summer prioritizes fun over the seriousness of DeFi.
However, Coinbase is still a publicly traded company, and spending $2 million on an event can't be just for fun. Brian Armstrong highlighted the importance of the Base chain in a recent earnings call:
I'd like to introduce Coinbase's Ethereum Layer 2 network, Base. Layer 2 networks help scale blockchain, similar to how the internet shifted from dial-up to broadband. We believe this scaling will drive new use cases in the crypto economy. Base significantly reduces transaction fees and confirmation times3... This is a big deal, potentially saving consumers and businesses billions of dollars annually in payment processing fees to upgrade the global financial system.
CFO Alesia Jeanne Haas added that Base is already a little cash cow for Coinbase, and turning it into a big revenue generator is just a matter of time:
We have a new revenue line item called other transaction revenue. In the first quarter, our other transaction revenue saw a significant surge, including Base's sequencer fees and payment-related revenue.... However, it's still early days. Our focus is on increasing developers and driving adoption... We believe Base can be a significant long-term contributor to the company's revenue and profit.
In essence, the goal of Onchain Summer is to create more fun activities on the Base chain. Because fun is the secret to Base's growth, it ultimately has the potential to revolutionize the "less fun" financial infrastructure. Coinbase's journey from an exchange to pioneering blockchain development is reminiscent of Amazon's early expansion days.
Web3 Amazon
Recently, I read an article in "The DeFi Report" that likened Coinbase to the Amazon of Web3. I found this analogy quite fitting:
Amazon was founded in 1994 as an online bookstore. It later expanded aggressively, selling books, music, DVDs, movies, home goods, and more. By 2000, Amazon Auctions was launched, allowing third-party sellers to open stores and do business. However, Amazon continued to roll out new products, such as the Kindle e-reader, Prime membership, streaming video, and original content. Over time, Amazon realized it could export its Web2 infrastructure to help others create internet-native products and services, leading to the birth of AWS.
Coinbase’s growth trajectory is similar to Amazon’s. Founded in 2012, Coinbase initially was just a Bitcoin exchange. It wasn't until Ethereum launched in 2015 that it listed a second asset. But after 2021, Coinbase's revenue became increasingly diversified, with ventures into issuing the USDC stablecoin, staking, custody services, and venture capital. This mirrors Amazon's approach of using its experience to export Web3 infrastructure, helping others create on-chain native products and tools.
Today, AWS is the "computer" behind numerous internet services, with many cryptocurrency exchange data centers hosted on AWS. Base aims to become the on-chain equivalent, serving as the "data center" behind many future Web3 applications.
I like this analogy because it redefines Coinbase. Just as Amazon is more than a bookstore, Coinbase is more than an exchange. Selling books or coins were just among the few things they could do in the early days when new technology was not yet widespread. As their businesses expanded, defining Amazon or Coinbase became increasingly difficult. This is why it took Jesse Pollak a year and a half to figure out how to "bring Coinbase on-chain."
But honestly, I wonder how many people are actually interested in seeing Jesse shave his head? Surely, it would be more interesting if Blocktrend hit a thousand subscribers and you watched me shave my head (just kidding).
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