Coinbase, the leading US cryptocurrency exchange, launched its own Ethereum Layer 2 blockchain network called Base in August 2023. Built on the Optimism (OP) Stack, Base has seen a surge in activity and is generating significant revenue for Coinbase.
Base’s Rapid Growth and Revenue Generation
Since its launch, Base has experienced remarkable growth, attracting millions of users and becoming one of the most popular Layer 2 networks. Some key highlights:
- Base has amassed over 8 million users and ranks No. 1 in terms of transaction volume over the last month, surpassing Polygon and Optimism.
- It witnessed a whopping 3,200% increase in daily new users after the Ethereum Dencum upgrade.
- Buzzworthy projects like the social networking app Friend.tech and decentralized social network Farcaster have driven a surge of activity on Base.
This rapid growth has translated into substantial revenue for Coinbase through “sequencer fees” paid for each transaction on the network:
- From August 2023 to February 2024, Base generated around $6.5 million in profits for Coinbase.
- In just the last two months (March-April 2024), Base has produced nearly $35 million in profits as user activity soared.
- Over the last 30 days alone, Base has done $30 million in top-line revenue for Coinbase from sequencer fees, annualizing to around $360 million.
Base’s Potential and Coinbase’s Transformation
Analysts have differing views on Base’s revenue potential for Coinbase in 2024:
- Needham’s Todaro estimates Base will earn Coinbase $167 million in custody revenue in 2024.
- Oppenheimer’s Lau anticipates Base will contribute only $100 million or 2% of Coinbase’s projected $5 billion revenue in 2024.
- However, if Base maintains its current pace, it could generate around $200 million annually for Coinbase.
Base represents a significant part of Coinbase’s transformation from a simple exchange to a multifaceted crypto ecosystem offering various products and services. It aligns with Coinbase’s mission of driving utility in crypto and building the infrastructure for the future of finance.
Base’s Business Model and Future Prospects
Base operates on a revenue-sharing model with Optimism, paying the greater of 2.5% of transaction fees or 15% of net profit. It has also received 2.75% of Optimism’s tokens worth $192 million.
Looking ahead, Coinbase envisions Base hosting its centralized business units, projects seeded by its venture arm, and potentially serving as infrastructure for traditional finance players like BlackRock to build on crypto rails. Base could become the “web3 app store,” with Coinbase earning small fees from hosted applications, similar to AWS.
While Base’s success is still unfolding, it represents Coinbase’s strategic move towards decentralization and owning the infrastructure for the future of finance.
