Coinbase's Blockchain Gambit: A Solution to Six Consecutive Quarters of Losses?
The new platform aims to enable developers to build their own crypto applications, expanding Coinbase's revenue streams beyond its core trading business.
Base will function as a blockchain that allows investors to send money, trade on decentralized exchanges, borrow and lend cryptocurrencies, and even create non-fungible tokens.
Alesia Haas, Coinbase's chief financial officer, said in a recent interview that the exchange will earn fees from every transaction made on the network if developers build popular applications.
However, Haas acknowledges that it may take several years before Base generates substantial revenue for Coinbase.
This launch comes on the heels of Coinbase reporting six consecutive quarters of losses, which were mainly attributed to lower trading volumes and a 20% decrease in the platform's active users in the last quarter.
Traditionally, Coinbase has relied on fees from customer trades as its primary revenue source.
However, for the first time in its history, non-trading revenue surpassed trading revenue last quarter, indicating a shift in Coinbase's business model.
Base, a layer-two blockchain built on top of Ethereum, aims to improve transaction costs and speed.
It achieves this by batching and compressing a large number of transactions before publishing them to the Ethereum blockchain.
“On Ethereum, everyone’s driving in a single car, that’s really expensive because everyone has to pay for their own car,” said Jesse Pollak, who leads Coinbase’s efforts on the blockchain.
“With Base, we have public transportation, so now you could fit hundreds of people into a single train.”
Investors Rush to Send Millions to Base Ahead of Launch
Investors have already sent over $130 million worth of cryptocurrencies from Ethereum to Base in anticipation of its launch.
As reported, earlier this month, the blockchain witnessed more than $200 million in trading volumes and more transactions than established networks like Arbitrum in a matter of two days.
Despite not being open to the public yet, traders have flocked to the blockchain in the hopes of racking in lucrative returns, particularly from meme coins.
While Base holds promise, Coinbase faces reputational risks due to its open and "permissionless" nature, meaning anyone can participate anonymously on the blockchain.
Just recently, Base experienced a scam involving a meme coin, BALD token, resulting in significant losses for investors.
In response, Coinbase said it plans to introduce more tools to help users assess the trustworthiness of products on the Base platform without compromising its open and permissionless nature.
Coinbase's Base launch also occurs amidst heavy regulatory scrutiny.
In June, the Securities and Exchange Commission (SEC) sued Coinbase for allegedly violating exchange registration rules.
As Coinbase plays a central role in creating Base, regulators could potentially hold the company accountable for any illicit activities occurring on the blockchain, according to Omid Malekan, an adjunct professor at Columbia Business School.
“A regulator who wants to make that argument can make that argument,” he said. “However, I do think that’s also a very shortsighted way for any regulator to treat this situation.”