Detailed explanation of Base and Linea: Why are Coinbase and ConsenSys laying out Layer 2?
Original Author: Biscuit, ChainCatcher
In 2023, the concept of Layer 2 will fully explode. At the time when dozens of Rollup Layer 2s are brilliant, crypto giants such as Coinbase and ConsenSys have also begun to participate in the competition and deploy native Layer 2 networks.
Since the birth of Bitcoin, the public chain has been the most primitive encryption holy grail, and countless teams are eager to build a blockchain that can undertake the next billion users. With the maturity of solutions such as Rollup and modularization, more and more institutions can quickly deploy Layer 2 blockchains.
Coinbase is the world's first publicly listed encrypted asset trading platform. Its fund Coinbase Ventures has invested in more than 340 encrypted projects, and even the company's former employees have built more than 10 well-known encrypted organizations (such as Polychain, Paradigm, dYdX, etc.). ConsenSys is a giant in the field of encryption infrastructure, and its products are mostly low-level, such as MetaMask.
Why did the encryption giant choose to actively embrace the native Layer 2 at this time? Is it to follow the trend or plan for the next bull market? What are their respective advantages and disadvantages? This article will explain the coincidence of Coinbase and ConsenSys launching the Layer 2 blockchain, its operating strategy and its logic.
Why did Coinbase and ConsenSys launch a two-layer network?
Even though they belong to different tracks, Coinbase and ConsenSys are facing similar situations at the moment: insufficient product innovation and lack of value capture capabilities to adapt to different market cycles.
First look at Coinbase's Base. Base is a Layer 2 network built on Optimism's OP Stack and incubated internally by Coinbase. The blockchain will be seeded with Coinbase's products, users and assets, aiming to become an open ecosystem. The development process is as follows:
2022-02-23 Coinbase announced the launch of the Ethereum Layer 2 network Base and the establishment of the Base Ecosystem Fund.
2023-02-27 Base will integrate Coinbase self-hosted wallet and dApp wallet
2023-03-26 Base Ecological Fund announces four major support directions: Stable currency that can track inflation rate, reputation platform, limit order book (LOB) platform, and safer DeFi products
2023-04-01 Layer 2 network Base issued a document stating that it will push Base to the main network in the next few months.
Product innovation has been an aspect of Coinbase's slow progress over the past decade. As a cryptocurrency trading platform, Coinbase's spot trading volume has been lower than that of Uniswap for two consecutive months. Jesse Pollak, head of the Coinbase protocol, said at the ETH Denver conference that product innovation may not be the first priority, but now the company aims to change this situation. The launch of Base is actually an investment in "creating a platform" that allows developers to better Build useful products.
Linea is a zk-rollup designed by ConsenSys R&D and operated by ConsenSys. It allows developers to deploy any smart contract, use any tool, and develop as if they were building on Ethereum. It also features Type 2 zkEVM, which can be down-compiled to EVM bytecode and proven in-circuit. The development process is as follows:
2022-10-14 ConsenSys launched the "Type 2" zk-EVM specification, developers can deploy any smart contract
2022-12-14 ConsenSys launches private test version of zkEVM testnet
2023-01-10 ConsenSys zkEVM Beta testnet has been registered for external users
2023-03-28 ConsenSys zkEVM changed its name to Linea and has fully opened the test network
Before the launch of Linea, ConsenSys had 5 products: MetaMask, Diligence, Quorum, Infura, and Truffle, among which Metamask was the most successful. With the rise of account abstraction wallets, the wallet structure will usher in a huge change. Does ConsenSys also have a sense of crisis of sitting on the mountain and emptying the mountain. MetaMask's frustrating operating experience and the ultra-high transaction fee of 0.875% for Swaps products have already made MetaMask a "dragon" in the encrypted wallet track.
Compared with internal worries, how to adapt to the cyclical nature of cryptocurrencies is an external challenge for crypto giants. In 2022, Terra, 3AC, and FTX have collapsed one after another, BTC has dropped from $69,000 to around $16,000, and many encryption companies are facing the crisis of bankruptcy or layoffs. According to Coindesk, between April 2022 and January 2023, an estimated 27,000 jobs have been laid off across the crypto industry.
Coinbase and ConsenSys will inevitably be affected. On January 10, 2023, Coinbase announced that it will lay off 20% of its staff, involving about 950 people. On January 18, 2023, ConsenSys will lay off 97 people. It is worth noting that this period of time is also when Base and Linea are preparing to launch. It seems that Coinbase and ConsenSys have made up their minds to think about strategies to reduce costs and increase efficiency.
Along with the crypto crash comes compliance challenges. There is a saying that the regulatory authorities deliberately let encryption projects develop freely in the bull market, and then harvest the encryption giants in the bear market. Coinbase is a long-time crypto fighter and has had multiple debates with the US SEC on whether digital currencies are securities. ConsenSys also sent a letter to the U.S. Department of the Treasury, stating industry risks and giving regulatory advice. From this perspective, the story of Dragon Quest continues.
first level title
Operation strategy
Base
Coinbase has more than 110 million verified users and hosts $80 billion worth of assets. Therefore, Base is backed by Coinbase and can easily bridge CeFi and DeFi. An integration between Coinbase Exchange, Coinbase Wallet, and Base has the potential to be the solution to bring real users into DeFi.
At the same time, Base does not have to worry about income on the chain, which is conducive to becoming a paradise for more DeFi products. In a survey by data analyst Panda Jackson, only 26 (45%) of the 57 Base launch partners were invested by Coinbase Ventures, and most partners already have tokens and have well-run products.
Additionally, any existing products that Coinbase integrates with Base will maintain their original KYC/AML measures. Its CEO Brian Armstrong said that there are currently some centralized components in Base, but it will become more and more decentralized over time. Coinbase has responsibilities in transaction monitoring and other aspects, and Base’s current statement of “not planning to issue new tokens” also confirms this.
Linea
ConsenSys has a huge amount of encrypted traffic, mainly including MetaMask for users and Infura and Truffle for developers. It can be called the standard setter of Ethereum products and services. In the article "Six Years After Entrepreneurship, Our Reflections, Reviews, and Beliefs" published by Aaron Davis & Dan Finlay, the MetaMask joint venture, it is mentioned that in 2022, Metamask will have more than 30 million monthly active users. Infura co-founder EG Galano also disclosed in an interview that Infura has more than 400,000 registered developers and can handle more than 8.5 billion blockchain network requests every day.
With network effects, Linea makes it easy for users to experience a smoother crypto experience. Linea will integrate MetaMask and Truffle locally, and Infura will also launch a decentralized infrastructure network (Decentralized Infrastructure Network) in 2023. At the same time, Consensys will adjust to a more regulatory compliant state. In November last year, ConsenSys updated its privacy policy on its official website, stating that when users use Infura as the default RPC in MetaMask, the corresponding IP address and ETH address will be collected.
epilogue
epilogue
The successive launch of Base and Linea, on the one hand, shows that the blockchain infrastructure is gradually improving, and Layer 2 is about to enter the stage of blooming. On the other hand, it can also be seen that Coinbase and ConsenSys are beginning to try to solve the current predicament and expand the platform that can carry more users.
As public chains of centralized organizations, the biggest challenge facing Base and Linea may be the governance model. Previously, Binance, OKX, Crypto.com, etc. had all developed their own ecological public chains, but it seemed that they could not be accepted by members of crypto-native communities such as Bitcoin and Ethereum. Even after Arbitrum announced the airdrop and was governed by DAO, its foundation also broke the scandal of selling tokens without governance process, and the core team did not seem to "adapt" to the decentralized way of operation.
In any case, embracing Layer 2 also reflects that Coinbase and ConsenSys are trying to adapt to different market cycles and improve their value capture capabilities. With the upcoming EIP-4844 upgrade, which further reduces Layer 2 transaction fees, Layer 2 may have more room for profit.
