Coinbase Jumps Into Ethereum Scaling Race With New Rollup

Coinbase, the No. 1 crypto exchange in the U.S., is building a new Layer 2 blockchain to give its users easy access to faster and cheaper transactions on Ethereum, the company said Thursday.

The move puts it in direct competition with heavyweight Arbitrum and a slew of competitors that plan to introduce similar products ater this year.

Layer 2 blockchains, also known as rollups, batch and compress user transactions before appending them to the Ethereum blockchain. This makes it possible to use Ethereum while avoiding its notoriously high transaction fees and sluggish execution.

Crucial Role

Rollups are expected to play a crucial role in scaling Ethereum, and proponents say the technology will make it fast enough and cheap enough to accommodate billions of users and replace legacy institutions such as banks.

Coinbase’s rollup, Base, is available for application developers to test, the company said. A mainnet launch will likely happen before the end of the third quarter, according to Jesse Pollak, head of protocols at Coinbase.

Coinbase isn’t the first crypto exchange to build its own blockchain — Binance launched its BNB Smart Chain in September 2020. But it is the first to build a rollup.

It joins a competitive field.

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The Defiant

According to L2BEAT, leading Layer 2 Arbitrum on Tuesday processed more transactions than Ethereum, a first for a rollup. Its parent company Offchain Labs was valued at $1.2B during a Series B in August 2021. Optimism, the second-largest rollup and Arbitrum’s primary competitor, was valued at more than $1.6B during its Series B last March.

Later this year, several rollups using zero-knowledge (ZK) technology are expected to debut. Some experts believe that rollups powered by ZK cryptography are the most promising method of scaling Ethereum due to their potential to improve on existing Later 2 blockchains in terms of speed and security.

Validity Proof

“Optimistic” rollups such as Arbitrum and Optimism assume transactions are valid and provide a seven-day dispute window. ZK rollups create a “validity proof,” a receipt that the rolled up transactions are indeed authentic. As such, there is no delay in confirming transactions.

Scroll, Polygon, Matter Labs and ConsenSys are all working on Ethereum-compatible zero-knowledge rollups, or zkEVMs, that will allow developers to easily deploy their existing applications. Polygon has said it will release its zkEVM on March 27. Last week, Matter Labs invited developers to register to deploy their applications on its zkEVM, zkSync.

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The Defiant

But Base will follow a tried-and-true method in its attempt to offer Ethereum users faster and cheaper transactions.

Base is an optimistic rollup built using Optimism’s code, the “OP Stack.” The Optimism Foundation has made the codebase public, hoping that other developers copy and improve on it.

Pollock, who led the development of Base, said the modularity of the OP Stack appealed to the company.

Copy-and-Paste Job

“As there’s more technology improvements in how to build chains — for instance, ZK technologies — we can actually integrate those technologies into the OP Stack. That modularity [paves the way for] upgradeability.”

Base isn’t a simple copy-and-paste job, however. It’s the beginning of a collaboration.

Coinbase will become a contributor to the OP Stack. It will donate a percentage of Base transaction fees to an Optimism-run grant program that funds developers working on public goods, such as upgrades to Ethereum. Eventually, Base and the Optimism blockchain will be hard to tell apart.

“By building on the same technology stack, by working with the same values around decentralization, and by prioritizing the work to make these pieces of software interoperable, what we’re going to be able to build to over the next few years is a world where Optimism and Base increasingly feel like one chain, the super-chain, and there’s actually a bunch of other chains that are interconnected with them,” Pollock said.

In the meantime, Base will attempt to differentiate itself as a rollup that caters to developers.

Grants Program

“Over the last 10 years, we’ve established crypto as something that can be useful for trading and speculation, but [actual] utility is not there,” Pollock said. “And so our goal with Base is to make it really easy for developers to build useful [applications], and then to make it really easy for users, through the Coinbase interfaces, to use those [applications].”

In order to spur development, Coinbase and its venture arm, Coinbase Ventures, will fund a grants program for software engineers who build on Base. Pollock declined to disclose the size of the grants program.

Major DeFi projects already building on Base include Aave, Ribbon and Balancer, according to Coinbase.

Corrects the spelling of Jesse Pollak’s surname.