Base by Coinbase Paves the Path for Crypto and Fintech Companies: Optimism

It’s only a matter of time until every cryptocurrency exchange and fintech firm is running its own blockchain, according to OP Labs, builder of Ethereum overlay protocol Optimism. The logic is straightforward and simple, says OP Labs head of product, Sam McIngvale, pointing to the runaway success of Coinbase’s layer-2 (L2) network Base since its debut in 2023. For a start, Base has accrued an impressive ecosystem of users and developers to back the exchange, McIngvale stated. The biggest advantage is how a system like Base, combined with Coinbase’s bitcoin-backed loans, allows dormant crypto assets in custody to be monetized through lending, he added.

Base was built using Optimism’s OP Stack, a software product that helps users develop layer-2 blockchains that work with Ethereum, providing faster, cheaper transactions. McIngvale noted that Base’s success—being the largest layer 2 by various metrics including total value locked—illustrates how the industry may evolve. “I expect every crypto exchange and every fintech company to run their own blockchain in the next five years,” McIngvale said in an interview. “If you own bitcoin on Coinbase, with one click, they can move that bitcoin to Base, allowing you to borrow USDC from it. And now you can utilize that USDC as you wish.”

Both Optimism and rival Arbitrum assume a transaction is valid—hence “optimistic”—with potential fraud being detected through permissionless fault proofs. Optimistic rollups enhance the throughput of Ethereum’s base layer by processing transactions off-chain to lessen the computation load, gaining security by publishing transaction results on the underlying layer-1 blockchain. An alternative approach involves using zero-knowledge proofs to create rollups that publish cryptographic proofs of validity for off-chain transactions.

McIngvale, who played a key role in building the custody business at Coinbase, further emphasized that simply holding crypto in cold storage is relatively costly. “Traditionally, it costs to custody a significant amount of crypto due to all the security implications,” McIngvale said. “Unlike equities, where you aren’t typically charged for custody since those are lent out and managed independently, crypto is still in its early stages but is progressing in that direction.”

There’s clearly been some competitive interest in layer-2 solutions within the crypto space. Global exchange Kraken has launched Ink, a layer-2 blockchain that also uses Optimism, as have several other exchanges. Fintech firms are exploring their own L2s linked to Ethereum as well.

Optimism’s modular vision of an interoperable “Superchain” aims to allow users to move seamlessly from one blockchain to another, much like browsing different websites, McIngvale explained. “Early adopters in crypto were far more willing to endure poor user experiences,” he said. “People would wait 12 seconds for a transaction to confirm and pay $50 because they were pioneering new technology, similar to the experience of being online in the mid-90s. It was challenging.”