Cryptocurrency exchange Coinbase revealed last week that it was launching its own Ethereum Layer 2 network, and investors may be bracing for the announcement despite a regulatory crackdown in the digital asset industry.
Coinbase’s stock price rose nearly 10% on Tuesday to $64.83 per share, the biggest daily gain since shares rose more than 13% on Feb. 15. Since the company unveiled the new network named Base before markets opened on Feb. 23, Coinbase shares have soared. around 6% from a closing price of $61.18 the previous day.
Instead of processing transactions individually on a network like Ethereum, layer 2 networks often seek to improve their underlying blockchain by processing batches of transactions on a separate network and then relaying them back to their main network in a compressed form. .
The solution can improve the time it takes to process transactions and result in lower gas charges than interacting directly with the underlying mainnet. Coinbase complaints that Base makes transactions 10 times cheaper than interacting directly with Ethereum.
The launch of Base would make Coinbase the only publicly traded company with its own Layer 2 network, as the company seeks to expand its revenue streams beyond primarily transaction fees from merchants on its platform. The exchange has made it clear that the network will not coincide with a token launch, but it could make existing Coinbase products a more popular choice among developers.
Coinbase wrote in a blog post this base will mainly serve as a place for developers to create decentralized applications, also called dapps, which work in the same way as traditional applications but are built on blockchain networks.
Dozens of projects have signaled their commitment to using Base, including Ethereum-based analytics platform Dune Analytics, DeFi protocol Aave, and Animoca Brands, creators of metaverse game The Sandbox.
“Base will serve as both a home for Coinbase’s onchain products and an open ecosystem,” the company said. “We need to make it even easier for developers to build.”
Coinbase created Base on Optimism’s OP Stack, an open-source toolset published by Optimism for building Layer 2 networks, and the exchange said it will have a developer relationship with the nonprofit at the future.
Adam Cochran, managing partner of Cinneamhain Ventures, wrote on Twitter that Base would be a game changer for Coinbase, saying it’s “very clear that Wall Street has no idea how to price an L2.”
It’s very clear that Wall Street has no idea how to price an L2 with Coinbase still trading at lower prices than last week despite this announcement 🤣
Their loss, my gain.$COINNext-cycle revenue will be a game-changer.
— Adam Cochran (adamscochran.eth) (@adamscochran) February 23, 2023
In response to a user who replied to his post, Cochran said that Base could provide institutions rooted in traditional finance a regulatory-compliant avenue to create tokenized versions of real-world assets, an approach that the CEO of Blackrock, Larry Fink, a describe as the “new generation for the markets”.
But Coinbase’s recent gains could reflect the stock’s signature volatility. Coinbase shares have been turbulent since the exchange went public in April 2021, showing signs of a close correlation with digital assets like Bitcoin and Ethereum.
Some on Wall Street may see the shares of the exchange as a publicly traded proxy for crypto. Coinbase stock hit an all-time high of around $357 in November 2021, the same month Bitcoin and Ethereum hit all-time highs of $69,000 and around $4,800, respectively.
Today, Bitcoin And Ethereum both are around 66% off their all-time highs, according to data from CoinGecko. For Coinbase, the company’s share price fell nearly 82%, slipping further than the two largest cryptocurrencies by market capitalization so far.