Bankless - Coinbase Announces Base🔵, an Ethereum L2 Network Powered by Optimism

Episode Date: February 23, 2023

Jesse Pollock, Senior Director of Engineering at Coinbase, joins us to unpack some of the hottest news in crypto since The Merge!  Coinbase announces the launch of “Base,” their own L2 built on the OP Stack. Tune in to hear everything you need to know about Base!  ------ 📣 MetaMask Learn | Learn Web3 with the Leading Web3 Wallet https://bankless.cc/  ------ 🚀 JOIN BANKLESS PREMIUM:  https://newsletter.banklesshq.com/subscribe  ------ BANKLESS SPONSOR TOOLS:  🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken  🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap  ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  👻 PHANTOM | #1 SOLANA WALLET https://bankless.cc/phantom-waitlist  ------ Topics Covered 0:00 Intro 7:53 Coinbase’s New Chain? 8:45 What is Base?  9:36 How is Base Different? 11:16 How Open is Base? 13:05 Why Now?  17:00 ETH L2 Philosophy  20:00 2nd Mover Advantage & Success Metric 22:26 Total Coinbase Users 25:15 How Base Will be Used By Coinbase Users 29:35 $COIN 31:13 Could Base Canoblize Coinbase?  32:35 Regulation  35:30 Base Token?!  40:26 Validator Set  39:10 Sequencer Power 40:53 Timeline  42:55 Basechain Vision  48:55 Why OP Stack? 52:57 Jesse as a Badge Member   54:47 Gas-Free Percentage 56:22 Superchain Vision 58:46 KGZ Ceremony  1:00:41 What Does Successful Base Look Like?  1:06:13 Closing & Disclaimers  ------ Resources: Jesse Pollak (jesse.xyz) https://twitter.com/jessepollak  Coinbase https://twitter.com/coinbase  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures 

Bankless Nation, we have a special breaking episode for you today. I wanted to get this out to the nation because the news is fresh as of this morning. Coinbase is launching a layer two chain called Base. That is the news that just hit the headlines. And we've got the scoop. David, who do we have on? What's the significance of this? We're bringing on Jesse Pollock, who is the protocol specialist, protocol lead at Coinbase,

who I've titled him as the guy who's responsible for growing Coinbase's DeFi Mul. it, which is getting a lot longer with this news. Coinbase launching its own specific layer two for the Coinbase ecosystem. It is built on top of the OP stack and is going to be the place that Coinbase deposits its millions and millions of users into the world of on-chain activity without having to push them into the high gas fees, low latency speed of the Ethereum layer one. I think this is, Ryan, the biggest news I can think of since a long time. This is, massive news. Coinbase is building its own chain. Of course, Binance has Binance smart chain. Now Coinbase has base. So what are the decision points that went into making this base chain?

What did Coinbase really consider when they decided to do this? How long has this been in production? Why did they choose to build on Optimism's OP stack? What is base going to look like? Is it going to be permissioned? Is it going to be open? What are you going to be able to do there? There's so many questions and we ask Jesse all of these questions in this coming episode. Yeah, I want the bankless nation to realize the significance of this event because I feel like David for you and I, the reason it's so exciting is because it validates a lot of the core bankless thesis. One, all at once, yeah. This uses Ethereum as the settlement layer, okay? And a layer to you means it settles to Ethereum. This is something that we predicted. This is definitely the defy mullet thesis. These crypto companies,

even crypto exchanges will start to build on DeFi protocols. that are credibly neutral rather than cussing everything themselves. This is also the way out of all of the 2022 traps that we saw with exchanges running away with people's money, SBF, and the block fives and the Celsius and all of these things. This is a completely auditable, open, transparent chain. I could go on, David, but the Protocol Sync thesis, didn't even mention that. All of the bankless thesis culminated. In fact, we explicitly called, we explicitly made the call.

that a major exchange would launch a layer two at some point in time, that we predict that to happen in 2022. Turns out we're just a few months late. It's happening in 2023. Great validation, really cool direction that this is going in. The first publicly traded U.S. company to launch a major effort on a chain. All this, boom, boom, boom. A lot of check marks here.

And this is why this is such exciting news today. Yeah, so we won't hold anything back. Let's get right into this episode with Jesse. Before we get in there, though, we have to make a note to that, Ryan and I are advisors to the optimism project, which is extremely relevant to this story because BASE chain, like I said, base is built on the OP stack. And Jesse and the O.P. team have been working very closely with each other. So this is very relevant to the, to the optimism team. We are talking with the optimism team on Friday at 10 a.m. Eastern time for an additional

live stream to get their perspective as well, because that is the other half of the story. But first, we're talking to Jesse from Coinbase. We're going to get to Jesse from Coinbase to talk about all of this amazing news. Coinbase launching a layer two, man, I can't say it. I could say this all the rest of the day. Coinbase launch a layer two. That's pretty damn cool. So we're going to get to that conversation with Jesse. But first, I want me to talk about some of these fantastic sponsors that make this show possible, especially Cracken, who is our strategic sponsor for 2023. If you don't have an account with them, you should get one started right now. So go there while you listen to the Cracken ad, which is going to start right now.

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I'll see you in the Discord. Bankless Nation, I want to introduce you to Jesse Pollock, who is the head of protocols and lead of base at Coinbase. Jesse is leading Coinbase's efforts to build, support, and integrate protocols into Coinbase's product. So basically, if you put this into bankless speak, Ryan, it's Jesse's job to grow Coinbase's DefiMullet. And he's got some exciting new developments on this front of CoinBase's Defi Mullet. Jesse, welcome to Bankless.

Thanks. Thanks for having me all. Super excited to be here. Hello, bankless community. Are you, do you have a mullet right now? I can't see the back of your head. No, not a more. Okay.

It's growing. It's growing. It's growing. It's going in. It's going in. It's going in. It's going in. So there is some massive news out of Coinbase this morning. Thursday morning, 9 a.m., the news just drops that Coinbase has base, which is a layer two on Ethereum. Jesse, what is this? Coinbase has its own chain. Is that what's going on?

Yeah, you're exactly right. Our mission is to create the global crypto economy. We believe that crypto economy is on chain. And over the last many years, we've been trying to figure out how do we bring more of our business on chain? And how do we enable more developers to build useful applications? And that's what base is. It's a platform that we hope is going to make it really easy for developers to build DAPs, make it really easy for those DAPs to reach massive scale through the 108 million,

verified users in 80 plus billion dollars of assets in the ecosystem and shepherd in the next era of the crypto economy that gets us to billions of users using crypto every day. Well, we love all of those words, but I really want to dive into what is base. So it's just like a new layer two that's joining the ranks of optimism, arbitram, a polygon. How is base similar? How is it different? Like help us get the lay of the land here. Yeah. So base is in Ethereum layer two. There's no token. We're using ETH as. the native gas token. And we're actually building based on the OP stack,

which is an open source toolkit for building chains built by optimism. We've been working really closely with optimism on this for the last while. We're actually joining as the second core developer of the OP stack. And we're going to help make that platform freely available, open source, and as scalable, secure, and decentralized as possible in the years ahead. So this is a huge win for the OP stack. I've always been bullish of the OP stack's design philosophy, which is to do exactly this, which is to allow teams easier times to fork the OP stack code base and build up their own layer two.

So it sounds like Coinbase is taking that possibility and running with it. But how is base going to be different? So like when we're spinning up a new generalized layer two, like how is it going to be different from optimism and arbitram? And what will people find on base that they won't be able to find anywhere else? Yeah, I think our thesis is that one of the things that Coinbase really uniquely has is we have this whole suite of products, both on the developer side and on the consumer side. Coinbase wallet, Coinbase and the Dap wallet there, a bunch of developer infrastructure. And I think we believe that if we bring those things together with base kind of at the center of it, it's going to make it easier for two things.

One is it's going to make it easier so that when developers build applications, they can actually then connect those applications to mainstream audiences. And that's kind of the base offering for developers. And then on the user side, I think we've seen that it's still too hard to actually use crypto. And we're going to be able to integrate base into our products. We're going to be able to make it work by default so that users are increasingly less nervous about, am I picking the right chain, am I paying the right gas fees? And instead they're just able to access the applications that they actually want. And I think that, like next phase where instead of us being very, very chain-centric,

we start to be more application-centric, and users start to say, hey, am I getting the actual value that I want? Am I finding useful things? That's the kind of next error that we want to be shepherding in. This is kind of cool because this is somewhat of Coinbase's legacy, right? And making crypto easy and bringing it to mainstream. And there was a time when buying a Bitcoin was an incredibly difficult experience. And I recall very distinctly Coinbase helping to make that process a little bit easier. One question I have about this base layer two. So it's an EVM. So is EVM compatible? How open is it open in the same way that an optimism or an arbitram are open in that any third party can come develop an application on top of it? Or is there some kind of permission layer? Is Coinbase doing some gatekeeping around

this? Is there like an Apple App Store type model? Tell us about the openness of this ecosystem. Yeah. And we, you know, just kind of as a first principle, really believe in decentralization at Coinbase. We believe that that's the thing that enables the crypto economy to be open, accessible to everyone globally. And so we're continuing to uphold those values with base. The layer two will be permissionless. Anyone's going to be able to deploy on it. And then on top of that kind of permissionless platform, like on top of the permissionless platform of optimism or Ethereum, we're going to see Coinbase and others build infrastructure that makes it easier for developers to do things that they want to do.

So, for instance, a good example of this is identity. I could imagine us providing infrastructure so developers could more easily recognize who people are, recognize that they're humans, recognize that they live in a certain jurisdiction. But all of that's going to be kind of at this application layer. And the actual infrastructure layer, like Ethereum, like optimism, is going to remain open and built for this global economy. that we were creating in the crypto economy. So, Jesse, I remember over a year ago, it was October in 2021. We had Brian Armstrong on the podcast, the bankless podcast,

and we asked him the question of when is Coinbase going to launch its own chain? And so we brought up the, you know, the comparison of at the time, FDX was going down the Salonah Path. FDX is no longer a bit like there. So I mean, like, I guess that's gone. Binance was certainly going down its own chain path with what was called the Binance chain, now the BNB chain. We asked Brian, hey, when Coinbase chain?

When is that going to happen? And he seemed to indicate to us at the time that the timing wasn't right, but that when Coinbase does enter the market for a chain and kind of throw their support behind some sort of a chain, the values of crypto would be very important. Values like decentralization, values like openness, values like permission list. Ness. Brian said, like, when the technology is ready. And he didn't see a path forward that allowed Coinbase to have crypto values in a

ways that could also allow them to create their own chain. So I imagine, like, Brian and the team over at Coinbase now saw that that day had come. What is different between, I guess, a year ago when we asked that question and now this big splash of Coinbase launching its own chain? Yeah. And we've actually looked at like very seriously at launching a chain twice before, once in 2020 and once in 2018. I think both times the thing that we ultimately landed on of why we said no was that we felt like there was too much of a risk of it kind of siloing Coinbase off from the broader crypto economy. You know, in an alternative L1 or some alternate ecosystem that wouldn't be deeply plugged into all of the incredible building that was already happening in the community.

And I think the thing that really gets us excited and that really unlock the potential for us to be doing base is that for the first time we felt like we could do this in a way that was integrated into the crypto economy and that upheld those values. And so that's as an Ethereum layer two, we're deeply integrated into Ethereum, which is the largest crypto ecosystem in the world, the most assets, the most developers. We're going to be plugged into that from day one. And then also from a technology perspective, we're building on the OP stack, which is open source, MIT licensed, freely available, and adhering to the values that we've seen kind of upheld in the Ethereum software layer, where those kind of values of freely available in open source are super defended. And I think for us, the feeling was if we can both create a native home for us in this new on-chain economy and take our resources and put them into open. source decentralized tooling that everyone can benefit from, whether they want to build on base or they want to fork that codebase and build somewhere else. And we can have that deeply interconnected into Ethereum and interoperable with all these other chains, whether it's

Salana or Avalanche or Polygon. That's us living our values. That's us making Coinbase not the place, not an island, but a part of the crypto economy. And the internal value that we say over and over again about this is a bridge not an island. We want base to be the way that we take users who are off-chain and bring them on-chain and they might start on base, but we want them to be so deeply interconnected into Ethereum L1 and to other L-2s and the other L-1s that they can go anywhere. And our products are going to continue supporting every chain. We're going to continue investing in those bridges. And we're going to continue working to bring users into the crypto economy and let them go wherever they find the value that they're looking for.

Just here, I really, really like that answer. And I want to unpack that a little bit because I think there's a lot of layers to it. Layers to it. It's like that one. And so, like, this really is emblematic of the Ethereum layer two design philosophy and what I've personally enjoyed about the design strategy of the layer two roadmap, which is that if you decide to build a layer two on Ethereum, you are also synergistically plugged in to all other layer twos on Ethereum as well.

And so this is answering the problem. the Ethereum's layer two roadmap is answering the problem of Coinbase would like a chain, but it doesn't want to create its own silo. It wants to be a part of the broader global crypto networks, and the layer two design philosophy does that. But that's just one layer of this. It's also specifically the OP stack also does that. And so the replicatability of the OP stack and the reproducibility of optimism's OP stack allows for the base chain to have more synergies with other layer two because neither did you fork off and create your own layer one, but you also didn't fork off and create your own layer two. You also are building on optimism's

OP stack, which makes you synergistic with the optimism network effects. And so this synergy with the broader crypto landscape, at least with the Ethereum layer two landscape, I think is really, really strong. And so I just like to say, thank you. And I'm proud of, I'm proud of Coinbase. And thank you for also seeing the same synergistic vision between chains that I see in Ethereum's layer two philosophy. Now, am I just expousing my own biases? Or is this also what you see, Jesse, and what Coinbase sees as well? No, you're spot on. I think that two and a half years ago when the Ethereum community shifted the roadmap from being kind of this execution sharding at layer one into the roll-up centric scaling roadmap, I think this is exactly the vision.

It's that we're going to have many roll-ups that work together to scale Ethereum. And they're going to be open-source. They're going to be freely available and they're going to work really well together. And that's exactly what we want. And interestingly, one of the ways we actually started building a relationship with optimism was we started working with them almost a little more than a year ago on EIP 4844, which is a part of this roadmap for scaling Ethereum. And I think what we found was that the context of working, and I guess before I go into this, EIP4A4 is also called proto-dank sharding.

It's going to create a new form of data availability on Ethereum that's going to lower cost of roll-ups like base and optimism and arbitram by 10x, and likely even more in the years ahead. And I think what we found in working on EIP 4844 with optimism and the other client teams was that context of like writing code. and contributing to this platform was such a powerful context for building that trust, for building the vision, the shared alignment around what this future looks like, and for doubling down on those values of decentralization, open source, interoperability, and interconnection into the broader crypto economy. So Jesse, Coinbase has really waited for the technology to get there, and the technology is here.

So you guys are doing this. Now, you're not first to the party, though, when it comes to kind of other exchange competitors. Let's say, Binance has been doing this for a few years now. Do you think Coinbase has kind of a second mover advantage here? Or is like the B&B chain not even the right benchmark? Like, what is kind of the success metric? And can you catch up to some of these chains that have been in existence for a while, in particular some of the exchange chains?

Yeah. I mean, I think in the grand scheme of things, we're at day zero of the growth of the crypto economy. You know, even if you add up all of the transacting addresses on every chain in the world, it's still like less than 10 million transacting addresses, probably less than a few million real humans who are transacting on chain every month. A few million every month. There are billions of people in the world. And over the next five to 10 years, we're going to get all of those billions of people transacting on chain. That's the future we're headed towards.

And so I think first and foremost, we just believe we're at day zero on this. And there's so much growth and so much opportunity for everyone to grow the pie and work together and growing that pie. In terms of Binance Smart Chain in particular, I think that Binance has done a really admirable job, like pushing the limits of what's possible on chain. You look at the activity that's driven on that platform. There's probably more real user activity on chain through Binance Smart Chain than any other environment kind of in the world. And so I think as we look to that, there's a lot to like, there's a lot to admire. I also think that when we think about how we want Coinbase and base to operate, it is this value of kind of interconnection into the crypto economy, contribution back to the public goods

that are kind of supporting this work. That's why we're building as an Ethereum layer two, not as an alternative L1. That's why we're committing as a core contributor to the OPE stack, not just taking the technology and going, doing our own thing with it. That's why we've been working over the last year to ship code in Ethereum, to scale Ethereum for everyone, not just Coinbase, but every L2 and everyone in the world.

I mean, I think that prioritization on the decentralization on the interoperability and on the open source foundation that we're building together is what's going to make base really stand out as a contribution to the broader ecosystem. That's that that you just pulled out, that we probably have just a couple million,

maybe a few million users who have ever gone on chain. That is a subset of the total amount of Coinbase users. So how many Coinbase users are there right now, like in total? Yeah, I think the number that we shared yesterday in our earnings is about 108 million verified users as of the end of last year. And so most of those users are using our custodial products where we have pooled wallets, where we're managing their crypto for them, whether it's Bitcoin or Ethereum or any of the other hundreds of assets that Coinbase supports.

And we think that's a really great first step for people. You know, you have to start somewhere. And I think the thing that we've seen over the last few years, as we've built products like USDC and Coinbase Wallet and CBE, is there's so much opportunity for the emergence of really powerful applications that are on-chain native. And that's where we increasingly want to be bringing our customers with Coinbase not just serving as an exchange and a custodian,

but really the gateway to Web3, where users are going to get access to these apps that give them real world value every day. So, Jesse, I'm just kind of running the number. So just a few million people on chain, right? And so, like, this is the population of, like, a reasonably sized U.S. city. That's all that we have of people going bankless for this entire movement when we have a few million right now.

But Coinbase has 108 million. Is that what you said? registered users. Not even verified users. Those people have gone through the whole verification, you know, done their identity verification. We're just looking at like one to two percent that have converted to full on-chain users, right?

And so I'm wondering if like success for Coinbase looks like, well, you get that to like 10%, you get that to 20%, you get that to 30%. Imagine if you had 30% conversion from a Coinbase verified user to an on-chain user, going bankless, well, I mean, that would massively, like we're just talking about 10xing the on-chain ecosystem. I'm not going to say overnight

because that will take some time, but Coinbase has traditionally been a gateway to crypto and can become this gateway to layer two and to on-chain experience. Now that the bandwidth is ready, the transaction fees are cheap.

Is that the idea here? 100%. We believe that on-chain is the next online and that over the next five years, we're going to onboard billions of users into the crypto economy.

And that is our goal. On board billions of users. Help them, obviously, come onto base, but also help them go to other layer twos, help them go to Ethereum, help them go to anywhere they want in the broader crypto economy to access the good services

and products that they're looking to. So when you first said that base was going to be a fully open, fully permission list, new layer two on the scene, my first reaction was like, well, how are they going to compete with all the other layer twos?

Like optimism, Arbitrum, like Polygon already have like a flourishing app layer and base is showing up like a year or two behind. Like how are they going to compete? But then I read, but then like unpacking this is like, oh, Coinbase has all of the people. Like it's got all of the users and like that's what like Arbitrum Optimus. They'd love all of those users. And so my question to you, Jesse, is how is Coinbase users, how are they going to be presented with base? Like is this going to be, is base going to be the like the.

first on-chain experience, you think, for many Coinbase users. And Coinbase, maybe base is like this safe playground before you venture out into the wild unknown of crypto world. First, just start with base. And so, like, Coinbase will funnel their users into base first. And then perhaps you can go on to the Ethereum. I mean, overall, like, how will Coinbase receive Coinbase's users? Yeah.

So I think, you know, like Ryan said, it's going to be a process. It's going to take time to integrate based into all of our products and to bring all of our users on chain. I think your head's going to exactly the right place. You know, what we're seeing is anytime you're helping a user come on chain, you have to present them with options or help them make decisions. For instance, I want to bring my first $5 of USDC on chain. Where do I do that? And I think right now a lot of the experiences are like, well, here's 10 places you can do that. And the users are like, okay, well, like, where do I do that?

about this. Yeah. Like, how do I make those choices? And I think we want to continue making sure those choices are available. Like, that's so core to the ethos of crypto that there's no lock in that's open. And for the 99% of users who are just looking to use the applications,

whether it's payments or borrowing or lending or trading or games or social, we want to take away the fear and uncertainty of I have to pick between 10 different infrastructure providers and make it so they have a default experience that works out of the box to them, puts them on chain where they, they can go everywhere else. So I think that's like, you know, the first big place that you'll see based starting to get integrated into Coinbase Products Week. I think the second place, and this is like a broader thesis that I have and that we have,

which is that I think over the last few years, as we've kind of seen the rise of tokens, we've seen what amounts to a lot of like very inefficient ad spend or user acquisition, where people are spending huge amounts on token air drops to acquire a user, a small amount of users to use their products. And what that says to me is, like, there's a lot of missing infrastructure for helping users figure out what the valuable products are that are going to help them live their lives better. And I think that's another thing that we're really excited about

is basically how can we build tools, both from an organic perspective, but also from a paid or, you know, like paid perspective to give developers access to those users, to put you on the front page that users, interacting with and then help you find the users that need your product and bring them to your application. And one mental model that I really use for this is if you look at pretty much any financial service that exists outside of crypto, whether it's a credit card or a bank account, all of those things, users change primarily as a result of financial incentive. You get a credit

card bonus of points. You get a bank statement bonus. That's usually motivated for the vast majority of consumers by some financial incentive to change their behavior from Bank 1 to Bank 2, from Credit Card 1 to credit card 2. And right now, I think we're missing a lot of the infrastructure to do that in an efficient and user-friendly way. And so I think one of the things we're excited about is how do we help the industry build a lot of that infrastructure so that eventually we can go to all 108 million years and say, hey, here's an incentive to come on-chain because on-chain is actually the best

financial experience you can have. And not only are you going to get the benefit of doing that from just being there, we're willing to pay you to move because it's going to be so much better for your day to day. And I think that connection of bringing in the incentives and helping users make that change is going to be really powerful. I totally see that vision. I'm wondering about if we can take the perspective of a coin base shareholder. how does base chain impact the value of coin?

Or just like, where is the value proposition here? Like, what's the value proposition for the base layer two for the value of Coinbase as a whole? Yeah. I think what we've seen over the last 10 years is that the key thing that Coinbase offers consumers is being an easy and trusted interface to access crypto. And I think what we've also seen is that for the last 10 years, mostly what users are using that interface to do is to speculate or to trade. And that has been valuable for Coinbase because we provide an easy trusted interface to trade,

and then we generate revenue on that from taking fees. I think our thesis is that over the next five years, there can be many, many more things that need an easy trusted interface. And if Coinbase can continue to provide that easy trusted interface, there are going to be many, many more ways for Coinbase. to generate revenue from making it easy and trusted for users to do those things. And the problem that we've seen is basically there just aren't enough useful things to do in crypto yet.

And so our bet with base is if we create a platform that makes it really easy for developers to build the next generation of applications that make crypto super freaking useful, then that's going to create the opportunity for Coinbase to create all those interfaces to those applications. And that's going to create a huge amount of new business for our bottom line. So, Jesse, you guys aren't worried about base cannibalizing your business. Maybe you're pushing more traffic into this kind of defy ecosystem, and maybe that somehow harms the core business of Coinbase.

Has that been a consideration? You know, I think that we've been pretty consistent over the last two years, even if maybe Wall Street won't listen to us. Coinbase is not an exchange. Like, there's an exchange that is a part of our business, but Coinbase is really the gateway to Web 3, gateway to the crypto. economy. You know, Brian wrote the Coinbase Secret Master Plan in 2016, which we can maybe talk about because I think it's a good one to talk about. Like, he wasn't like, we're going to be in exchange for

the rest of our lives. He was like, exchange is step two, and there's four steps. And I think we're getting to those later steps. And those later steps are about building an entirely new economy on chain, the crypto economy. And Coinbase's role in that is going to be the gateway to that crypto economy. And we think ultimately that that's going to be a massive business that we're super excited to grow. And not only is it going to be a good business, it can be good for the world because it's going to increase economic freedom globally. And it's going to be basically a rising tide that lifts all boats and puts everyone on a level playing field where they're all operating in the same economy that gives them stability, surety, surety and access to financial

products that make their lives better. I'm really not surprised Wall Street hasn't caught up on this idea. They're a little bit slow to crypto, Jesse, I'm afraid. But that's why we can front run the opportunity, of course. So like, yeah, the question that David asked is basically a question of how'd your business guys let you do this? Another question is, how'd your legal guys let you do this? How did you get this by compliance, right? I mean, we are entering 2023, and this is like, things are getting a little hot in the U.S. I don't know if you've noticed. And I know Coinbase has always played things by the book. And maybe this is outside of of the scope of the conversation here.

But like you guys are launching a decentralized chain, right, as a publicly traded U.S.-based company. How does that work? Is this like good from a legal compliance perspective? I imagine it would have to be or else Coinbase wouldn't have rolled it out. Do you have any takes on this? Yeah. And I thought Brian actually had a pretty good tweet on this a few weeks ago, maybe a week ago.

He said something like when when everyone is, you know, nervous about. it's the best time to build. And that's kind of how we feel about this. It's like there's so much noise in the industry right now about regulation. Of course, that's important. We, you know, Brian and Paul are up there working with regulators to get a common sense framework for crypto in place in the United States and beyond. And we're not going to let that distract us from our mission, which is creating the global

crypto economy. And in order to do that, we need to invest in the underlying infrastructure that powers that crypto economy. In terms of base in particular, I think we have staunchly defended as a business the ability for folks to participate in Ethereum staking, for folks to run validators. I think we see this as an extension of that. Base is a scaling solution on top of Ethereum. It is offering people the ability to bundle transactions and publish them on Ethereum in a permissionless and decentralized way. And it is contributing to the underlying infrastructure. that's going to power this global crypto economy that we have to be working to protect and preserve the sanctity of.

And so has this been a complex legal and regulatory and compliance challenge? Absolutely. You know, like you said, this is in many ways unprecedented. No other large public company has launched, you know, layer two blockchain. And I think we're lucky to have probably the best legal compliance, privacy, finance, teams in the world working. on crypto right now. And I'm lucky to get to partner with them on a day-to-day basis.

And we're lucky to get to work with other partners like optimism and the whole list of partners that we're bringing this to market and to find a path where we can do this in a decentralized way in a way that works within the confines of the law.

And that brings the best of crypto to our developer customers, our user customers in the world. So in line with the questions about regulatory risks, will there be a base token? There will not be a base token. No plans for a base token. I think our thesis on token is that having Ethereum as native gas token is super important. This is a layer two. We're paying

the actual cost for publishing transaction batches in Ethereum. And so we're going to take those fees in Ethereum. I think that there's a lot we can do with account abstraction over the next year, which is another thing Coinbase is investing in to make it so users will be able to pay in whatever token they want, and you can have kind of a paymaster manage that exchange. But Ethereum as a native gas token, that was never a question for us. More broadly on tokens, I think one of the feelings that we have is that one of the things that can happen in crypto is because there's this new financial incentive, it can almost at times obscure the product market fit that platforms or products have in the market.

And I think one of the things I'm excited about is I think we're going to, have real product market fit with this product. I think we are going to have probably the first chain that has access to large-scale consumer distribution that is embedded in Ethereum, that runs EBM, that's decentralized, that's integrated into broader crypto economy. And I think that is going to have product market fit. And then we're going to drive down fees. We're going to build better infrastructure. We're going to build better wallets. And it's going to work. And I think that, to me, is way, way, way more important than using a financial incentive. to gain metrics or drive activity.

And that's our plan for base. So you don't need a coin to juice the growth. You're doing this old-fashioned way. You're just building apps that people want to use, huh? We're just doing it a old-fashioned way. Building apps that people want to use. And not just us. I think that's the important thing.

Like, this is not base building apps that people want to use and coin-based building apps that people want to use. Yes, of course, we'll have first-party products that we want to offer. But for us, it's all about how do we enable everyone to build apps that people want to use? and how do we make sure that we're creating the infrastructure that platform that we're driving down the fees, that we're increasing the decentralization so that it's actually possible to build those applications that billions of users want to use. What about the validator set? Is this going to be only Coinbase doing the validation of the chain or like who gets to run this network?

Yeah, so we're going to be running the sequencer to start. And then over the next year or so, we're going to be working to decentralize that sequencer. That's one of the reasons why we're really excited about partnering so closely with someone like optimism. We're basically running a joint roadmap with them now, where we're putting our resources behind accelerating some of these really critical engineering challenges. And sequencing is one of the big ones. For the time when Coinbase is running the sequencer, we won't be doing anything with MEV. It's just going to be kind of transactions are just going to be ordered based on the time they enter the MEP pool and the priority fee that they set. that's really important to us.

We want to make sure that there's no perception or reality of coin-based trading against our customers. And so we're going to basically offer that as a neutral mempool that anyone can execute in. And Jesse, remind people the God powers of the sequencer, right? So it's different than being a validator. David used the term validator, but that's kind of maybe it's similar. But that's more of an Ethereum validator where you have lots of God mode ability. but with a sequencer, it's primarily you have God mode over ordering the blocks.

You can't actually, can you halt the chain with this ability? What are the powers that a sequencer would have and Coinbase would have before it goes fully decentralized? Yeah. So the sequencer, you're exactly right. It orders transactions. There is the ability for the sequencer to halt, but the control of the sequencer, i.e. what is sequencing is actually defined in the L1 contracts, and there's a mechanism in the L1 contracts that allows people to do what's called a forced inclusion,

which basically allows them to include a transaction outside of the path of going through the sequencer. And that's really the thing that gives L2s their kind of decentralization characteristics. It's that you have the rules of the system defined in L1 in the smart contracts in L1, and then those rules are enforced on the sequencer and the network that's running on L2. And so is there going to be centralization at the beginning? Yes, there's going to be some centralization at the beginning. And we're going to be working over the next year and beyond to remove that centralization as quickly as possible and make it so that this is, you know, as decentralized as Ethereum,

as a platform. And I think most importantly of all, there's nothing in having the sequencer ability, even when it's kind of centralized, only Coinbase is doing it, nothing that would allow you to go all SBF and go, you know, take the funds and, you know, rug retail here. Exactly right. Power the sequencer has. Yep, that's exactly right.

The sequencers ordering transactions. You can still submit at the L1. And your funds, if you were to kind of bridge over, you could kind of still submit and pull them out of the chain. As bankless as possible for a network, these are the properties that we love to hear. about. Jesse, what's the timeline on this? So this is an announcement of a future chain. The chain is not live today. What's the timeline on this thing? The test net's live today. So if you want to

build and you're a developer, go to base.org and you can start building on the test net. The test that's actually been live for a little more than three weeks. So we did Genesis on February 1st of this year and we've been working with kind of builders who are early to kind of be pressure testing that chain. But yeah, if you're a developer, build it, build it. You can start building at base.org. There's documentation, there's RPCs. We have node providers.

We have block explorers. Everything's ready to go. We also have a bounty at ETH Denver next week. I'll be giving a workshop at ETH Denver for builders. We have a couple of panels. We have a hacker house at ETH Denver. And so if you're interested in building and you're interested in building on base, please come find you.

come find us will be pretty obvious. In terms of mainnet, our goal is to bring main net in the next few months. One of the things we're benefiting from here is that we're not building a chain from scratch. We are running the OP stack and contributing to the OP stack. We've been running the OP stack for months now internally and contributing to the OP stack code base for months as well. And that's going to let us progress a little more quickly from TestNet to main net than if we were going out and saying, hey, we've built this whole new L1 system. We need to get it all pressure tested, battle tested. Optimism has done an incredible job building the OP stack, auditing the OP stack, running

bug bounties on the op stack. We're actually extending Coinbase's, I think, market leading bug bounty program with a million and a half dollars of coverage to include the OP stack and base alongside the existing bounties that optimism has. And our goal is to work with them to make this the secure, decentralized, open source, freely available, forkable platform that anyone can use to run a chain. Okay, I have been holding my breath this entire time talking about the OP stack. Because I will take every single opportunity to talk about the OP stack.

And Jesse, you said the word OP stack like 10 times. And so we're eventually going to have to get into these subjects. But one last question before we cut for a break and then get into all things, optimism and OP stack and the OP collective and all the synergies between the Coinbase and the optimism optimism team. One last question. The vision for base is to be a fully decentralized layer two eventually.

Right? And so the idea is eventually it'll be a permissionless validator set. It'll launch fully centralized with a centralized sequencer, which only again, like we talked about, only has some certain powers, but it'll still be a Coinbase validated sequenced chain. But the vision, correct me if I'm wrong, is for base chain to be a fully permissionless validate your set?

100%. Yeah. And, you know, Vitalik has the classification that we've been working through and has been helping refine of kind of a stage zero, stage one, stage two roll up with stage wheel having like stage zero having most or all training wheels and stage two having no training wheels. And our expectation is that when we hit main net, we'll still be a stage zero rollup, but we'll progress very quickly to a stage one roll up, definitely by the end of the year.

And then we're actually going to be able to become a stage two roll up. up in 2024. So that's kind of our North Star. It's like zero to one this year and then one to two next year. And when we get to two, we'll be kind of inheriting the full decentralization characteristics of Ethereum. And again, I don't think that there's a way that Coinbase could have done that alone. Like there's just no way if we had started working on this six to nine months ago and we said, we're going to build a roll up and we're going to decentralize it in, you know, six to 12 months. there's just not a path and that's why we're so excited about

both obviously working on the technology with optimism but we also see the collaboration almost as an active decentralization like doing the work to set up a core contributor group to have all core dev calls to think about how do we manage the multisigs that are managing

these things how do we actually bring these together over time to increase interoperability that is decentralization and I think by putting ourselves like our first step into the on-chain world from a chain perspective being done in a collaborative way

I think is a real active decentralization. Okay, so we have to get into the subject matters of the OP stack because there's so much to talk about here. Coinbase is joining O.P. Labs as the second official core development team of the OP stack after OPE Labs. I want to talk about how that relationship got started. But there's also strong ties between the base chain

and the O.P. collective. So a percentage of base chain transaction fees are going to the O.P. Collective. So we're going to talk about that. Jesse, you are joining the retroactive public goods funding as a RPGF badge holder. And you're going to start and be a member of that and start to participate in optimism, in the governance of the optimism collective. There are so many things to talk about. And there's a grand world in the optimism vision for the world.

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And Bankless Nation, we are back with Jesse all about the base chain out of Coinbase. But we're going to get into the tech stack that base is built upon. And Jesse's been talking about it a lot and it's been getting me really excited. And so, Jesse, can we just start back at the very beginning? why did Coinbase elect to choose to build base on the OP stack?

How did that relationship start? What was the thought process going behind this? Can you lead us into this conversation? Yeah, absolutely. So we started working really closely with the optimism team, actually not related to the OP stack in L2 a little more than a year ago on EIP 434. We talked about that earlier, but it's all about scaling Ethereum. Op. Op.

Labs and Coinbase basically came together and said, hey, we want to make this happen sooner than sometime in the future. We're now on track to ship EIP 4-4, sometime this summer. That's been a huge collaboration across the all of the Ethereum. A lot of people don't know that that Coinbase was involved in that. So Coinbase as a core dev is kind of a different mental model as well, giving back public goods to the community, yes? Yeah. I, you know, I feel, I never want to claim the title of CoreDev, you know, the teams that have been building those clients for the last many years, they have just done such an incredible service. And I feel like over the last year, Coinbase has started to contribute to the core development process. And the approach that we've taken is,

like, let's just put our money and time and effort where our mouth is by showing up and writing code. And it's been super awesome process. People have been incredibly welcoming. They've been excited for us to be there. And I think we've had a big impact, you know, like when we started, working on 4844 at the beginning of 2022. The timeline was like sometime in the future, maybe 2024. And now, you know, we have a commitment to shift this as a fast follow to the Shanghai Chappellella upgrade that's happening in late March, early April. And we have four Dev Nets done, including the last one that we all spent a week on

and inter-off working on together where we have now all clients participating in it, We're working towards the fifth Devnet, and the spec is basically done, and implementations are basically done. And so I think we're trending towards summer release, which will have a huge impact on not just base, not just optimism, but every L2. And that's kind of the ethos. So anyways, going back to optimism, we started working on that with optimism, beginning of 2022, third working on Ethereum with them.

And that actually came after in the beginning of first half of last year, Coinbase basically ran a process because we saw a lot of teams internally struggling with the question of like, how do we build on-chain products? like literally what smart contract language do we use? Do we use EVM? Do we use Russ and Solana? Do we use a Cousin app chain? And we basically decided, hey, people are already defaulting to EVM. Coinbase products all support EVM. EVM has the largest developer community in the world.

Like, let's make that the paved road internally. And once we made that decision, then it was like, okay, now we got to go scale Ethereum because this is where we're going to be deploying our applications. And so that's why we started working on 4844. And then in the second half of last year, we spent a lot of time basically thinking about, like, what's the technology stack that we'd want to build on with layer two? That's when we started to believe that there wasn't just going to be one layer two, but there were actually many layer two that worked in collaboration,

this vision of the super chain that we've been working on with optimism. And I think that's when we built a lot of conviction in the optimism team from a technical perspective, the optimism OP stack code base from a technical perspective and a modular perspective. and the optimism ethos around having the code be open source, MIT license, freely available, freely forkable, and having this whole infrastructure that they've built around funding through retroactive public goods funding, all of the public goods that support the crypto economy. And so I think those three things really combined to make this an exciting choice for coin base and one that we're really excited to be pushing forward.

So I want to ask about your involvement with the OP collective. So you are now a card hold. member of the collective. Can you talk about what you're going to be doing over there? Yeah. So I'm, I guess just to clarify, I'm a badge holder for the latest retroactive public goods funding round, which is basically a moment where optimism is taking some of the revenues that are generated by optimism main net and returning that to builders in the community who have contributed to the broader crypto ecosystem. And so this can be all the way from, you know, things like Geph, which is the execution client that's powering optimism to block explorers, to

applications. And badge holders are basically responsible for looking through the, I think it's around 200 applications for funding based on retroactive contributions and saying, hey, which of these are, you know, really had a positive impact and how do we elect kind of which ones to give funding to? And so I'm really excited to participate in that process. I think it's one of the most novel kind of cutting edge experiments happening in on-chain governance right now. And it's one that has a really, like, amazing and powerful purpose, which is funding this public goods work that makes our entire industry possible. So that's how I mean that involved in optimism. One thing that I always do like to clarify, though, as I'm going to these conversations,

is I have no O.P. holdings. I have no investments in optimism companies. I never have. The only OP holdings that I have are the ones that I earned in the AirDrop, totally unaffiliated to optimism from using Ethereum. And I think that's an important disclaimer. This was really a decision that was driven by the technology, the team, and the ethos around decentralization that Quentinace is really excited to contribute to. Well, Ron and I will have said this in the intro to this episode, but I'll say it again here. Ryan and I are advisors to optimism. And a large part of that comes from, we share the same vision that optimism has about retroactive public goods in creating this like Star Trek sci-fi future of incentive and coordination alignment and the ability to

freely fork and grow the code base. And so it starts, we're seeing what we see in optimism, it seems to be that Coinbase is also seeing the same thing in optimism. And just to really, just to clarify this last point, you said there are fee, of the base chain, the base layer two, some percentage of fees, transaction fees, like gas fees, if you call them, are going to the OP collective. What percentage is that? We're not sharing the percentage right now, but we're actually going to be doing that whole process on chain. That was really important to us. We want to make it so everything's on chain.

So it's transparent. So it's visible to the community. And that's something we're going to be working through in the months ahead. But yeah, we're really excited to be contributing back to retroactive public goods funding through the optimism collective. that felt really important to us, that we didn't want to just fork this thing and go our own way. We wanted to become a part of something bigger than us that we felt could create a real decentralized foundation for the crypto economy alongside Ethereum. And that's what we're doing hand in hand with optimism. There's that proverb, if you want to go fast, go alone, but if you want to go far, go together.

And that is really just the OP stack instantiated, at least from my perspective. and so I really want to ask you, Jesse, so you are not building on top of the OP main net. You are forking the OP code base to build a new layer two called base using the same code base as the optimism main net, but is still not on top of the optimism main net. And so which brings us to a word that we've used before, the super chain, which is the optimism vision.

It sounds like you're also privy and a believer in this. And so the idea here is that everything, every chain that's built on the OP stack, the boundaries between these things start to blur. And so you know more is there going to be like network switching. It's like, oh, I'm on Polygon. Now I've got to go change my metamask down to Arbitrum. The OP stack vision is that if we all use the same code base,

all of these chains start to meld. And so even though base is a separate chain from the Optimism Mainnet, because of the common denominator of the OP stack, a lot of the complexities of being across different, change starts to become abstracted away. This is my vision for the OP stack. This is something that some of the OP team has shared with me. Is this also your vision? And can you articulate what you see in this future super chain world? Yeah, 100%. That's our vision. You know, I think what we've seen as we've been kind of building base and thinking about this more broadly is application developers

are going to have all sorts of needs. For instance, if I'm a, you know, defy product, it's really valuable for me to be on a very interconnected hub chain like base. That's going to give me access to other defy products. That's going to give me access to users. But that's probably a different use case or need than if I'm a game developer where like I need to be having a lot of transactions that are moving really quickly to run the whole game engine. And I think ideally we'd be in a world where those applications could run in parallel and work really well with each other. I think that's the vision behind the OP stack. It's let's build one code base that can be be configurable and be used to support different developer needs and be structured in such a way

that those instances can work really well together and be increasingly interoperable. So we have a long way to go to build that vision, you know, to get from here to there to start. Base will be standing up alongside Optimism Mainnet. And then over the years ahead, we're going to be working together to converge them and to make them interoperate and to bring a bunch of other folks in to create this kind of broader super chain that scales Ethereum. Jesse, doing a little side quest here, it was also your effort to bridge in the KZG ceremony and Ethereum into Coinbase users. And so Ryan has some reasons that he's going to also applaud you for.

I'm going to front run him and applaud you for that one. It seems to be that Jesse is really taking in the best of what Ethereum has to offer and making that scalable and accessible to all of Coinbase users. And so just thank you for what you're doing with helping Coinbase lead the charge into what we see as the right direction for crypto. Appreciate that. Yeah, I mean, the KZG ceremony, that's just been such an incredible effort. Shout out to Trent and Carl and the whole team that built that. I think we just crossed 50,000 contributions. Coinbase had CTAs for it on Twitter. We sent an email to our users. We put it on Coinbase.com. A number of people inside of Coinbase work to make that possible. And it's all. all about contributing back to the public goods infrastructure that we're building on.

You know, Coinbase could not do a lot of things we're doing today without Ethereum. Base could not exist today without Ethereum. And activating our users to contribute to securing Ethereum and scaling Ethereum feels like the least that we can do. It feels like an essential contribution that we need to be making to these platforms. That's super cool. Jesse's our decentralization mole inside of the organization. Look, I know Coinbase and Brian really very very very very.

value these things and support these decentralized values too. But sometimes it takes a little bit of foresight, pushing against the grain and getting active in the community. And I appreciate you really kind of bringing that internally and leading that charge. I know it's not just you, Jesse, and you'll probably be the first to be like there's a whole team around you. I'm saying this not just to Jesse, but everyone who is working on a project that is not taking shortcuts, taking the long path towards public goods and maximally decentralizing the thing. So Jesse, I want to ask you this as we kind of close. And this is, for David and myself, this has been some of the most exciting news, I think, that we've actually seen in crypto. Maybe for me personally, I don't know if David,

you'd say the same thing since the Ethereum merge, for sure. And the reason is this is a thesis that we've had for a very long time, a very, very long time. This idea of Ethereum as a settlement layer, this idea of publicly traded companies building their own chains that settle down to Ethereum. We've called, I know the Cornbase probably wouldn't like this phraseology, but like if you hold customer assets, you are sort of a bank. And we've talked about banks building on top of Ethereum. We've talked about credible neutrality winning. We've talked about the defy mullet. We've said explicitly that a major exchange, this was a prediction last year that I think I held that didn't come true in 2022. I guess we were distracted by other things. But in 2023 is

coming true, which a major exchange would long. launch a layer two chain. And it's happening. This is like the bankless thesis playing out. And it's so exciting to see. So much of this announcement leans into so many different bankless thesis that we have been pounding the drum for it. It's long game. It's long game. And I love that you're doing this. So let me ask the question of if base is maximally successful in like five years. What do you think it looks like? Users, apps, what are people doing? Do you have some sort of definition for the future state for this project that you've launched and undertaken. Yeah. And before I talk about the future, and I appreciate all the credit, I do obviously

huge credit to the entire internal team at Coinbase that's been pushing this forward. I think we have 100 plus contributors that have helped in some way. We've been giving out NFTs over the last nine months to every contributor as they've joined. And so that will be on-chain on the record. It's also showed on based on-based. which is really cool. We get to render everyone's E&S profiles. But also, like, just a huge shout out to Brian Armstrong. Like six years ago in 2016, fair market, before 2017 bull market, Brian Armstrong wrote the Coinbase Secret Master Plan, which was a four-part plan.

The first phase was build the protocols, Bitcoin and Ethereum. The second phase was build the exchange, coin race exchange. The third phase was build the consumer interfaces. It's Coinbase wallet, MetaMask, Trust Wallet, Coinbase Dap wallet. Fourth phase, build millions of DAPs that bring billions of users into the crypto economy. You wrote that six years ago. And we think about BAS as Phase 3.5. It's the platform that makes it possible, that makes it easy for developers to build those

millions of DAPs, for users to use those millions of DAPs, and for billions of people that come into the crypto economy. And so when I think about what five years success looks like, I said this earlier, but it's that on chain is the next online. It's that this is not a thing of like, are you, have you tried crypto? It's like crypto is powering every single part of our day to day experience, whether it's the money that we spend, the money that we save, the games that we play, the social apps that we use. Those things have been re-platformed from this online platform, which has been incredibly powerful from an information perspective and given everyone access to information. everywhere, but it's still been beholden to that same centralization from a money perspective, from a value perspective. And those products have now been replatformed onto this on-chain platform,

which has the same information characteristics of being globally available. And for the first time, from a money and value perspective, is also globally available. It is also a level playing field that anyone can build for. And I think that future, that future where our everyday lives are powered by the on-chain crypto economy is going to be, it's going to be incredible. And base is going to be at the center of it with optimism, with Ethereum, and with all of the other people who are going to be using the OP stack or other toolkits that interoperate with the OP stack, which is also great to scale the global on-chain economy. Bullish, Jesse.

Very, very bullish as we end this. So what is the emoji for base? Are we doing the blue circle? Is that the thing? We're doing the blue circle. We say that the blue circle represents kind of the platform of crypto. It represents trust. It represents surety, security.

It represents economic freedom. I think we've had the green money sign for a little too long. And we believe that the blue circle, the foundation, is the next thing. The one sad thing about the blue circle, which I'm very sad about, is you can't add it to your Twitter name or your Twitter profile because they don't want it to look like the verified circle. symbol. Now you can add it to your forecaster name or your lens name and people will be doing that. Shout out to the centralized social media being built on the on-chain platform. But the blue circle is what it's all about. We're recording this on the 22nd. You've probably seen the blue circle teaser that's on the internet today.

Tomorrow we'll be talking about the blue circle, talking about base and talking about what we think is the next chapter of the crypto economy. There we go. Blue Circle bullish. We'll see if we can get Elon Musk to changes mind on the blue circle thing. You got to get them on bankless first. But this is so very exciting. Jesse, thank you for sharing this news with us today and the entire bankless community. Super excited to see. Yeah, thanks for having me all. This is awesome. Action items for you, Bankless Nation. Got to end with this. Base.org, it's named the website that just went live today with this announcement. I will include a link in the show notes to that.

Also, David and I, Bankless, has a stream, a live. Is it a live stream, David? With the optimism team, that's coming tomorrow. So that would be Friday, the 24th, I suppose. What time are we doing that stream, David? That is going to be at 10 a.m. Eastern time. So we'll get the optimism side of this equation as well, now that we've had the coin base side of the equation.

Of course, got to end with this. None of this has been financial advice. How dare you think that it was. All of crypto is risky. ETH is risky. So is DFI. You could definitely lose what you put in, but we are headed west. the frontier. We're off to explore new frontiers this time on base. It's not for everyone,

but we're glad you're with us on the bankless journey. Thanks so much. Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast, and community as a bankless premium subscriber to get the most out of your bankless experience. You'll get access to our analysis, our alpha leaks, and exclusive content, and even the bankless token for air drops, raffles, and unlocks. If you're interested in crypto, the bankless community is where you want to be. Click the link in the description to become a

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