Can Coinbase’s Blockchain Fix Its Losing Streak?

Coinbase Global is launching on Wednesday a platform for developers to build crypto applications, the exchange’s latest bid to boost revenue outside its core trading business.

Dubbed Base, the initiative is a blockchain and in some ways is akin to iOS or Android on mobile phones. It would provide a platform for investors to send money, trade on decentralized exchanges, borrow and lend cryptocurrencies, and create nonfungible tokens.

If developers build sought-after applications on the network, then Coinbase will earn fees every time there is a transaction, according to Alesia Haas, Coinbase’s chief financial officer. It will likely take years before Coinbase can generate meaningful revenue from Base, said Haas.

The blockchain’s launch is coming after Coinbase reported a sixth consecutive quarter of losses. The exchange has been battling lower trading volumes and lost 20% of its active users last quarter. Coinbase has historically been dependent on fees from customer trades. However, Coinbase’s nontrading revenue surpassed trading revenue for the first time in its history, marking a shift in its business model.

Base is a so-called Ethereum layer-two blockchain, meaning that it is a separate blockchain built on top of Ethereum to improve transaction cost and speed. 

Base takes a large number of transactions, batches them and then compresses them before publishing them to Ethereum.

“On Ethereum, everyone’s driving in a single car, that’s really expensive because everyone has to pay for their own car,” said Jesse Pollak, who leads Coinbase’s efforts on the blockchain. “With Base, we have public transportation, so now you could fit hundreds of people into a single train.”

Investors sent more than $130 million worth of cryptocurrencies from the Ethereum blockchain to Base ahead of the launch to use them on the new blockchain, according to data from Dune Analytics. 

Currently, about 20 decentralized exchanges such as Uniswap as well as lending platform Aave are available to use on Base.

Coinbase faces reputational risks with the Base launch. It is a public and “permissionless” blockchain, meaning anyone can participate anonymously. Even before its official launch, Base saw a scam involving a meme coin. BALD token, a joke token launched on the blockchain in July, crashed to nearly zero after its developers absconded with investor funds. 

Pollak said Coinbase would build more tools to help users assess the trustworthiness of products on the Base platform, though it won’t interfere with the “open and permissionless” aspect of the blockchain. 

The company is also under heavy regulatory scrutiny. The Securities and Exchange Commission sued Coinbase in June, alleging that the company violated rules that require it to register as an exchange and be overseen by the federal agency. 

Because of Coinbase’s central role in creating Base, regulators could theoretically hold the company accountable for any nefarious activities on the blockchain, according to

“A regulator who wants to make that argument can make that argument,” he said. “However, I do think that’s also a very shortsighted way for any regulator to treat this situation.”

Coinbase has focused more on sticky revenue sources such as custodian services for asset managers hoping to launch exchange-traded funds that hold bitcoin. However, the SEC has repeatedly rejected applications for these ETFs.

Investor enthusiasm over asset managers’ new applications for these bitcoin ETFs and Ripple’s partial win in its legal fight with the SEC have lifted Coinbase’s shares in recent weeks. The stock has surged 149% this year, though it is still well below its initial offering price of $381. 

Write to Vicky Ge Huang at [email protected]