Layer 2 networks are add-on chains on top of the main blockchain. They conduct transactions within the superstructure and then feed the final result of the transactions into the main network. It turns out that the security of such projects is generally guaranteed by the blockchains at their core, although there are still risks. The latter arise from the blockchain bridges that are needed to send cryptoassets between different networks.

The popularity of tier 2 networks in the context of Etherium is due to the technical limitations of the blockchain. It is able to handle approximately 15 transactions per second, which is definitely not enough to meet the demand for the resources of this popular network. Therefore, at a time of blockchain overload, as cryptocurrency users remember particularly well in 2021, the cost of a typical ETH transfer could exceed ten dollars, while an exchange on the decentralised Uniswap exchange would cost hundreds of dollars.

Alas, this is still possible now, as the problem of Etherium has not been solved. The so-called sharding - that is, splitting Eth's overall blockchain into several separate chains - could improve the network's performance, we should remind you. The timeline for implementing this feature is not yet known.

However, second-tier networks have reduced the load on the underlying blockchain in any case. They offer cheap and fast transfers within their networks. That said, it’s important to understand that in order to send funds to a second-tier blockchain, you need to interact directly with the Etherium network. And that can sometimes be expensive.

New blockchain from Coinbase

In an interview with Decrypt, Coinbase senior CTO Jesse Pollack explained that testnet Base was launched earlier this month. Here’s a relevant rejoinder from the expert, in which he talks about what’s going on.

We’re betting that we can help build popular new decentralised apps that will attract the next billion users. We think it will happen within five to ten years – our initiative should do it as early as possible. The core Base network will be launched in the coming months.

As a result, Coinbase has obtained a native Layer 2 network for the Etherium blockchain, and the exchange's capabilities will clearly work closely with the novelty. In other words, users will probably be able to withdraw crypto-assets to this network immediately using Coinbase, thus saving on fees and other benefits. Well, if Base will be in demand by developers, such activity will really make sense.

So Coinbase became the first public cryptocurrency company to launch its own Tier 2 network on Etherium. However, this is not the first initiative of its kind – for example, the largest exchange by trading volume, Binance, has its own blockchain and even the BUSD stabelcoin from Paxos, which had some serious problems the day before due to the activity of US regulators.

As a reminder, second-tier solutions help to significantly reduce the cost and time of transactions compared to the main blockchain. In particular, according to Coinbase’s announcement, the exchange’s initiative combines several key features: scalability on Etherium, fast access to other exchange tools for decentralised applications, low fees and open source code.


As noted on the project website, "Base is being built for easy and secure access to Etherium, other tier 2 networks, and other tier 1 ecosystems like Solana."


Here’s the quote from the website.

We encourage participants to start with Base, but move on to any other network. That is, our team sees Base as a bridge to the cryptocurrency economy for users. It is an easy-to-use blockchain tool with access to products based on other networks. Along with Base’s ability to interact with other blockchains, we will continue to support as many networks as possible within Coinbase products.

That said, Pollack noted that Base will not be launching its own token. He continues.

Many similar projects use tokens to drive activity. But we believe this task can be done in other ways. Creating great products is the best way to stimulate activity with the development of really useful things.

It is worth noting that other popular second-tier solutions like Optimism or Arbitrum initially launched without a token as well. However, Optimism has subsequently distributed tokens to OP early adopters of its network, while Arbitrum is rumoured to be able to do the same. This concept is called “retrodding” – rewarding active participants in the project for their past merits. Base can therefore start testing and participating in the ecosystem from day one.

That said, we assume that the launch of a native token within the Base network is unlikely to happen. After all, Coinbase is an American company that carefully follows local regulations. And as the example of Ripple showed, the Securities and Exchange Commission can consider a particular token to be a security and file a lawsuit at the most unexpected moment. So Coinbase is unlikely to take that risk. In addition, it is a public company whose shares are traded on the normal stock exchanges. And that also imposes a certain responsibility to investors - and possible problems with regulators are definitely not in the interest of the latter.


We believe that if the idea is implemented correctly and the developers are involved, Base could become a convenient tool for cryptocurrency users. The Coinbase exchange is likely to be the starting point for this second-tier network, which will offer lower fees and high transaction speeds. Time will tell how exactly this will work, but in the meantime, platform representatives should create motivation for developers. After all, it is their products that will attract real users.