February 24, 2023

🥛 Coinbase enters the Layer 2 War

GM. This is Milk Road. The daily newsletter powering you through the world of crypto like a power boost in Mario Kart. Plus, there are no bananas to slip on.

Let’s get into the good stuff:

  • Coinbase launched a new blockchain

  • Reactions!

  • Crypto market comeback in 1 chart


Yesterday, Coinbase dropped an announcement that had everyone talking… it’s launching its own Layer 2 (L2) blockchain, called Base.

Here’s everything you need to know:

  • As a reminder, an L2 blockchain offers developers an easier, low-cost way to build decentralized apps (dApps) on-chain.

  • Base will be built using Optimism’s OP Stack. Optimism is another L2, and OP Stack is open-source code that powers Optimism. Coinbase is working with, and using code from, Optimism to build a competing L2. Keep friends close, but enemies closer?

  • Coinbase will incubate the new blockchain and be the sole sequencer for transactions. Sequencers validate and execute transactions on a blockchain. In other words, Base will start out “centralized,” but over time Coinbase will “decentralize” it by adding other sequencers. Big “trust me, bro” vibes.

  • 48 crypto partners had access to the testnet. A test network launched a few weeks ago and crypto companies like Chainlinks, Magic Eden, and Uniswap all had access.

  • There are no plans to issue a token for Base. Other L2s like Arbitrum & Optimism have tokens, but Coinbase has decided against it for now. But this is crypto, so of course someone created a fake BASE token that pumped 270% yesterday. Scammers gonna scam.

Coinbase also announced a new fund, called Base Ecosystem, that will invest in early stage projects that build on the new blockchain.

After the news leaked, Coinbase’s stock rose slightly, while Optimism’s token jumped over 20%.

Why it matters: The largest crypto exchange in the U.S. has officially joined the Layer 2 War.

L2s provide cheaper and faster transactions compared to L1s like Ethereum. To compare, today it costs ~$0.20 to send a transaction on Optimism. It costs ~$1.30 (over 6x more) to do the same thing on the Ethereum mainnet.

Unsurprisingly, L2 popularity has spiked more than Mac McClung's after this year’s NBA Dunk Contest.

As of today, there’s $6.34B in crypto locked across 26 other Layer 2 networks. Arbitrum is leading the way with a 53% market share, and earlier this week it surpassed Ethereum in daily transactions. Optimism is in second place with a 31% market share.

Now, Coinbase is taking its shot.

Coinbase might have a late head start, but it has something the others don’t: 110M users. And those users control $80B in assets across the Coinbase ecosystem. (That’s 12.5X as much as the entire L2 ecosystem.)

If Coinbase can get even a small percentage of its users onto Base, it can be a true contender. But that’s a big “if.”

Last year, Coinbase launched an NFT marketplace with the same formula—but it’s been a total flop. Since the marketplace launched, it’s had a TOTAL of $7.3M in sales volume. And interest in it is waning—only 13 people bought something off the Coinbase NFT marketplace this week. Ouch.

Here at Milk Road we know one thing: history might not repeat, but it sure as hell rhymes. So we asked a couple of friends what they thought of the move…


KOFI: “I see two possible outcomes. A good outcome: Coinbase leans on its strength of being the accessible gateway to crypto for normies and smoothly onboards some portion of its user base to on-chain antics. Earns a ton of money in txn fees. (You can track other L2 profits here.) A bad outcome: Coinbase launches this rollup but doesn't manage to convince its large user base to adopt it. Wasted opportunity.”

ADAM LEE: “I’ve been pretty impressed with their planning and rollout.” (BTW, Adam works for thirdweb, one of the select partners chosen to get access to Base.)

Milk Roader Question of the Day: How do YOU think Coinbase’s new blockchain will perform?

Reply to this email with your prediction and we’ll share the results later this week.


Can I be honest?

I barely got this section in on time.

I went to sleep at 4am & woke up to write this at 8am (we sent it an hour later).


I was up all night playing INK GAME'S new game, Prize Kingdoms.

Prize Kingdoms is like if Clash of Clans met Sorry. Here’s what sets it apart:

  • It’s a legit Triple A game. The graphics are clean and bright. (I love the little guys with the red hats)

  • The Gameplay is addicting: You roll dice and move from kingdom to kingdom building cities, attacking others, and earning prizes.

  • The game has 5 stars on the App Store. The team made games at EA, Zynga, and SciPlay

The best part?

They’re about to add referral technology that pays you for bringing in your friends.

But you need an INK ID to get paid and there’s only one way to get one.

You need to be referred.

Click the button below and type in “milkroad” to grab yours.


The crypto market is… making a comeback?

For the first time since April 2022, 30-day capital flows in crypto are positive.

That means more money is coming into the market than is leaving the market.

Capital flow is a hard number to measure, so market intelligence firm Glassnode uses something called the “Realized Market Cap” to measure it.

The Realized Market Cap = last value each token sold for on the blockchain X total token count. Realized value helps filter out illiquid coins as well as speculative off-chain trade volume.

After 8 straight months of outflows, on-chain metrics show $4.5b in inflows this month.

Is this the beginning of the next bu…..

Alright, I’m not going to say it.

Let’s just enjoy the dub for now.


This week, $305M was invested in Web3 companies. Here’s who got the bag:

Arbitrove got $14M to build yield-bearing index products on Arbitrum. Big week for layer 2 technologies

Towns got $25.5M to build a group chat protocol and app. The CEO is the former founder of social video app, Houseparty.

Chain Reaction got $70M to build a semiconductor manufacturer for blockchain and privacy infrastructure solutions.

Sentio got $6.4M to build an observability platform to gain insights, secure assets, and trouble transactions for decentralized applications.

If you wanna see all the companies that got funded, check ‘em out here.



That's a wrap for today. Stay thirsty & see ya tomorrow! If you want more, be sure to follow our Twitter (@MilkRoadDaily)


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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.