This is Part 4 of the Rollup Series. If you would like to read the other parts, please check out the list below:
Part 1: Scroll, the Dream of a Native zkEVM
Part 2: Classification of zkEVMs and Taiko
Part 3: Beyond Equivalence to EVM-Native, Specular
Part 4: Exploring Coinbase’s L2 Network, Base
TL;DR
1) Coinbase has recently announced the launch of Base, a decentralized and open-source Ethereum L2 network developed in collaboration with Optimism.
2) Base is a rollup network that utilizes the OP Stack as its foundation. Coinbase’s Web3 products and dApps will seamlessly integrate into the platform. The OP Stack is a software package that underpins Optimism, and it enables developers to build L2 networks effortlessly.
3) The Base network stands out compared to blockchains created by established corporations and exchanges. From a Web2 perspective, it simplifies the process of onboarding numerous Web3 users, while from a Web3 standpoint, it provides a valuable contribution to the Ethereum ecosystem, benefitting both sides.
1. Introduction
1.1 Announcement
In the early hours of February 23, 2023, around 2–3 am in Korea, Coinbase randomly shared an image of a blue circled emoji on its official Twitter account, when Optimism posted the picture above. The use of the blue circled emoji by Coinbase on Twitter created a lot of confusion among its followers, particularly because Optimism typically uses a red circled emoji to represent itself. This led to various speculations, such as whether the Arbitrum network was launching a new token or why the launch of an Arbitrum token was being mentioned on the Optimism Twitter account. However, the actual announcement was that Coinbase, the largest US-based exchange, will announce its own Layer 2, collaborating with the Optimism team.
1.2 Summary of the Announcement
Below is a brief summary of the recent announcement by Coinbase and Optimism:
- The name of the collaborative L2 network on Ethereum that Coinbase has launched with Optimism is called “Base.”
- The testnet launch for Base is scheduled for February 23, 2023, at 11:00 PM Korea time.
- Base was built using Optimism’s technology stack, OP Stack.
- Base will function as an L2 network incubated by Coinbase, with the integration of various Web3 products from Coinbase and dApps from a wide range of developers.
- There are currently no plans to introduce its own token on the Base network.
1.3 Background
Coinbase, a cryptocurrency exchange, was established in 2012 and has since become the largest exchange in the United States after over a decade of operation. From the outset, Coinbase aimed to develop an open financial system that would foster economic autonomy on a global scale. To achieve this ambitious objective, Coinbase has been exploring various strategies over the years. However, as a centralized exchange, its platform was not built based on smart contracts, which created a contradiction with its ultimate vision. As a result, Coinbase has been seeking to realize this vision by developing on-chain products like USDC, Coinbase Wallet, and cbETH, a liquid staking protocol, in recent times.
Coinbase recognized that on-chain products alone would not be sufficient to realize its vision. And after careful deliberation, the company concluded that it needed to create its own Ethereum Layer 2 network. They decided to develop an Ethereum Layer 2 network based on the reasoning that the Ethereum Virtual Machine (EVM) is considered the industry standard in blockchain technology. Moreover, given the possibility of increased financial activity on the blockchain in the future, involving large fund transfers, Ethereum’s robust security makes it the only platform capable of handling such transactions effectively. Recognizing the scalability issues still prevalent in Ethereum Layer 2 networks, Coinbase has contributed to the core development of EIP-4844, an upgrade that greatly increases the data storage capacity of the Ethereum network. (Read A41’s EIP-4844 Series 1 and 2).
Coinbase envisions a future for the Ethereum Layer 2 ecosystem, where multiple L2 networks will emerge and eventually interconnect to form a single, interoperable network to significantly improve Ethereum’s scalability in the end. With the likelihood of multiple L2 networks emerging, it was only logical for Coinbase to create its own L2 network. With over 110 million users and assets valued at $80 billion, if Coinbase can efficiently onboard its users onto the Base rollup network, it could bring the company one step closer to realizing its grand vision of fostering global economic autonomy, as envisioned in 2012.
We will explore further details later, but Coinbase’s perspective on the Ethereum L2 ecosystem’s future closely resembles the technology stack being implemented by the Optimism team. That is why Coinbase leveraged the OP Stack, a technology stack developed by the Optimism team with whom they previously collaborated on EIP-4844, to create the Base network announced recently. The Base network will be an L2 that offers substantial scalability, interoperability (not only with Ethereum L2s, but also with other L1 networks like Bitcoin, Solana, and Cosmos), and user-friendly features, using the strong security of the Ethereum network.
2. OP Stack
2.1 Architecture
In the previous section, it was mentioned that Coinbase employed the OP Stack to create its Base network. However, what exactly is the OP Stack? It is an open-source technology stack that forms the groundwork of the Optimism Network, encompassing diverse software components. Currently, the Optimism Network operates on the OP Stack, which is open to everyone for utilization and customization to effortlessly develop an L2 network for developers named “OP Chain.” This is akin to how the Cosmos SDK aids in the creation of an app chain.
The OP Stack is composed of several layers, and developers can create their own L2 network by selecting a module for each layer. Here’s a breakdown of the OP Stack architecture:
The first layer of the OP Stack is the data availability layer, which is responsible for storing transaction data generated on the L2 network (Read part 3 of [Research] Polygon, the Front Runner of Modular Blockchain Future). OP Chains, which are built using the OP Stack, store transaction data in the Ethereum block as calldata, as this is the default setting. However, if the EIP-4844 is implemented in Ethereum in the future, OP Chains will be able to store data in a new data structure called blob instead of calldata.
The second layer is the sequencing layer. This layer is responsible for collecting and ordering transactions in the L2 network. As of now, the default sequencer module is the single sequencer module, and the multiple sequencer module is proposed to be supported. Can a single entity be trusted to arrange transactions in a blockchain? On an L1 network, a single entity running the network would be a centralized network and pose a serious security risk. However, in the case of L2 networks, executions are verified on the Ethereum on-chain, making them safe. Nevertheless, it may be necessary to move towards multiple sequencers in the case of L2 networks to address minor issues such as MEV that a single sequencer cannot handle (Read: [Research] Efforts for Rollup Decentralization).
The third layer is the Derivation layer, which acts as an intermediary between the data availability layer and the execution layer through the Engine API, to deliver transactions in the DA layer ordered through the sequencing layer to the execution layer. As you are well aware, the Ethereum network is divided into two layers — a consensus layer and an execution after The Merge upgrade, and the Engine API facilitates the communication between these two layers.
The fourth layer is the execution layer, responsible for executing transactions by receiving inputs from the Derivation layer via the Engine API. Currently, the OP Stack includes the EVM module, which means that OP Stack chains will have EVM as their execution environment. It should be noted that the EVM in the OP Stack has achieved maximum EVM-equivalence, but with slight modifications made for L2 networks. For example, it added an extra gas fee for storing transaction data in L1, and there are minor differences in opcodes, block specifications, and network specifications.
The fifth layer is called the Settlement layer, which is responsible for ensuring the finality of network blocks. Finality becomes extremely crucial when it comes to withdrawal transactions on a network. Currently, proposers use the Attestation module as a default by voting on the blocks to validate finality, with the proposed plans to add fraud proof or validity proof settlement mechanisms. But wait, isn’t it weird that a fraud proof module is yet to be introduced? Because optimistic rollups borrow Ethereum’s security through fraud proving.
Weirdly enough, Optimism has not yet implemented a fraud proof system as you can see from l2beat. Currently, Optimism is working on developing the system, and the state roots submitted by Optimism to Ethereum at the moment are delivered using a multisig method through attestation.
The last layer of the OP Stack is the governance layer, which offers developers the choice between a multisig governance method or an on-chain governance method using tokens.
So far, we have looked at different layers that comprise the OP Stack. By selecting the desired module for each layer, developers can easily customize their L2 network (OP Chain) according to their preferences. Thanks to this powerful framework, Coinbase was able to quickly develop and launch its Base network.
2.2 Superchain
Optimism’s goal goes beyond just creating multiple OP Chains using the OP Stack. They envision a Superchain — a network consisting of multiple OP Chains that share security, communication layers, and technology stacks to achieve complete interoperability. In the Superchain state, all OP Chains share the same sequencing protocol and have the same security level, and are all connected by bridges while each chain can freely choose its own data availability layer.
Similar to how Cosmos built a vast interoperable network using hubs, zones, and IBCs, Superchain implements an interoperable network on top of Ethereum. Unlike Cosmos app chains, which build their own security and operate in an asynchronous environment, the Superchain allows multiple OP Chains to share the sequencing layer that can access all transactions on OP chains, building a synchronous environment. This is a significant advantage in preventing liquidity fragmentation, even if there are numerous networks.
3. Base
3.1 Overview
Base is an L2 network that Coinbase has built using the OP Stack. It is the second network created through the OP Stack, with Optimism being the first. Since the network is built with the OP Stack, Base is also EVM-equivalent like Optimism, where developers can effortlessly deploy Ethereum network code on Base and use different developer tools such as Foundry, Hard Hat, and Truffle. Base will be mainly comprised of products and dApps developed by Coinbase and provide various services like g an on-ramp to allow for the exchange of fiat currencies for cryptocurrencies. This will enable a large number of users on the Coinbase platform to use the network with ease.
3.2 Ecosystem
Being created by Coinbase, a highly regarded company in the industry, it is apparent that the Base network has a well-established ecosystem already. Node providers like QuickNode, Blockdaemon, and Infura, as well as block explorers such as Etherscan and Blockscout are included. In addition, there are various other infrastructure providers and dApps in the ecosystem. Although not all logos are familiar, a few notable ones here are:
- Oracles: Chainlink, Pyth Network
- Data analytics platforms: Dune, Nansen, Messari
- Bridge: Axelar, Layer Zero
- Gaming: Animoca Brands
- DeFi: Aave, Ribbon Finance, Sushi Swap, Euler Finance, Balancer, 0x, Ondo
- NFT: Magic Eden
- Wallet: Rainbow Wallet
- Infrastructure: Covalent, The Graph, Gelato
- SDK: Transak
Coinbase plans to establish a Base Ecosystem Fund. Refer to the application form for more information, if you are interested in building on the Base network.
3.3 Decentralization Roadmap
Base has already achieved Stage 0 decentralization and has set its sights on achieving Stage 1 by 2023 and Stage 2 by 2024. But what do these stages mean? They refer to the levels of decentralization of rollups proposed by Vitalik Buterin, the founder of Ethereum.
In Stage 0, the initial stage of the rollup, transactions must be performed on-chain with full nodes and the rollup operator cannot steal or censor users’ funds. However, if the state root is submitted to Ethereum using multisig, there is no need for a fraud proof or validity proof system. This corresponds to the OP Stack described above, and as a result, both Optimism and Base are classified as being at Stage 0.
In Stage 1, a rollup must have a running fraud proof or validity proof scheme. Upgrading the rollup smart contract is possible, but it must be done through multi-sig with a grace period (mandatory activation delay) of at least 7 days for the upgrade. The result of proof schemes can be overridden through multi-sig approval in case there is a bug in the proof scheme.
The Stage 2 rollups cannot have any result of the proof scheme overriden in any case. No single enity can implement state trainsition functions — there should be at least two fraud provers, two validity provers, or one of each, with a mandatory activation delay of minimum 30 days for upgrades.
In order to meet the decentralization roadmap described above, Base will have to develop a fraud proof scheme, establish a multi-sig committee for smart contract upgrades, and decentralize sequencers in the near future.
Base’s testnet was also made available to the public. At present, anyone can use the Base official bridge link to bridge ETH from the Goerli testnet to the Base Goerli testnet. If you are interested, it is recommended that you give it a try.
4. Closing
The recent announcement of the Base network by Coinbase may give the impression that it is similar to Binance’s BNB chain and Huobi’s HECO chain in that exchanges create their own networks. Nonetheless, Base seems to be completely distinct from previous endeavors. In contrast to other companies, including existing exchanges, which aimed to establish their own ecosystem, Coinbase has demonstrated a keen interest in contributing to the ecosystem with a profound comprehension of the basics of blockchain technology aims to bridge the gap between Web2 and Web3, making it easy for numerous Web2 users to access the benefits of Web3. Moreover, the company is committed to contributing sincerely to the Ethereum ecosystem from a Web3 perspective. I believe that this move adds value to both sides and will help enrich the Ethereum ecosystem. I fully support the growth of Coinbase’s Base network and its efforts to contribute to the blockchain industry.
5. References
Disclaimer: This post is for informational purposes only, and the author is not liable for the consequences arising from any investment or legal decisions based on the information contained in this post. Nothing contained in this post suggests or recommends investing in any particular asset. Making any decisions based only on the information or content of this post is NOT advised.
All for Validity
