Base, Coinbase’s Layer 2 scaling solution, has recently experienced a reversal in capital flows on a dramatic scale. It dramatically reversed from leading cross-chain bridge inflows to becoming the year’s biggest loser. Conversely, this announcement comes during weeks of significant ETH outflow from the platform.
By early 2024 Base had taken the lion’s share of all capital inflows via cross-chain bridges. Depressing recent data indicates that this trend has finally changed for the worse. The state of the Base ecosystem We’re looking at stablecoin supply in USD terms, and DEX volume on Base specifically. Further, L2Beat monitors how much ETH is staked on the platform.
Viktor Bunin, Protocol Specialist at Coinbase, explains the outflows as a process of Binance taking capital back to Layer 1.
"The vast majority is just Binance withdrawing to L1. They kept an ungodly amount on the L2s. Unclear if they were getting incentives to keep it there or just didn't balance across their supported chains." - Viktor Bunin
One thing that Bunin emphasizes is that Binance has left a lot of economic value on Layer 2s. Today, their recent withdrawals are weighing down Base’s otherwise very positive net flow. As Michael Nadeau of The DeFi Report notes, we are seeing a pattern of outflows on Base. This pattern is a repeat of what we’ve seen in other Layer 2 solutions.
Ethereum has experienced a stunning net inflow of $8.5 billion thus far in 2023. This is in stark comparison to the $7.4 billion net outflow it experienced last year, even with a good chunk of the outflows going to Base and other Layer 2 solutions. This means that a lot of capital could be leaving certain Layer 2 solutions. It is, after all, going right back to the Ethereum ecosystem.
