Base, Coinbase’s Layer 2 scaling solution, has seen massive outflows lately, prompting concerns over its long term feasibility. The platform has attractive advantages, such as low transaction fees and interoperability with Ethereum. It is up against stiff competition from other Layer 2 networks and macro market conditions. In this post, we take a look at what’s driving these outflows. It examines Binance’s influence, the true nature of the stablecoin dynamics and how Base stacks up against other venues.

Binance's Base Integration and TVL Surge

Some thought Base had taken the biggest leap of its short life by seizing on an integration with Binance.US. With this change, users can conveniently deposit and withdraw Ethereum (ETH) and USDC using the Base network. This integration is important for a number of reasons, but primarily, it makes user onboarding into the Base ecosystem much easier. Users are now able to seamlessly engage with DeFi apps on Base and beyond. They no longer need to tunnel assets through Ethereum’s mainnet, which saves them time and money.

Since this integration, Base’s Total Value Locked (TVL) experienced a significant surge. Overnight, the TVL increased 20%, soaring from $2.778 billion to $3.335 billion. This recent increase reveals a rising interest in Base and could be largely due to the access that Binance.US has facilitated. This trend is indicative of the increasing support for crypto. Perhaps that’s because it’s the result of a combination of updates to regulations and the evolution of political priorities.

The Allure of Stablecoins on Base

Stablecoins are a key part of this ecosystem, and that’s true on Base as well. They offer several key advantages:

  • Stability: Stablecoins provide a stable store of value, which is particularly important in the volatile crypto market.
  • Efficiency: They enable nearly instant and low-cost transactions, making them ideal for various DeFi activities.
  • Programmability: Stablecoins are infinitely programmable, allowing for innovative financial applications.

It has led to an increased adoption of stablecoins for cross-border payments and as a tool for hedging economic instability. By making it easier to design these sorts of tokenized-deposit models and weaving in automatic liquidity pipes, they help ensure we maintain a sense of economic dynamism. Their ability to challenge established payment infrastructure even more cements their relevance in the changing financial ecosystem.

Base vs. Ethereum and Other Layer 2s

Base's value proposition lies in its ability to enhance Ethereum's scalability and reduce transaction costs. When compared to Ethereum, Base offers:

  • Lower Transaction Costs: Fees on Base are significantly lower than those on Ethereum's mainnet, making it more accessible for everyday users.
  • Higher Scalability: Base is designed to support decentralized applications (DApps) and handle a high volume of transactions per second (TPS).
  • Faster Performance: Utilizing optimistic rollups, Base enables quick and seamless transactions.

Base isn’t the only Layer 2 solution that is out there currently. It competes with other established networks such as Arbitrum, Optimism and Polygon. None of these solutions are perfect, but each comes with robust features and advantages. Base’s real advantage is the seamless migration path it provides developers already building on Ethereum. Deepening Industry Trust Built on top of Ethereum, Base keeps the trustlessness of the underlying network while providing better scalability.

Is This a Temporary Setback?

These new outflows from Base raise alarm, but by no means do they indicate the end of Base moving forward. We all know the crypto market is very volatile, and capital flows change in the blink of an eye based on news, market conditions, and other factors. Combined with the integration with Binance.US, and the overall trend towards the adoption of stablecoins, Base still seems to have a long runway ahead of it.

Yet, the platform will have to overcome significant challenges in order to realize its vision and secure its long-term success. First, you must attract developers, then develop and finally retain them. Prioritize building out a rich ecosystem of DApps and staying ahead of the curve versus other Layer 2 solutions. Whether we see these outflows as a short-term hurdle or an indicator of something more troubling for the asset class only time and market reaction will tell. In future installments, Anjali Mehra will follow the developments closely and report back on GreedyChain.com.