Authors: Lorenzo Valente, Frank Downing, Raye Hadi, Ark Invest; Edited by: Jinse Finance
Ethereum Layer 2 solutions are execution environments designed to enhance Ethereum's scalability through off-chain transaction processing, while fully utilizing its robust security via on-chain transaction settlements. These blockchains are built on top of Ethereum, possessing their own ecosystems—including applications, liquidity, and users—and settle compressed transaction data on Ethereum Layer 1 for validation. L2 is crucial to Ethereum's scaling vision, aiming to meet global demands and use cases from DeFi to microtransactions, while ensuring network security.
Last year, as one of the noteworthy L2s, Coinbase's Base generated approximately $89 million in revenue—of which only 14% flowed to Ethereum. Base's revenue mainly comes from sequence fees (also known as base fees) paid by users for transactions.
Nevertheless, Base still faces competition, particularly from Robinhood's announced L2, Kraken's L2 Ink, the blockchain Converge supported by Securitize/Ethena, and projects like Worldcoin. Both Coinbase and Robinhood have chosen to provide out-of-the-box infrastructure with an easy-to-deploy tech stack, using Ethereum as the 'parent' blockchain technology.
Base has a first-mover advantage, benefiting from a growing user base and strong network effects. Robinhood may have an edge in the tokenization space, leveraging its rich stock products to bridge traditional finance and blockchain infrastructure.
Coinbase and Robinhood both believe that financial markets will be reshaped on-chain, and their rapid development of L2 platforms is a strategic move to gain a competitive edge. With a tech stack tailored to on-chain opportunities, both companies are committed to building scalable, seamless platforms while navigating a complex regulatory environment. Coinbase's ecosystem is closer to this opportunity, while Robinhood leverages its excellent user interface as one of its competitive advantages.
Ultimately, success depends on which platform can simplify the complexities of cryptocurrency and provide a better user experience. As the Layer-2 landscape evolves, the competition between Base and Robinhood will drive innovation in on-chain finance.
