Coinbase Exec: "There's No Playbook" for Public Company Launching Blockchain

CoinDesk2023-08-09

Coinbase expects to get more revenue from decentralized applications or “dapps” that build atop Base than from the blockchain itself. Coinbase has participated in discussions among developers over ...

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That amount of “total value locked” or TVL – a common metric for evaluating blockchains and protocols – is enough to rank Base as the fifth-biggest layer-2 blockchain.\nOn Tuesday, CoinDesk had a zoom conversation with Jesse Pollak, creator of Base and head of protocols at Coinbase, about the new blockchain's strategy, revenue potential and regulatory considerations.\nA key point that Pollak emphasized: No publicly traded company has ever launched its own blockchain, so “there’s no playbook” for how to go about it.\nThe following Q&A has been edited for clarity and brevity.\nCoinDesk: What does Coinbase get out of this initiative?\nPollak: Coinbase was started in 2012, before Ethereum, before smart contracts. It was really just a place to buy and sell bitcoin. And then over the last decade, it's expanded, you know, adding more currencies, made it so you couldn’t just buy and sell, you could also save, you could stake, you borrow, you could lend. I think the kind of guiding North Star for Coinbase has been like, How do we enable people to safely and easily do things with crypto? That's it. And I think historically that the aperture of what people can do with crypto has been relatively limited, right? It's been mostly speculation, and mostly trading. And so that's where Coinbase has focused most of the energy. That said, if you look at the “secret master plan” that [CEO] Brian [Armstrong] wrote in 2016, I think the vision has been, you know, a billion people in the crypto economy using millions of dapps that make their lives better.\nAnd I think we kind of see the progression over the last decade as working through the first three phases of what we consider our master plan, which was like, build the protocols Bitcoin Ethereum, build the exchange so people get money into those protocols, build the consumer interface, and so people can start using those protocols. But we've kind of gotten stuck on phase four, like we don't have millions and billions. That's just not where we are as an industry. And so what's in it for Coinbase is we think we have to get there in order for Coinbase and crypto and this work that we're doing to have the impact that we all want. We need to move from the place where this is speculation to a place where this is integrated into every part of someone's day-to-day existence, and giving them a better platform to live their lives, across every part of the world that they interact with. And so we really see Base as the platform that's gonna enable that next wave of innovation. You know, it's low cost, it’s easy to use, it's built for developers, it's decentralized, it's connected into Ethereum, which is obviously like the largest kind of decentralized ecosystem in the world, from a crypto perspective, and it's Coinbase’s commitment, and it is our kind of investment in enabling that next wave of utility and innovation in crypto. And so when we think about Coinbase coming on-chain, really what we're saying is we're gonna see an incredible wave of blockchain innovation over the next five years, over the upcoming decade, where millions of incredibly useful products are going to be built. And some of those are going to be overlapping with existing products. Some of them are gonna be novel and new, and things that we create, and Coinbase is going to continue being the easiest, most trusted place for people to access those products.\nCoinDesk: And so the revenue opportunity, does that come from the chain or does that come from the apps?\nPollak: We really think it comes from the apps. Base is an investment in innovation, not to earn a bunch of profits. I'd say Coinbase has always monetized by taking complex crypto things and then making them easy to do and charging a fee for that. And as the number of things that you can do with crypto increases, our bet is that that's going to be great for Coinbase, because the number of things that customers use Coinbase interfaces to access will increase, and there'll be an opportunity for us to monetize.\nCoinDesk: And so the revenue wouldn’t primarily come from running the sequencer of the blockchain? (Armstrong told Wall Street analysts last week that “Base will be monetized through what are called sequencer fees.”)\nPollak: Generally, sequencer fees, we expect to not be the primary focus from a revenue perspective for the product. What we're really focused on is increasing utility, which increases the number of use cases that folks can do through Coinbase and increases the opportunity for Coinbase to provide easy-to-use, trusted experiences that we can monetize. We're not running the sequencer to make a bunch of profit. We're running the sequencer to enable innovation. And we're gonna be reinvesting that money in innovation. And we're going to be focusing monetization efforts where we've always monetized, which is the user experience.\nCoinDesk: You're the centralized, retail-focused company. How do you communicate to retail investors when it comes to these sorts of, you know, possibilities of rug pools and so on? Or what we saw with the BALD token on Base after you opened it to developers.\nPollak: Historically, we've always done a good job communicating to folks about the risks and kind of like, where they should be focusing their attention, and providing kind of curated and trusted experiences for them. And that's not going to change. I think one thing that we've been clear about, kind of from the beginning, when we started creating Base, is that Base is going to be open and permissionless. It is an extension of Ethereum. It’s a layer 2 that scales Ethereum but preserves the open, permissionless nature of it. And what that means is that Base is, you know, it's crypto. Did I plan for that BALD stuff to happen the week before we were starting to open up Base? Absolutely not. But it was kind of a reminder for me that in crypto, you can make plans, but because these systems are open and permissionless, sometimes your plans change, and folks kind of bubble up in the way that, you know, crypto has always bubbled up over the last decade in ways that are unexpected. And so I think what we're really focused on is twofold. One is ensuring that Base remains open and permissionless so that we can have a decentralized and global on-chain economy because ultimately that's what we believe is like the single most important thing we can contribute to the world. And that decentralization and the open permissionless nature of Base is what enables that global economy. So that's the first thing and I think on the Coinbase side, what we're really focused on is continuing to provide that kind of easiest-to-use, most-trusted experience on top of Base.\nAnd so I think what you'll see is that for folks who are kind of more comfortable just getting in there and you know, living at the edge and doing their own research, they'll find ways to use Base. But for most people, they'll access Base through Coinbase, and Coinbase will continue providing a trusted interface, curated experiences. We have our ratings and reviews, which rates dapps, it rates tokens, it helps people understand what they are, what the risks are. We're going to continue having what I would consider, like almost first party products that build on top of protocols on Base. So for instance, you know, the DEX swap functionality and Coinbase wallet or in Coinbase Web3 tab, the borrow functionality, Coinbase wallet, where we really say hey, these protocols are trusted. We're going to expose them through dedicated user interfaces. And I think that role that Coinbase can play is going to be that kind of gateway, where we make sure that the things that are getting in front of everyday folks are safe and trusted, while still enabling banks to have that open, permissionless characteristic that enables all the creativity that we want to see in the world.\nCoinDesk: I wonder if you can say definitively there will never be a token on base, or is this something that you've talked about and are still talking about internally?\nPollak: Yeah, we have no plans to have a token on base or token for base. I guess there's lots of tokens on Base, right? Ethereum is the native asset of base, there's USDC and there's all sorts of tokens that are deployed on Base and folks are building a whole rich economy on Base. We looked at the regulatory environment and we looked at the impact of having tokens and products. I think our general perspective is like, they're more confusing for finding product market fit than helpful. What we're really focused on is ensuring and building a developer platform that makes it really easy for developers to build dapps and in building a chain that makes it really easy for users to use them. That's it.\nAnd I think if you look at the last five years, there's a lot of noise that's basically been created by tokens, where the incentives for developers and the incentives for users have been perverted. And rather than saying, Hey, we're using this thing, because it's the best product, it's no, we're using the same because we got X million-dollar grant or we got paid Y dollars for every action. And so I think we kind of wanted to say, Hey, let's just not.\nCoinDesk: In terms of launching your own blockchain, did you have to check with your general counsel or regulatory lawyers to make sure you’d have zero risk from a regulatory standpoint?\nPollak: We checked. Launching a decentralized open permissionless blockchain out of a public centralized company, no one's done that before. Like, there's no playbook. And we've applied all of the Coinbase rigor to doing this over the last year, which includes working with literally every single part of the company, from legal to compliance, to finance to privacy, to regulatory, to ensure that we're doing it to the Coinbase values, which is to be deliberate, to be thoughtful, to be measured, to be secure, to be trusted. And so at every turn, we have really gone above and beyond to make sure that we're doing this in the right way.\nCoinDesk: So there’s nothing from a regulatory standpoint, that would be like, Yeah, you're not allowed to launch a blockchain?\nPollak: I think our feeling is that currently the regulatory environment in the many countries around the world is way more unclear than should be. And if you talk to entrepreneurs who are building on Base or building anywhere, what you'll hear is that they're spending more money on counsel and, you know, like defensive measures from a regulatory perspective than they are on hiring engineers, building products. And so we've been really consistent at Coinbase, that we think that needs to change. 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