#52 Blue, da ba dee 🔵
Coinbase, to bring together the best of two worlds, centralized and decentralized, through their L2, Base. Also in this issue Arbitrum, Hong Kong's regulation and Notable Pepes.
Coinbase’s blue world
Yo, listen up here's a story
About a little guy
That lives in a blue world
And all day and all night
And everything he sees is just blue
Like him inside and outside
Eiffel 65 - Blue,da ba dee
That little guy once sent a credit card payment to Coinbase and has been trading cryptocurrencies for a while now. He’s traded coins, learned about many protocols, used Coinbase Wallet, and walked the empty aisles of Coinbase’s NFT marketplace. Most recently, he staked his ETH and got cbETH, which will benefit him from Ethereum’s Proof of Stake.
Today that little guy is excited because his blue world is about to grow much more significantly since Coinbase announced the launch of Base, its own Layer 2.
Our goal with Base is to make onchain the next online and onboard one billion users into the cryptoeconomy. In pursuit of this goal, Base will serve as both a home for Coinbase’s onchain products and an open ecosystem where anyone can build. Meet Base
Unlike infamous peers in the business of offering centralized access to crypto, Coinbase has always expressed interest in growing the ecosystem and not only extracting value from it. The announcement of Base proves the existence of a strategy behind that interest.
In 2016, Armstrong in “The Coinbase Secret Master Plan” said that effort would be divided into four different phases: Develop the protocol; build a digital currency exchange; build a mass market interface for digital currency apps; then finally build the apps that power an open financial system. Coinbase Enters Phase 3.5 of ‘Secret Master Plan’ With L2 Launch
Base is the necessary base layer for phase 4. With its development, Coinbase expects to offer developers the possibility of building dApps with real utility while Coinbase provides a massive user base and a compliant umbrella.
There are many reasons to believe that Base’s appearance is a game-changer. First, Coinbase has attracted over 100M verified users to its UX-friendly, legally responsible ecosystem. Now they’re launching into a fully crypto-native, (reasonably) decentralized venture allowing them to cook recipes that mix the best of both worlds. Devs can go full degen and deploy on a Layer 2 with Optimistic foundations and Ethereum security. Alternatively, they can benefit from the liquidity, KYC friendliness, and normie user base of Coinbase.
Base hopes to attract developers with a mixture of hard incentives and moral authority:
A grant program is underway.
Coinbase developers will be directly contributing with open-source code to the OP Stack.
Base will share transaction fees, paid in ETH (no native token in sight), with Optimism.
It is born with interoperability in its roadmap (Base mentions Solana in its announcement blog post)
Some native crypto projects have already expressed their interest in deploying on Base. Blockdaemon, Chainlink, Etherscan, Quicknode, Aave, Animoca Brands, Dune, Nansen, Magic Eden, Pyth, Rainbow Wallet, Ribbon Finance, The Graph, Wormhole, and Gelato, to name a handful. (”a Coinbase spokesperson told Techcrunch”).
If you’re new to crypto, our collection INTERPOLATIONS is perfect for you to onboard. Follow the steps of this tutorial, and learn all you need to know to interact with blockchain technology through the experience of purchasing an NFT.
For today’s issue, we’ve asked Dall-E to create a watercolor image of a small humanoid on a blue planet, illustrating the possible blue world Coinbase is building for crypto’s first billion users.
In this newsletter
We all thought this was going to be Arbitrum’s week.
Hong Kong is proof that regulation doesn’t have to be hostile.
Now for green: Pepe the Frog goes to Ethereum.
Was Binance the problem all along?
⬡ Six Angles
We select six topics to illustrate the different angles from which we can approach crypto. We could choose dozens, but six is the atomic number of carbon… and otherwise, we’d be writing for ages.
1. Layer 2 race | Arbitrum
This week, Arbitrum was feeling like a million dollars, as they surpassed Ethereum in daily transactions and exhibited strength in other key metrics such as smart contracts deployed on their chain, active addresses (590% increase in less than two months), TVL (up 81% since January) or fees collected.
At the same time, DeFi protocols on Arbitrum like GMX, Radiant, or Vela started the week like shining stars.
Then Optimism rained on their parade.
2. Regulation | Another regulation is possible.
While the US is charging frontally against crypto, regulation in other parts of the world proves that regulating crypto is a game of tag, where the play area is the whole globe. Regulators cannot expect to reach every corner of the Earth to try to stop it without coordinated action between national regulatory agencies. And that’s unlikely to happen.
In the aftermath of the SEC’s enforcement spree, Hong Kong has emerged as a crypto-friendly government. And it has not done so by being “soft on crypto” but by acknowledging the need for balanced regulation, public debate, and nuance.
Hong Kong recently announced a regulatory proposal that would allow the retail sector to trade crypto through regulated exchanges, and they are currently seeking public consultation.
This text from Techcrunch does not sound like a regulatory weakness.
The proposal laid out by Hong Kong stipulates that all centralized virtual currency exchanges operating in the city or marketing services to the territory’s investors must obtain licenses from the securities and futures authority. The requirements “cover key areas such as safe custody of assets, know-your-client, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/counter-financing of terrorism and prevention of market misconduct,” the announcement reads.
In the meantime, US regulators travel to Europe to see if there’s anything in MiCA they can take home.
3. Macro | Go East
Crypto has been surprisingly resilient despite a general bearish sentiment driven by macro indicators. And to explain why analysts have turned their heads East.
China ended its zero-Covid policy in early January in response to improved health indicators and wrong economic perspectives. However, before making that decision, the Chinese government had already signaled that they were considering stimulus packages to give growth a little push. The regulatory flirtation from Hong Kong could explain the sudden boom of Chinese-related coins, such as Conflux, Filecoin, Vetchain, or Neo.
The question is if this is the beginning of a new era or one of those ADHD plays by crypto investors constantly looking for a narrative to hop onto.
4. NFTs | Pepe goes to Ethereum
These days we’re witnessing the birth of Notable Pepes: a new collection of Pepe NFTs launching on the Ethereum blockchain. The time is right, and the process too.
Rare Pepes was born in 2016, and Pepes have been big on Bitcoin for all these years. Notable Pepes is the first occasion where Pepe approaches the mass of Ethereum NFT collectors while preserving the original ethos of the Pepe collections: they are meme-based, creation is collective, open-minded, and they prioritize the collector and artist experience.
Legendary collector Vincent Van Dough is leading this initiative, that’s already reached the top 10 trending collections on Opensea in its first week. Click here to read all the details about Notable Pepes.
Pepe.wtf is another of Carbono’s ventures. A search engine with some marketplace capabilities that we build to share our love for Pepe collecting. Pepe.wtf has eventually become a home for Pepe lovers and will play a central role in this new collection. Stay tuned.
5. Uniswap | Pay with any token
While the NFT world debates heatedly about why and how artists should be rewarded through royalties, in a discussion starring Blur and Opensea, Uniswap has rolled out an apparently modest improvement in their humble NFT marketplace. Thanks to their Universal Router smart contract, NFT collectors can now pay for an NFT priced in ETH with any ERC20 token. Furthermore, Uniswap will go through the process of exchanging and making the purchase for you, relieving users of the burden of conversion. They also announced that users would soon be able to pay for their NFTs with various ERC20s. Imagine paying for a 10ETH Botto with 5ETH and 350SOL.
People keep saying that in the future DeFi users will not need to know what blockchain is running their operations behind the curtains. It seems equally commonsensical that currencies stop being a blocker too.
6. Stablecoins | So the problem was Binance?
Paxos CEO Charles Cascarilla told employees the firm is in “constructive discussions with the SEC” about the Binance USD stablecoin. (…) "The market has evolved, and the Binance relationship no longer aligns with our current strategic priorities," he said.
The halt on Paxos’ BUSD and the SEC’s suit against UST made us wonder if the rest of the stablecoins would be next. But the problem seems to be Binance, not stablecoins. Circle, the consortium behind the number two stablecoin USDC also claimed to be safe from regulatory suspicion. And Paxos itself also issues another stablecoin, USDP, which remains untouched after the latest regulatory moves.
The pressure over Binance seems like a reasonable outcome after the FTX collapse. Binance emerged from the crisis as crypto’s strongest giant and the global face of centralized finance (a major vector of contagion). At the same time, their past life in regulatory gray areas chases it.