Coinbase, one of the largest cryptocurrency exchanges in the world, has outlined four key areas in which it believes innovation needs to take place to ensure the continued growth of the on-chain economy. The company recently launched its layer-2 network, Base, which is secured by Ethereum and powered by fellow layer-2 network Optimism.
The four areas of focus for Coinbase are the development of an inflation-pegged flatcoin, the creation of an on-chain reputation system, an on-chain limit order book (LOB) exchange, and tools that make the decentralized finance (DeFi) ecosystem safer for users and developers.
The first area of focus for Coinbase is the development of an inflation-pegged stablecoin, or “flatcoin”. This stablecoin is different from typical fiat-pegged stablecoins in that it tracks the rate of inflation, allowing users to have stability in purchasing power while also providing resiliency from economic uncertainty caused by the legacy financial system.
Coinbase argues that this type of stablecoin is more important than ever, given recent banking crises and poor monetary policy decisions of central banks. The company has pointed out that it is also open to other ideas that “fill the space” between fiat-pegged stablecoins and volatile cryptocurrencies.
The second area of focus for Coinbase is the development of an on-chain reputation system. This system is critical in establishing on-chain trust between users, as it ensures certain criteria are met before an on-chain identity can interact with a DeFi application. A reputation protocol could implement a credit score or a rank-like system, and it would help build trust on-chain by reviewing past transaction data of a particular wallet address on competitor protocols.
However, Coinbase has emphasized that user privacy and autonomy must be preserved in any reputation protocols created for its layer-2 network, Base.
The third area of focus for Coinbase is the development of an on-chain limit order book (LOB) exchange. By taking the LOB on-chain, Coinbase aims to offer professional traders and institutions a new trading venue to execute trading strategies that they are familiar with in the traditional financial system. The company believes that the high throughput of Base opens up significant new opportunities for designing new mechanisms for spot trading, limit orders, options, perpetuals, and more.
Coinbase also believes that tools like the OP Stack can help build L3s that give even more speed and control, potentially enabling even deeper liquidity still accessible through L2.
The fourth and final area of focus for Coinbase is the development of tools that make the decentralized finance ecosystem safer for users and developers. This includes enabling tools that protect against smart contract code vulnerabilities and protocol logic errors. Coinbase aims to achieve this by providing self-service security testing tools and stronger auditor services to help mitigate potential threats.
In addition, Coinbase would like to see more insurance protocols to serve as a “critical backstop” for users in the event of a smart contract exploit. This would ensure that users have a safety net in place if their smart contracts are ever compromised.
To help fund early-stage projects building on its layer-2 network, Base, Coinbase launched the Base Ecosystem Fund. According to a recent post by Base, the layer-2 network now supports over 30 blockchains.
In conclusion, Coinbase’s focus on the development of an inflation-pegged stablecoin, on-chain reputation systems, LOB exchanges, and tools that make the DeFi ecosystem safer for users and developers are critical to ensuring the continued growth of the on-chain economy. The company’s Base network offers a secure and powerful platform for these innovations, and with the launch of the Base Ecosystem Fund, Coinbase is committed to supporting early-stage projects building on its layer-2 network.
