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Coinbase, a well-known US-based cryptocurrency exchange, has announced that work is underway to launch its Layer 2 Base.
The launch of Base will be supported by OpenZeppelin, a blockchain cybersecurity company, which will be responsible for preventing hacks and exploits on the network when it goes live,
Full details of the news can be found in this article
Coinbase and its Layer 2 Base
The trend of blockchain scalability and decentralization continues to attract the attention of the crypto-friendly public, prompting the popular cryptocurrency exchange Coinbase to want to launch its own layer 2 on Ethereum, called “Base.”
The blockchain substrate, which will be built using the “OP Stack” software set, will offer a secure and cost-effective way for developers to build on-chain applications that are compatible with the EVM standard.
Furthermore, Base, unlike the exchange, will be open source and hence open to everyone without permission.
This is a turning point for Coinbase and the world of DeFi, as Brian Armstrong’s company can count a verified user base of 110 million and money flow of $80 billion within its ecosystem.
For now Coinbase has clarified that it does not plan to issue a token to be used to pay fees within layer 2, however it could quietly do so in the future.
Most likely the coin that will be used for fees will be ETH, the currency of the layer 1 blockchain on which BASE will be founded.
The combination of Ethereum‘s security with Optimism’s software innovation and Coinbase’s institutional reputation will surely create an interesting and cutting-edge product.
The crypto exchange team clarified that Base is currently in testnet and as soon as due diligence has been done, the future roadmap will be announced,
It will be curious to see how much capital from Coinbase and other layer 2 exchanges will move to Base when it goes mainnet.
In the meantime, a16z, a famous crypto investment fund, has also announced that it will launch its own layer 2, very similar to Base since it too will use the different software of the OP stack.
OpenZeppelin will manage the security of Coinbase’s Layer 2
The launch of Base will be supported by OpenZeppelin, one of the leading and most trusted cybersecurity technology and services companies in the Web3 world.
The concept of smart contract security and automation is critical if you are trying to develop successful products within a community.
Moreover, Coinbase cannot risk making mistakes in this context because they represent one of the most solid and secure entities in the cryptocurrency industry, hence alleged hacks or exploits of the new layer 2 could compromise their reputation.
To provide assurance to Coinbase, OpenZeppelin will use “Defender” which is a security platform for smart contracts.
The latter enables web3 app creators to protect smart contract administration, create secure transaction infrastructures and develop automated scripts in total security from exploit risks.
The partnership between OpenZeppelin and Coinbase is a success for both companies since on the one hand Base will get a high security score and on the other hand Defender users will be able to take advantage of Base’s various features such as full EVM compatibility and transactions that are gasless (without fees) for their decentralized applications.
In this regard, Jonathan Alexander, CTO of OpenZeppelin stated that:
“With support for Base, we are continuing to expand the reach of OpenZeppelin’s robust suite of smart contract security technology, constantly offering blockchain developers new and improved functionality. Thanks to this new integration, builders in both our ecosystems can now enjoy new features to make their smart contracts more secure and expansive.”
As a reminder, OpenZeppelin can boast an extensive library of smart contracts and working tools that have been tested multiple times and deemed reliable by more than 30,000 developers and are currently used by more than 3,000 blockchain projects.
Earlier in April, the same company had announced another major partnership, this time with Matter Labs, extending Defender’s support to ZkSync contracts, Ethereum’s zk rollup, which is patiently awaiting its industry debut.
Recent layer 2 network hacks and exploits
For the launch of Base, Coinbase is banking heavily on the concept of security since the crypto exchange is considered one of the most secure and reliable players in the industry.
Suffering losses from cyber attacks on its layer 2 would mean that it has failed in its attempt to decentralize its financial products.
The topic of cybersecurity is a very sensitive one in DeFi, as throughout history numerous layer 2 and on-chain connection bridges have been robbed through hack attacks and exploits that have compromised all the previous work done by these projects.
Among the most recent cyber attacks is the exploit of Euler Finance, a lending and borrowing protocol built on Ethereum, which evaporated as much as $195 million from the platform, although 90% of this sum was later returned by the hackers.
In another situation, a hack attack caused Optimism to lose about $50 million just 1 month after the launch of their OP governance token.
In April 2022, more than $7 million was stolen on Optimism’s blockchain, on the Hundred Finance protocol in a flash loan attack.
In January 2023, the decentralized trading protocol Dydx, due to fears of possible theft on its platform, stopped asset transfers on its layer2 preventing major losses.
In total, if we consider only the year 2022, hackers have stolen about $3.2 billion in crypto assets from exploits on DeFi and bridge applications.
This is an extremely high figure that must necessarily be decreased if decentralized service providers want to compete with the world of centralized exchanges.
Interestingly, one particular prototype of ZK, namely the one developed by Starknet, while partially centralized, may be able to solve the problem of cybersecurity on blockchain because of the breakthrough of post-quantum cryptography.