Why Coinbase Increasingly Relies on Solana

Coinbase CEO Brian Armstrong has revealed in an exclusive interview where the crypto exchange is heading in the medium term. The focus is on so-called layer-2 solutions. Coinbase wants to achieve a processing time of less than one second for transactions with fees of less than 1 cent as standard, said Armstrong. This is only possible through the integration of very fast layer-1 solutions such as Solana (SOL) and the increased use of layer-2 solutions.

Such layer-2s organize transactions that are then collectively transferred to a layer-1 such as Ethereum (ETH). This solves the problem of Ethereum’s severely limited capacity, which also leads to high transaction fees. For Bitcoin (BTC), Armstrong wants to integrate the Lightning Network at Coinbase, which can be compared to a layer 2.

Coinbase went live with its own layer 2 called Base at the beginning of August. Armstrong is very satisfied with the development. Around 1 million wallets are actively using Base and around 500 million US dollars TVL are also “very good”. He already sees Base as the number 3 among layer-2 solutions. Armstrong rejected speculation that Base could have its own cryptocurrency. This is not planned. Other layer-2s such as Polgyon with MATIC often have their own altcoins to settle fees and enable self-administration.

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Coinbase to switch from “dial-up modem to broadband” through layer-2

Armstrong also uses the catchy comparison with the internet, which “switched from dial-up modem to broadband” for Coinbase’s goals, which went hand in hand with constant availability and high data speeds. He believes that the number of use cases in the crypto industry will grow rapidly and therefore more transaction capacity will be needed. In view of young sectors such as social (at Base, for example, friends.tech), blockchain gaming or Metaverse, Armstrong’s assessment sounds reasonable.

For Base, Coinbase has already announced that the ecosystem is to emancipate itself from the crypto exchange and is aiming for complete decentralization. The success of Base has already prompted Coinbase’s competitors, such as Kraken and OKX, to also consider their own layer 2. At OKX, Polygon was chosen as the technological basis for X1, while at Kraken, Cardano (ADA) is trying to get a foot in the door.

Conclusion: Coinbase is setting itself ambitious goals

The strategy announced by Armstrong for Coinbase makes it clear that the platform is to become more than just a crypto exchange and that growth opportunities can be found in areas where real-time microtransactions are necessary.

It is encouraging that Armstrong is concentrating on the technological development of the crypto industry for the time being, leaving aside the eternal legal disputes with the US Securities and Exchange Commission (SEC). Incidentally, Coinbase is itself listed on the stock exchange and has benefited significantly from the recent upswing on the crypto markets, gaining around 80 percent over the past six weeks.

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