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Coinbase engineering whiz Jesse Pollak had been considering leaving the company. Instead, he built his own successful blockchain
In 2021, Jesse Pollak was ready for something new. After five years at Coinbase, he had made his mark on the company, expanding his team from three to 250 and managing the engineering side of consumer products. Plus, he had an entrepreneurial itch.
In an effort to retain its top engineer, the CEO Brian Armstrong he said to Pollak: go away and find me a way to bring him CoinBase “on-chain”: the cryptographic term for activities that occur on a blockchain.
Pollak initially considered a decentralized autonomous organization, or DAOa decidedly cryptographic collective that relies on a collection of mostly anonymous individuals to make decisions.
Standing in front of the executive team of the publicly traded company Fortune 500 company, Pollak presented his request: could he have $1 billion and 60 employees to turn Coinbase into a DAO?
“They were like, ‘We love your energy, but it’s not this,’” Pollak says, laughing at the memory.
Next, he pondered an advertising market. Then an app store. So an identity app. After a year and a half of trying various potential solutions, Pollak realized one truth: “First, we need a real software platform.”
This led to Base, the same as Coinbase layer 2– the term for a blockchain that assembles batches of transactions and writes them to a primary, or layer 1, chain built on top Ethereum. Launched in August, it was widely considered a success. In the first quarter of 2024, it recorded double the transactions of the popular Ethereum and generated more than $56 million in revenue. Notable clients include UniswapChainlink and OpenSea.
“We are reworking our way to the top [the software stack] as we rebuild large portions of Coinbase on this new platform,” explains Pollak, speaking to Fortune on a video call from his childhood bedroom in Washington, D.C. Just behind him is a mural of a tree, painted by a dear family friend, with his branches come to life around him his aspirations go far beyond: “We are building the next generation of the Internet”.
“I feel like I was born to do this”
A lively talker who prefers to discuss higher ideals to the minutiae of mechanics, Pollak defies most stereotypes of engineers. After attending a Quaker school for 15 years, he credits some of the values of Quakerism – simplicity, community, equality, stewardship – as what led him to create Base.
Pollak’s first entry into the world of cryptocurrencies was something of an accident. He had been part of a startup that created passkeys for tech companies, but it failed, and then he joined Coinbase as an engineer. He wasn’t ideological about cryptocurrencies, but the company provided an outlet for his passion for hard work and building things that matter.
“I don’t think my passion for crypto has ever been from a libertarian point of view, it’s always been much more like, ‘We have all these systems that are bad right now. What if we used this technology to make it better?’” He says.
By 2023, Pollak had earned the respect of hardcore blockchain veterans, making a name for himself somewhere between engineer, entrepreneur and influencer. But with the launch of Base, his status today is closer to cryptocurrency royalty. “I feel like I was born to do this,” he says.
Base has succeeded in large part thanks to, well, Coinbase. Level 2 was launched carrying the stamp of approval granted to a publicly traded, consumer-facing giant. Coinbase users are automatically found on Base, and from there wallet users are directed to other apps.
“The tight integration with Coinbase makes it a lot sweeter,” Tom Schmidt, partner at venture capital firm Dragonfly, tells Fortune. “There are very few people at Coinbase who actually get crypto, and Jesse is one of them.”
Pollak says the Base community has proven to be just as vital as any brand recognition. He compared the mood among Base developers to the early vibes of Silicon Valley. From a channel of 240,000 people on the decentralized social media platform Farcaster, the largest to date, developers exchange ideas. During the video call with Fortune, Pollak shared his screen to reveal a keyboard shortcut that speeds up the process of asking ChatGPT to translate the phrase “Base is for everyone” into any language for distribution on Facaster and X.
For Coinbase, having its own blockchain network provides a revenue stream that is not as tied to the boom and bust cycles of cryptocurrencies, making the exchange less dependent on transaction fees. This need to diversify revenue has also led Coinbase’s rivals, Kraken and Binance, to build their own blockchains. These projects join a glut of Layer 2 projects that, like Base, are built on Ethereum, making it noteworthy that Pollak’s project has achieved the popularity it has.
One reason is that Base is meant to be fun, Ryan Wyatt, chief growth officer at Optimism Unlimited, a community of blockchain builders, told Fortune. “All kinds of consumer experiences outside of just finance are starting to happen,” Wyatt says.
Traffic on Base has shifted towards social media and gaming: according to a recent study, almost half of all social finance transactions (SocialFi) take place on Base. relationship by asset manager Franklin Templeton. SocialFi is cryptocurrency’s answer to social media: the apps are on-chain and decentralized, meaning users have control over their content and can get rewards for posting.
There are 353 apps in the Base ecosystem, according to its website. THE most popular at this moment they are those linked to the world of decentralized finance, with exchanges like Uniswap and Jumper leading the way. But consumer-focused applications are also making progress. Among these, Friend.Tech stands out, where users buy “shares” of influencers to enter their private chat room: “Your network is your net worth”. Another success is the restaurant loyalty app Blackbird, which allows repeat customers to accumulate its native token and access perks such as last-minute tables and welcome drinks.
Dragonfly’s Schmidt admits he’s impressed with how “non-corporate” the Base feels, a vibe he attributes to Pollak.
“You have to be able to show it to people”
Coinbase’s CEO has been talking since 2022 about his quest to diversify the company’s revenue. “[We want to move] away from trading fees, to what we call subscription and services,” Armstrong said CNBC that year.
This research is starting to pay off: In the first quarter of 2024, about a third of Coinbase’s net revenue came from “subscriptions and services.” This consists of interest earned on its stablecoin, USDC, and income from staking, which involves helping customers lock Ethereum in exchange for a reward. Meanwhile, Coinbase also generates revenue as the custodian of eight spot Bitcoin ETFs and Coinbase One, a membership program that provides advanced trading features for more than 400,000 veteran investors. In the depths of the last bear market, subscriptions and services have been a lifeline, generating about half of the company’s revenue as of early 2023.
But Base stands out as Coinbase’s truly crypto-native application. The $56 million generated in the first quarter came from payments revenue and “sequencing fees.” Think of sequencers as pieces of infrastructure that verify, sort, and compress transactions on Base, batching them, and sending them to layer 1. In exchange, sequencers receive a portion of the money collected from users, and these are the fees that Coinbase says are the “primary engine” of growth.
“I want to highlight that Base has really strong unit economics,” Alesia Haas, Coinbase’s chief financial officer, told investors on the latest earnings call. As transaction volume grows, the main growth metric Coinbase is watching, Base can become “a material contributor to our long-term revenue and profits,” she said.
But Pollak admits that it remains a big challenge to engage non-cryptocurrency people, and convincing people to enter this space shouldn’t be a political or ideological issue: it should be about providing them with a quality product that they want to continue using. Later this summer, Base will launch its “Onchain Summer” promotion together with big brands like Coca Cola giving away $2 million in prizes, grants and gas credits to encourage potential users to see what we’re all about.
“For it to really break through, you have to be able to show it to people,” he says. “We have passed the inflection point where this is not possible. It is above all a question of who will do it.