Coinbase engineering genius Jesse Pollak once considered leaving the company, but ultimately created the popular Base chain.

By Niamh Rowe, Fortune Magazine

Translated by Luffy, Foresight News

In 2021, Jesse Pollak was preparing for a new challenge. After working at Coinbase for five years, he made a name for himself at the company, expanding the team from 3 to 250 people and overseeing Coinbase's consumer products. Later, he developed an entrepreneurial desire.

To retain this star engineer, CEO Brian Armstrong told Pollak, "Find a way to bring Coinbase onto the chain." "On the chain" is a cryptocurrency term that refers to activities happening on the blockchain.

Faced with this challenge, Pollak first envisioned building a decentralized autonomous organization (DAO), an obvious crypto collective that relies on a loose, mostly anonymous group of individuals to make decisions.

In front of the executive team of this Fortune 500 company, Pollak presented his request: could they allocate $1 billion and 60 employees to transform Coinbase into a DAO?

"They said, 'We like your energy, but you're using it in the wrong place,'" Pollak recalled with a smile.

After that, he began considering the advertising market, then the app store, and then identity applications. After a year and a half of exploration and trying various possible solutions, Pollak realized a fact: "First, we need a real software platform."

Coinbase's own Layer 2 blockchain, Base, was born. Base chain is built on top of Ethereum, which can aggregate batch transactions and write them to the main chain. Base was launched in August last year and widely regarded as a hit L2. In the first quarter of 2024, Base's transaction volume reached twice that of Ethereum, generating over $56 million in revenue. Mainstream applications on the chain include Uniswap, Chainlink, and OpenSea.

"We are redesigning the software stack because we need to rebuild most of Coinbase's functions on this new platform," Pollak explained during a video interview with Fortune magazine in his childhood bedroom in Washington, D.C. Behind him was a mural tree painted by his father, with branches flourishing around him. But his ambition goes far beyond this: "We are building the next generation of the internet."

"I feel like I was born to do this."

Pollak is a talkative person who likes to talk about lofty ideals rather than mechanical details, breaking the stereotype of most engineers. After studying at a Quaker school for 15 years, he believed that some values of the Quaker community—simplicity, community, equality, and management—were the driving force behind founding Base.

Pollak initially entered the cryptocurrency field by chance. He had been involved in a startup that developed passwords for tech companies, but the company failed, and he then joined Coinbase as an engineer. He was not enthusiastic about cryptocurrency, but the company did provide him with a path to work hard and create meaningful things.

"I don't think my view of cryptocurrency has ever been from a libertarian perspective. It's more like, 'All the systems we have now are terrible. What if we use this technology to improve it?'"

By 2023, Pollak had gained the respect of blockchain veterans and had become well-known among engineers, entrepreneurs, and influencers. But with the launch of Base, his current status is closer to a leader in the cryptocurrency world. "I feel like I was born to do this," he said.

The success of Base is largely attributed to Coinbase. The launch of L2 has gained recognition from the consumer-oriented public company giant. Coinbase users will automatically use Base, and wallet users will then turn to other applications from there.

Tom Schmidt, a partner at the crypto venture capital firm Dragonfly, told Fortune magazine, "The close integration with Coinbase makes the whole thing sweeter." "There are few people in Coinbase who truly understand cryptocurrency, and Jesse is one of them."

Pollak believes that the importance of the Base community is no less than brand recognition. He compares the emotions of Base developers to the early Silicon Valley atmosphere. On the decentralized social media platform Farcaster, which has a channel of 240,000 people (the largest channel on the platform to date), developers exchange ideas with each other.

For Coinbase, having its own blockchain network provides a source of income that is not heavily dependent on the ups and downs of cryptocurrency cycles. This need for diversified income has also prompted Coinbase's competitors Kraken and Binance to build their own blockchains. These projects, unlike L2 projects such as Base built on Ethereum, are one of the reasons why Pollak's project has received such attention.

L2 monthly transaction volume trend

Ryan Wyatt, head of the blockchain builder community Optimism Collective, told Fortune magazine that one reason is that Base wants to become an interesting community. Wyatt said, "In addition to finance, various different consumer experiences are starting to emerge."

Traffic on Base is concentrated in social and gaming: according to a recent report by asset management company Franklin Dampston, almost half of SocialFi transactions occur on Base.

According to the Base website, there are 353 applications in its ecosystem. Currently, the most popular are those related to DeFi, with Uniswap and Jumper leading the way. But consumer-centric applications are also making progress. Among them, Friend.Tech has attracted attention, allowing users to purchase "shares" of influential people to enter their private chat rooms: "Your network is your net worth." Another popular application is the restaurant loyalty app Blackbird, which allows regulars to accumulate their native tokens and receive perks such as welcome drinks.

Schmidt of Dragonfly admits that he is impressed by the "non-corporate" impression of Base, attributing this atmosphere to Pollak.

"You need to show people something."

Since 2022, Coinbase's CEO has been committed to diversifying the company's revenue. Armstrong told CNBC that year, "We want to break free from the constraints of trading fees and move towards subscriptions and services."

This pursuit has begun to pay off, as in the first quarter of 2024, about one-third of Coinbase's net revenue comes from "subscriptions and services." This includes interest income from its stablecoin USDC and staking income, which helps customers lock in Ethereum in exchange for rewards. Meanwhile, Coinbase also earns income as the custodian for 8 spot Bitcoin ETFs and through Coinbase One (a subscription plan that provides enhanced trading features for over 400,000 senior investors). During the most severe bear market, subscriptions and services were a lifeline, bringing in about half of the company's revenue in early 2023.

But Base stands out as Coinbase's true crypto-native application. The $56 million in revenue generated in the first quarter comes from payment-related income and "sequencer fees." The sequencer can be seen as the infrastructure that verifies, orders, and packages transactions on Base, then releases them to L1. In return, the sequencer takes a cut from the fees paid by users, and Coinbase calls these fees the "primary driver" of growth.

Coinbase CFO Alesia Haas told investors on the latest earnings call, "I want to point out that Base's unit economics are indeed strong." She said that with the growth in transaction volume (a key growth metric for Coinbase), Base could "become a long-term significant contributor to our revenue and profits."

But Pollak acknowledges that getting non-crypto people into the crypto space is still a huge challenge, and convincing people to enter this space should not be for political or ideological reasons, but to provide them with high-quality products they want to continue using. Later this summer, Base will partner with major brands such as Coca-Cola to launch the "Onchain Summer" promotion, giving away $2 million in prizes, grants, and points to encourage potential users.

"To truly make a breakthrough, you need to show people something," he said. "We have overcome the hurdles."

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