It’s only a matter of time until every cryptocurrency exchange and fintech firm is running its own blockchain, according to OP Labs, builder of Ethereum overlay protocol Optimism.
The logic is straightforward and simple, says OP Labs head of product, Sam McIngvale, pointing to the runaway success of Coinbase’s layer-2 (L2) network Base since its debut in 2023.
For a start, Base has accrued an incredible ecosystem of users and developers to back the exchange, McIngvale said. But the biggest no-brainer is how a system like Base, combined with Coinbase’s bitcoin-backed loans, allows dormant crypto assets sitting in custody to be monetized by lending them out, he added.
Base was built using Optimism’s OP Stack, a software product that helps users to develop layer-2 blockchains that work with Ethereum but provide faster, cheaper transactions. McIngvale said Base’s success, it’s the largest layer 2 by a number of metrics including total value locked, is an illustration of how the industry is likely to develop.
“I expect every crypto exchange and every fintech company to run their own blockchain in the next five years,” McIngvale said in an interview. “If you own bitcoin on Coinbase, in one button, they will take that bitcoin, move it to Base, which then lets you borrow USDC from it. And now you can go do whatever you want with that USDC.”
Both Optimism and rival Arbitrum assume a transaction is valid — hence “optimistic” — with potential fraud detected through permissionless fault proofs. Optimistic rollups boost the throughput of Ethereum’s base layer by processing transactions off-chain to reduce the computation load, deriving security by publishing transaction results on the underlying, or layer-1, blockchain. Another approach is to use zero-knowledge proofs to create rollups that publish cryptographic proofs of validity for off-chain transactions.
McIngvale, who was instrumental in building the custody business at Coinbase, makes the further point that simply holding crypto in cold storage on a platform works out relatively expensive.
“Traditionally, there’s been a cost to custody a lot of crypto, because of all the security implications,” McIngvale said. “Unlike custodying equities, where you don’t really pay for that, those equities are lent out and things happen to them under the hood. Crypto is still much more nascent, but it’s moving in that direction.”
There’s clearly been a bit of Base envy happening in crypto land. Global exchange Kraken has introduced Ink, a layer-2 blockchain that also uses Optimism, as have Bybit, Bitget and OKX. Fintech firms like Robinhood, for example, are also exploring their own L2s linked to Ethereum.
Optimism’s modular vision of an interoperable “Superchain” would ideally allow users to go from one blockchain to another just as their browser moves from one website to another, McIngvale said.
“Early adopters in crypto were way more willing to put up with kind of crappy UX,” McIngvale said. “People would wait 12 seconds for something to confirm and pay $50, because it was this new technology that they were exploring, probably akin to being online in the mid 90s. Like, it was painful.”