Original article by Niamh Rowe, Fortune Magazine
Original translation: Luffy, Foresight News
In 2021, Jesse Pollak was ready for a new challenge. After five years at Coinbase, where he rose to prominence in the company, grew the team from 3 to 250 people, and was responsible for Coinbase’s consumer products, he developed a desire to start a business.
To keep the star engineer, CEO Brian Armstrong told Pollak: “Go figure out how to bring Coinbase on-chain.” “On-chain” is a cryptocurrency term for activity that takes place on a blockchain.
Faced with this challenge, Pollak first envisioned building a decentralized autonomous organization (DAO), a distinct crypto collective that relies on a loose group of mostly anonymous individuals to make decisions.
Standing before the executive team of the publicly traded Fortune 500 company, Pollak made his request: Could they come up with $1 billion and 60 employees to turn Coinbase into a DAO?
“They said, ‘We love your energy, but we’re using it in the wrong places,’ ” Pollak said, laughing at the memory.
After that, he started thinking about the advertising market, then the app store, and then identity applications. After a year and a half of groping around and trying various possible solutions, Pollak realized one fact: "First, we need a real software platform."
Coinbase's own Layer 2 blockchain Base was born. The 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 is widely regarded as a hit L2. In the first quarter of 2024, Base's transaction volume reached twice that of Ethereum, generating more than $56 million in revenue, and mainstream applications on the chain include Uniswap, Chainlink, and OpenSea.
“We’re redesigning our software stack because we’re rebuilding most of Coinbase’s functionality on this new platform,” Pollak explains in a video interview with Fortune in his childhood bedroom in Washington, D.C. Behind him is a mural of a tree painted by his father, its branches springing to life around him. But his ambitions go far beyond that: “We’re building the next generation of the internet.”
“I feel like I was born to do this.”
A talkative man who prefers to talk about higher ideals rather than mechanical details, Pollak defies most stereotypes of engineers. After 15 years in a Quaker school, he credits some of the Quaker values — simplicity, community, equality, stewardship — as the impetus for founding Base.
Pollak first got into the cryptocurrency space by accident. He joined Coinbase as an engineer after being involved in a startup that developed cryptocurrencies for tech companies, which failed. He wasn't passionate about cryptocurrency, but the company did provide him with a path to work hard and create something meaningful.
“I think my view on cryptocurrencies was never a libertarian angle. It was more like, ‘All the systems we have right now are terrible. What if we used this technology to improve it?’”
By 2023, Pollak had earned the respect of blockchain veterans, making a name for himself among engineers, entrepreneurs, and influencers. But with the launch of Base, he’s now closer to a leader in the cryptocurrency world. “I feel like I was born to do this,” he says.
Base’s success is largely due to Coinbase. The launch of L2 was endorsed by a giant, consumer-facing, public company. Coinbase users automatically use Base, and wallet users move on to other apps from there.
“The tight integration with Coinbase makes the whole thing even sweeter,” Tom Schmidt, a partner at crypto venture capital firm Dragonfly, told Fortune. “There are very few people at Coinbase who really understand cryptocurrency, and Jesse is one of them.”
Pollak believes that the Base community is as important as any brand recognition. He likens the mood among Base developers to the atmosphere of early Silicon Valley. On the decentralized social media platform Farcaster, a channel with 240,000 people (the platform's largest channel to date), developers exchange ideas with each other.
For Coinbase, owning its own blockchain network provides a revenue stream that is not heavily dependent on the boom and bust cycle of cryptocurrencies. This need to diversify revenue has also prompted Coinbase competitors Kraken and Binance to build their own blockchains. These projects are unlike L2 projects like Base that are built on Ethereum, which is one of the reasons why Pollak's project has received so much attention.
L2 Monthly Trading Volume Trend
Ryan Wyatt, head of the Optimism Collective, a community of blockchain builders, told Fortune that one reason is that Base wants to be a fun community. “Beyond finance, all kinds of different consumer experiences are starting to emerge,” Wyatt said.
Traffic on Base is concentrated in social and gaming: According to a recent report by asset manager Franklin Templeton, almost half of SocialFi transactions occur on Base.
According to Base’s website, there are 353 apps in its ecosystem. The most popular right now are those related to DeFi, with the likes of Uniswap and Jumper leading the pack. But consumer-focused apps have also made inroads. Among them, Friend.Tech has caught people’s attention, where users can buy “shares” of influencers to enter their private chat rooms: “Your network is your net worth.” Another popular app is restaurant loyalty app Blackbird, which allows regulars to accumulate its native tokens and receive benefits like welcome drinks.
Dragonfly’s Schmidt admitted that he was impressed by how “non-corporate” Base was, an atmosphere he credits to Pollak.
“You need to show people something”
Coinbase’s CEO has been working to diversify the company’s revenue since 2022. Armstrong told CNBC that year, “We want to get away from transaction fees and move to subscriptions and services.”
That pursuit is starting to pay off, as in the first quarter of 2024, about a third of Coinbase’s net revenue came from “subscriptions and services.” That includes interest income on its stablecoin, USDC, as well as staking income, which helps customers lock up Ethereum in exchange for rewards. Meanwhile, Coinbase also earns revenue as the custodian of eight spot Bitcoin ETFs and from Coinbase One, a subscription plan that provides enhanced trading capabilities to more than 400,000 sophisticated investors. Subscriptions and services were a lifeline during the worst of the last bear market, generating about half of the company’s revenue in early 2023.
But Base stands out as Coinbase’s true crypto-native app. The $56 million in revenue it generated in the first quarter came from payment-related revenue and “sorter fees.” Think of sorters as the infrastructure that validates, sorts, and packages transactions on Base before publishing them to L1. In return, sorters get a cut of the fees paid by users, and Coinbase calls these fees the “primary driver” of growth.
“I want to point out that the unit economics of Base are really strong,” Coinbase CFO Alesia Haas told investors on its latest earnings call. She said that as transaction volume grows (a key growth metric Coinbase focuses on), Base can “become a significant contributor to our revenue and profits over the long term.”
But Pollak admitted that getting non-cryptocurrency people into the cryptocurrency space is still a huge challenge, and convincing people to enter the space should not be about political or ideological considerations, but about providing them with quality products that 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 really have a breakthrough, you need to show people something,” he said. “We’ve gotten over that.”
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