By James Davis
Last week, crypto exchange Coinbase announced plans to launch its own Ethereum layer-2 network, and it appears like investors are warming up to the announcement in spite of the recent regulatory crackdown on the crypto industry.
The exchange’s stock price increased by 9% yesterday to $64.84 per share, marking the biggest daily gain since shares went up by 12% on February 15. The day before Coinbase announced its network named Base, its stock was priced at $61.19. Therefore, yesterday’s price means the exchange’s shares have climbed by about 6% since the announcement.
The Base launch would make Coinbase the first publicly traded firm to own a layer-2 network. Base will help the exchange expand its sources of revenue beyond just transaction fees collected from traders on the platform.
Coinbase and Its Layer-2 Network
Coinbase claims that all transactions on the Base network will be ten times cheaper than those on the Ethereum. Moreover, the exchange said it would not launch any token like other layer-2 networks. Instead, it will focus on popularizing its existing products among developers.
Base will facilitate developers with tools to build decentralized applications (dapps). Already several crypto-focused companies have shown interest in using the network. They include Defi Protocol Aave; Animoca Brands, the creators behind the popular metaverse game, The Sandbox; and analytics platform Dune.
Adam Cochran, Managing Partner at Cinneamhain Ventures, wrote on his Twitter handle that Base could provide traditional financial institutions with a regulatory-compliant means to create tokenized versions of real-world assets. Blackrock CEO Larry Fink proposed a similar approach last December.
Financial Analysts Claim Coinbase’s Stock Has Tight Correlation to Crypto
Coinbase’s shares have been highly volatile, like cryptocurrencies, since the company went public in mid-2021. As a result, some financial analysts have viewed the exchange’s stock as crypto in disguise. The stock reached its peak of $358 in November 2021, the same month when BTC and ETH hit their all-time highs of $69,000 and $4,810, respectively.
Currently, the top two digital assets by market cap are both down nearly 66% from their peak prices, according to data from CoinGecko. For Coinbase’s stock, its price has plunged roughly 81% from its all-time high, slipping further than the two biggest cryptocurrencies.