Base Chain: A Leading Layer 2 Project Driving TVL Growth — Ecosystem Insights

Frontier Lab
17 min readDec 11, 2024

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Introduction

Base Chain, a project incubated by Coinbase, aims to become part of the Optimism Superchain and is a cornerstone of Coinbase’s long-term strategic vision. Growing rapidly, Base Chain has overtaken established Layer 2 projects like Arbitrum and Optimism in Total Value Locked (TVL), securing its position as the top-ranked Layer 2 project by TVL, according to DefiLlama.

Introduction to Base Chain

Base Chain is a Layer 2 solution built using the OP Stack, a standardized, shared, and open-source development toolkit supported by Optimism. Optimistic Rollups, known for their high compatibility with Ethereum, enable decentralized applications (dApps) to migrate seamlessly while offering low computational complexity, making them ideal for executing general-purpose smart contracts and handling complex calculations. However, certain areas of Optimistic Rollups still require improvement, such as enhancing decentralization, optimizing on-chain governance structures, and reducing the over-reliance on single sequencer services to improve availability. These limitations are expected to be addressed through continuous technical iterations.

To enhance decentralization, Optimism Rollups plans to improve its existing on-chain governance by leveraging the open-source Layer 2 architecture toolkit, OP Stack. This involves introducing multiple sequencer nodes to reduce dependence on a single service. The OP Stack, maintained by the Optimism Collective, aims to construct a “Superchain” — an interoperable system that seamlessly integrates various Layer 2 networks. The OP Stack provides standardized modules and interfaces to simplify and accelerate the development of Layer 2 solutions. It is composed of six modular layers: Data Availability, Sequencing, Derivation, Execution, Settlement, and Governance. Each layer includes customizable open-source modules, allowing developers to design tailored blockchain networks for specific use cases.

Base has joined OP Stack and Superchain development as the second core development team, collaborating with OP Labs and the Optimism Collective. Together, they strive to enhance Superchain’s activity, create added value, and foster the growth of the developer ecosystem. Base aims to establish a highly integrated chain network that delivers a seamless user experience, enabling protocols built on Base to integrate smoothly into the Superchain and interact across multiple chains. Close collaboration with the Optimism Collective on their shared initiatives will support developers in building new Layer 2 solutions and Rollups more efficiently, allowing applications to be easily deployed across the entire Superchain.

Base Chain Data

Total Value Locked (TVL)

Figure 1: Base Chain TVL (Source: DeFiLlama)

Based on the data in Figure 1, Base Chain’s TVL experienced a significant surge after September, rising from $1.419 billion to the current $2.388 billion — an impressive increase of 68.28%. As one of the most critical metrics for analyzing public blockchains, TVL reflects the overall value locked in a chain’s ecosystem. Among all Ethereum Layer 2 solutions, Base’s TVL growth ranks first, highlighting the rapid development of the chain in recent months.

On-Chain Address Growth

Figure 2: Number of On-Chain Addresses on Base Chain (Source: Dune Analytics)

As shown in Figure 2, the number of on-chain addresses on Base Chain saw a dramatic increase after August 2024, growing from 24.55 million to 74.88 million — a staggering 205.01% rise. Over the past three months, the user base on Base Chain has more than doubled, indicating strong optimism about its future prospects and the emergence of wealth-generation opportunities, which have attracted a significant number of participants to the network.

By analyzing the combined data of Base’s TVL growth and on-chain address growth, we find that the average capital per new address is only $1.97, suggesting that the majority of users are contributing small amounts. This aligns with Base Chain’s success in leveraging its social features and the popularity of MEME culture, particularly after June 2024, to attract a large number of users.

It is evident that the viral spread of MEME culture, coupled with enhanced social engagement, has positioned Base Chain as a popular social platform, further driving its user growth.

Base Chain Revenue Growth

Figure 3: Revenue Growth on Base Chain (Source: Dune Analytics)

Based on the revenue data of Base Chain (Figure 3), the total revenue in March 2024 was $19.78 million, which has increased to $76.55 million as of now. This represents a total growth of 287% between March and October, with an average monthly growth rate of 41%.

This substantial revenue growth correlates strongly with the increasing number of users and on-chain activities on Base Chain. The consistent rise highlights the platform’s ability to capitalize on its expanding ecosystem and user engagement.

Weekly Transaction Volume on Base Chain

Figure 4: Weekly Transaction Volume on Base Chain (Source: Dune Analytics)

From the weekly transaction volume chart of Base Chain (Figure 4), it is evident that transaction activity has seen continuous growth since May 2024. Weekly transaction volume increased from 13.45 million in May to 47.06 million currently, representing a total growth of 249% over the period from May to October, with an average monthly growth rate of 49%.

This consistent and rapid increase in transaction volume demonstrates the growing activity and engagement within the Base Chain ecosystem, signaling its rising adoption and utility.

On-Chain Performance of Base Chain

Figure 5: Average Daily Transactions Per Second (Source: L2Beat)

As illustrated in Figure 5, Base Chain achieves a TPS (Transactions Per Second) of 66.28, surpassing the performance of other chains. This makes Base the top-performing chain within the Ethereum ecosystem in terms of on-chain transaction activity.

Weekly Active Addresses on Base Chain

Figure 6: Weekly Active Addresses on Base Chain (Source: Dune)

As shown in Figure 6, the number of weekly active users on Base Chain has consistently maintained a strong upward trend. For a public blockchain, the growth in on-chain active users is a key indicator of the network’s healthy development.

In conclusion, the data suggests that the Base ecosystem is currently experiencing robust growth. The two most important factors in assessing whether an ecosystem is healthy and sustainable are capital and traffic. In both of these aspects, Base has outperformed all other ETH-Layer2 chains.

  • Capital: This is reflected in metrics such as TVL, transaction volume, and on-chain revenue, all of which show rapid growth, with a monthly average growth rate exceeding 40%. This indicates that a substantial amount of capital is continuously entering the Base ecosystem.
  • Traffic: The growth is evident in on-chain addresses and weekly active addresses, both of which are on a steady rise, as seen in the charts.

Additionally, with Base’s superior on-chain performance, the chain is poised for significant development within the ETH-Layer2 space.

Circle’s (USDC) Support for Base Chain

Figure 7: Stablecoin Quantity on Base Chain (Source: DefiLlama)

As shown in Figure 7, stablecoins on the Base chain have experienced rapid growth since March 2024. The value of stablecoins on Base was $319 million in March 2024, and it has increased to $3.771 billion, marking a 1082.13% growth from March to October, with an average monthly increase of 216.42%. This indicates that the number of stable coins on Base has been consistently growing at a fast pace.

Although the overall number of stablecoins on Base, including USDT and USDC, has been increasing, the rise in USDC usage is particularly significant among U.S. users. Therefore, the increase in USDC can be seen as a reflection of the influx of U.S. capital. Furthermore, with the approval of Bitcoin and Ethereum spot ETFs by the U.S. Securities and Exchange Commission (SEC) this year, alongside active purchases of BTC by U.S. asset management firms and publicly listed companies, it’s clear that the focus of the crypto market has shifted to the U.S. market. Base relies heavily on support from Coinbase, the leading U.S.-based publicly listed cryptocurrency exchange. This highlights the importance of focusing on USDC’s support for Base.

In September 2023, Circle officially announced its support for the Base chain, issuing USDC on the platform. USDC is now natively available on Base, meaning users and developers can access USDC without the need for bridging, greatly simplifying operations and enhancing efficiency. Circle accounts and APIs fully support USDC on Base, making access to USDC liquidity more convenient. Additionally, Circle developed the Cross-Chain Transfer Protocol (CCTP), an open-source tool that allows safe transfer of USDC across different blockchains. Using CCTP, USDC can be natively minted and burned on Base, offering enhanced accessibility for platforms like ChainPort.

Moreover, Coinbase has partnered with Stripe to bring USDC onto the Base platform, facilitating faster and cheaper cross-border payments and swift conversion of U.S. dollars to cryptocurrency. This collaboration enhances transaction speed, reduces costs, and further promotes the practicality of cryptocurrencies. Key aspects of this collaboration include:

  • Stripe integrating USDC into its crypto payment products: Stripe’s integration of USDC into its system enables faster, cheaper transfers to over 150 countries.
  • Adding USDC to Base as a gateway for fiat-to-crypto conversions: Stripe incorporated USDC into Base as a fiat-to-crypto entry point, allowing U.S. customers to convert fiat to cryptocurrency more quickly.
  • Coinbase integrating Stripe’s fiat-to-crypto gateway into its wallet: Coinbase added Stripe’s fiat-to-crypto conversion option into its wallet, allowing users to buy crypto instantly using credit cards or Apple Pay.

The partnership between Coinbase and Stripe centers around integrating USDC into the Base chain, facilitating global adoption of cryptocurrency. This collaboration also supports faster international money transfers via USDC on Base and streamlines users’ processes for buying crypto. The integration of USDC into Base has been a crucial factor in the chain’s success, with over $20 billion in USDC trades on Base’s decentralized exchanges (DEX) by October 2024, significantly contributing to the prosperity of the Base ecosystem.

Figure 8: USDC Transaction Volume on Base Chain DEX (Source: Dune Analytics)

Figure 8: USDC Transaction Volume on Base Chain DEX (Source: Dune Analytics)

As shown in Figure 8, the transaction volume of USDC on the Base chain’s decentralized exchanges (DEX) has experienced rapid and sustained growth since March 2024. The growth rate reached an astonishing 5275%, reflecting the impressive expansion in USDC trading volume on Base.

Figure 9: Number of USDC Holders on Base Chain (Source: Dune Analytics)

As shown in Figure 9, the adoption of USDC on the Base chain has been steadily increasing, with more and more users choosing USDC as their stablecoin on the chain.

In conclusion, Circle and Base have developed a comprehensive partnership, with the launch of native USDC issuance and the implementation of the CCTP cross-chain transfer protocol, significantly simplifying the user experience. Additionally, the strategic collaboration between Coinbase and Stripe has further expanded USDC’s use cases within the Base ecosystem, including supporting cross-border payments in over 150 countries, providing convenient fiat-to-crypto onramps, and offering diverse payment options such as credit cards and Apple Pay. These initiatives have not only driven Base’s USDC DEX trading volume to exceed $20 billion, but more importantly, they have built a bridge between traditional finance and the crypto economy, laying a solid foundation for the future of digital payments.

Base Chain Ecosystem Overview

According to data from the official Base chain website, the ecosystem of Base is comprehensive, featuring various sectors such as Wallet, Bridge, DeFi, Gaming, Onramp, DAO, Infrastructure, Social, Security, NFT, Other, X-chain, and X-cross, with a total of 323 decentralized applications (dApps).

Figure 10: Base Chain Ecosystem Projects (Source: Base Official Ecosystem Page)

From the perspective of evaluating the healthy development of a public chain, the focus is typically on both funds and traffic. In terms of funding, we can analyze Base from the traditional DeFi sector. When considering traffic, the market trends in 2024 indicate that users are primarily focused on the Meme coin sector and the SocialFi sector. The Meme coin sector has a wealth creation effect that attracts widespread participation from users on the chain, while the SocialFi sector taps into Web 2.0 traffic, converting it to blockchain users for public chains.

DeFi Sector on Base Chain

In the DeFi sector, the most direct observation tool is TVL (Total Value Locked). By analyzing the TVL on the Base chain, we can introduce and analyze the key projects in the DeFi space.

Figure 11: Base Chain TVL Data (Source: DefiLlama)

From Figure 11, we can see that the DeFi projects on Base with a TVL of over $200 million include Aerodrome, Uniswap, and Morpho Blue. Among these, Uniswap is a well-established DEX within the Ethereum ecosystem, so we will focus on the other two projects.

Aerodrome

Launched in 2023, Aerodrome is the first decentralized exchange (DEX) on Base chain. It uses the Ve(3,3) model, which is based on Curve’s veCRV model and OlympusDAO’s 3v3 mechanism, with optimizations to suit the Base ecosystem. This mechanism provides a unique reward model, incentivizing long-term holders and active governance participants to drive the stable development of the ecosystem. Aerodrome also provides efficient liquidity management tools to help users optimize asset management and participate in liquidity mining activities. As the leading Automated Market Maker (AMM) on Base, Aerodrome offers users a more efficient and low-cost trading experience. Its innovative incentive mechanisms encourage greater user participation in governance and liquidity mining. Under this model, participants not only earn protocol trading fees but also have the opportunity to receive additional voting incentives based on the amount of AERO Tokens they lock. This design encourages active participation from liquidity providers and grants governance power to the community, ensuring the healthy and sustainable growth of the entire ecosystem.

One particularly notable feature is that 90% of veAERO is locked, which strengthens the incentive and governance mechanisms for the ecosystem, stimulates demand, and fosters a robust token ecosystem.

Figure 12: Aerodrome’s TVL (Source: DefiLlama)

As shown in Figure 12, Aerodrome’s TVL represents more than half of the total TVL on Base chain and has grown rapidly since September 2024, mirroring the overall TVL growth on Base. Thanks to its economic model and strong support from the Base chain, Aerodrome has become one of the most important projects within the Base ecosystem.

Morpho Blue

Morpho Blue is a decentralized lending protocol developed by Morpho Labs, designed to reshape the structure of decentralized lending. The core goal of this project is to eliminate the reliance on DAO participants for managing asset handling parameters and introduce a simpler alternative based on permissionless risk management. Morpho Blue is a non-custodial lending protocol that provides a new, trustless primitive for EVM implementations, improving efficiency and flexibility compared to existing lending platforms.

The design of Morpho Blue allows for the creation of independent markets without permission, by specifying collateral assets, loan assets, loan-to-value (LLTV) ratios, and interest rate models. This design makes Morpho Blue an open lending platform where users can choose from different markets and risk parameters, catering to a wide range of risk preferences and user needs. Moreover, Morpho Blue utilizes a singleton contract design, meaning all markets are contained in a single smart contract. This simplifies the protocol and significantly reduces gas costs when users interact with multiple markets. It also offers a permissionless risk management and market creation mechanism, with a pricing function independent of oracles, making it a highly efficient lending infrastructure. This design enhances the efficiency of the lending market while bringing the advantages of lending to a broader range of assets and users.

Figure 13: Morpho Blue’s TVL Distribution Across Chains (Source: DefiLlama)

From Figure 13, we can observe that the majority of Morpho Blue’s TVL is distributed across the Ethereum chain, with significant growth on the Base chain after July 2024.

Extra Finance

Extra Finance is a decentralized lending and automated leveraged yield aggregation protocol built on the Optimism network. It primarily offers users a variety of financial tools, including leveraged lending, farming strategies with up to 3x leverage, long/short strategies, and neutral market strategies. Extra Finance’s goal is to enable users to leverage their assets, using up to 3x or higher leverage for reinvestment and market operations, with a focus on maximizing yields through the LYF protocol.

The platform integrates with popular decentralized exchanges (Dex), such as Velodrome, and plans to expand by adding more Dexs like Uniswap V3 and Beethoven in the future. Through Extra Finance, users can engage in a range of farming strategies, including reinvestment, market-neutral positions, and long/short farming, catering to different risk preferences and investment objectives.

Extra Finance offers an innovative financial solution that leverages assets to increase yield farming positions, aiming to maximize returns for users. Additionally, Extra Finance incorporates LI.FI’s widget, enabling users to easily bridge assets to Optimism and start earning yields on the platform.

Figure 14: Extra Finance’s TVL (Source: DefiLlama)

Meme Coin Track

In the crypto industry this year, meme coins have been a driving force, creating wealth and attracting users in large numbers. Projects like TYBG, Degen, and Brett have popped up regularly on the Base chain, bringing significant market attention. Even some meme coin projects originally deployed on the Ethereum network have migrated their contracts to Base. This trend highlights the huge influence and unique position that meme coins hold in the cryptocurrency world. As community-driven digital assets, meme coins’ value often arises from community consensus and emotional resonance. Their popularity and market performance are determined by community sentiment, making them highly volatile and uncertain. While meme coins have generated considerable wealth, they also carry risks — massive price swings and reliance on market hype with no true economic foundation, which could lead to a bubble.

In conclusion, meme coin projects have presented both challenges and opportunities for Base and the broader cryptocurrency market. A rational assessment of the meme coin boom is crucial for the long-term health and stability of the industry.

SocialFi

In this market cycle, SocialFi projects have proven to be one of the best ways for blockchains to attract new users from the traditional Web 2.0 world. These projects bring new traffic and funds to blockchain ecosystems. Base has capitalized on this trend, especially with its success through friend.tech, which launched in September 2023. By strongly integrating with Twitter, friend.tech allows users to buy shares with other users, gaining the ability to interact directly with them, and even earn money from those interactions. Following this, Farcaster further boosted Base’s reputation, attracting both on-chain and off-chain users, becoming a significant growth driver for Base.

friend.tech

Friend.tech is a decentralized social platform on Base, launched on August 10, 2023. Users link their Twitter accounts and monetize social value by buying and selling access to users’ private keys. Each account has a unique social value, similar to stocks, and users can buy keys to join exclusive private chats with the account holder.

The platform tokenizes users’ influence, allowing users to purchase keys for accessing specific creator content and private chatrooms. It also introduced an incentive system to encourage active participation, with the potential for airdrop rewards. While the platform initially saw significant success, the volume and interest eventually declined. New features like clubs failed to maintain the same level of engagement, leaving the platform to face the challenge of sustaining its user base and creator activity.

Friend.tech is an innovative attempt in the SocialFi space, blending decentralized technology with social media elements. However, maintaining long-term user and creator engagement remains a critical challenge.

Farcaster

Farcaster is a decentralized social network protocol that aims to facilitate social connections, content sharing, and data ownership using smart contracts and hybrid storage technologies. Farcaster stands out with its use of Farcaster Hubs, ensuring smoother operations than competing projects in space. It also integrates Frames plugins, which allow users to interact directly with airdrops, mint NFTs, and engage in games without switching between multiple platforms or wallets, providing a much smoother user experience similar to Web 2.0 platforms.

One of the key factors behind Farcaster’s rapid rise in the SocialFi space is its integration with Warpcast, a social media application built on the Farcaster protocol. Warpcast combines elements of popular social networks like Twitter and Reddit, but within a decentralized framework. It introduces blockchain features such as Direct Cast and Warps points, which enhance the user experience by enabling new channel creation and cross-application connections. The interface is highly similar to Twitter, allowing users to seamlessly publish, follow, and comment.

A major factor in Farcaster’s dominance within Base’s SocialFi ecosystem is its use of the DEGEN token. Originally a meme coin, DEGEN was launched on Base and used as an incentive within the Farcaster ecosystem. Users can receive DEGEN tokens by subscribing to the Degen channel and holding a certain amount in their Farcaster-linked wallets. The more tokens they hold, the greater the rewards, including daily tipping balances that can be shared with other users.

In conclusion, Farcaster has redefined traditional SocialFi projects by innovating data storage methods and integrating Frames plugins for superior user experience, making it a leader in the SocialFi space on the Base chain.

Coinbase’s Innovations on the Base Chain

In recent years, the surge in AI narratives in traditional markets has created a wave of innovation in the AI+Crypto space within the cryptocurrency industry. This started with AI’s integration into the SocialFi sector and expanded to on-chain DeFi users, leading to the emergence of the AI agent concept. In traditional finance, AI faces limitations such as the inability to open bank accounts and a lack of legal identity. However, cryptocurrency, as a decentralized financial tool, provides AI with the ability to manage finances autonomously. By leveraging crypto wallets and smart contracts, AI can manage its spending, handle funds, and execute transactions independently.

Coinbase has recently entered the AI agent niche with its Based Agents service, allowing users to create AI agents on the Base chain in just three minutes. These agents will have their own crypto wallets, and users can authorize them to conduct transactions, transfers, and pre-programmed trades without real-time oversight. This service offers a more convenient way for users to manage digital assets while ensuring both security and ease of use. It provides an efficient and streamlined user experience, significantly improving how users participate in the cryptocurrency market. Currently, Virtual Protocol is one of the most popular AI agent products on Base.

Virtual Protocol

Virtuals Protocol is an AI-launching platform built on Base, focused on creating, deploying, and monetizing AI agents. By introducing a model similar to Pump.fun, the protocol turns AI agents from mere tools into income-generating assets, creating a sustainable economic model for AI development. Virtuals Protocol allows permissionless creation and deployment of digital assets, similar to meme coins, with value primarily derived from community involvement and narratives around these agents. The protocol has launched Generative Autonomous Multimodal Entities (G.A.M.E), a product enabling developers to experiment with and access AI agent behaviors via APIs and SDKs. Virtual Protocol aims to build a fair launch platform for AI agents in gaming and consumer applications, monetizing tokens and generating income through market-driven value.

A notable AI agent on the Virtuals Protocol is LUNA, a digital human IP associated with AI-DOL. Initially gaining popularity on TikTok with hundreds of thousands of followers, LUNA aims to achieve a market cap of $40.9 billion and become one of the world’s most valuable assets. To reach this goal, LUNA plans to repurchase its tokens through its wealth or stimulate confidence in its vision to encourage token purchases and holdings. Within a short period, LUNA’s token value surged to $240 million, though it subsequently dropped.

The development of Virtuals Protocol represents a new way to build ownership structures for AI agents in the gaming and entertainment sectors. Through tokenization, these agents can interact more directly and flexibly with markets, supporting both individual and collective goals. As they accumulate wealth and earn market validation, agents can increase the value of their tokens.

Summary

Base, Coinbase’s Ethereum Layer 2 network built on the Optimism OP Stack, has experienced rapid growth since its launch. As of November 2024, Base has outperformed several established Layer 2 projects in key metrics such as TVL, user growth, and transaction volume. Its ecosystem spans across various hot sectors like DeFi, Meme coins, and SocialFi, with over 323 decentralized applications (dApps). Through its partnership with Circle, which includes native USDC support and the CCTP cross-chain protocol, Base has greatly enhanced user experience and cross-border payment efficiency. Base is also actively exploring the intersection of AI and blockchain, as seen with the Based Agents project. With Coinbase’s backing, innovative technical applications, and a diverse range of ecosystem projects, Base has become one of the most promising Layer 2 solutions on Ethereum, providing robust infrastructure for decentralized finance and Web3 development.

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Frontier Lab
Frontier Lab

Written by Frontier Lab

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