Uncovering Coinbase Star Engineer Jesse Pollak: How the Base Chain Was Born?

Original Author: Niamh Rowe, Fortune Magazine

Original Compilation: Luffy, Foresight News

In 2021, Jesse Pollak was ready to take on a new challenge. After five years at Coinbase, he had made a name for himself within the company, expanding the team from 3 to 250 people and overseeing Coinbase's consumer products. He then developed a desire to start his own venture.

To retain this star engineer, CEO Brian Armstrong told Pollak, "Go figure out how to bring Coinbase on-chain." "On-chain" is a cryptocurrency term that refers to activities occurring on the blockchain.

Facing this challenge, Pollak first envisioned building a decentralized autonomous organization (DAO), an obvious crypto collective relying on a loosely organized group of mostly anonymous individuals to make decisions.

Standing before the executive team of this publicly traded Fortune 500 company, Pollak made his request: could they allocate $1 billion and 60 employees to transform Coinbase into a DAO?

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

He then began considering the advertising market, followed by app stores, and then identity applications. After a year and a half of exploration and trying various possible solutions, Pollak realized one thing: "First, we need a real software platform."

Coinbase's own Layer 2 blockchain, Base, was born. Base is built on top of Ethereum, allowing it to aggregate batch transactions and write them to the main chain. Launched last August, Base is widely regarded as a breakout L2. In the first quarter of 2024, Base's transaction volume reached twice that of Ethereum, generating over $56 million in revenue, with mainstream on-chain applications including Uniswap, Chainlink, and OpenSea.

"We are redesigning the software stack because we want to rebuild most of Coinbase's functionality on this new platform," Pollak explained during a video interview with Fortune magazine from a children's bedroom in Washington, D.C. Behind him was a mural of a tree painted by his father, its branches vibrant around him. But his ambitions go far beyond that: "We are building the next generation of the internet."

"I feel like I was born to do this"

Pollak is a talkative person who prefers discussing lofty ideals over mechanical minutiae, breaking the stereotype of most engineers. After studying at a Quaker school for 15 years, he believes that some of the Quaker values—simplicity, community, equality, governance—are what drive him to create Base.

Pollak's entry into the cryptocurrency space was purely accidental. He had been involved in a startup developing passwords for tech companies, but that company failed, and he subsequently joined Coinbase as an engineer. He wasn't particularly enthusiastic about cryptocurrency, but the company provided him with a path to work hard and create meaningful things.

"I think my view of cryptocurrency has never 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 them?'"

By 2023, Pollak had earned the respect of blockchain veterans, rising to prominence among engineers, entrepreneurs, and influencers. But with the launch of Base, his status is now closer to that of a leader in the cryptocurrency space. "I feel like I was born to do this," he said.

The success of Base is largely attributed to Coinbase. The launch of L2 received recognition from a publicly traded consumer giant. Coinbase users automatically use Base, while wallet users transition to other applications from there.

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

Pollak believes the importance of the Base community is on par with any brand recognition. He likens the sentiment 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 on the platform to date), developers exchange ideas with one another.

For Coinbase, having its own blockchain network provides a revenue source that does not heavily rely on the boom-and-bust cycles of cryptocurrency. This need for revenue diversification has also prompted Coinbase's competitors, Kraken and Binance, to build their own blockchains. These projects are not L2 projects built on Ethereum like Base, which is one reason Pollak's project has garnered so much attention.

L2 Monthly Transaction Volume Trends

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

Traffic on Base is concentrated in social and gaming: according to a recent report from asset management firm Franklin Templeton, nearly 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. However, consumer-centric applications have also made progress. Among them, Friend.Tech has attracted attention, allowing users to buy "shares" of influencers 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 its native tokens and receive perks like complimentary drinks.

Schmidt from Dragonfly admitted he was impressed by Base's "non-corporate" vibe, attributing this atmosphere to Pollak.

"You need to show people something"

Coinbase's CEO has been working on diversifying the company's revenue since 2022. Armstrong told CNBC that year, "We want to break free from the shackles of transaction fees and move towards subscriptions and services."

This pursuit has begun to bear fruit, as in the first quarter of 2024, about one-third of Coinbase's net revenue came from "subscriptions and services." This includes interest income from its stablecoin USDC, as well as staking revenue, which helps customers lock up Ethereum in exchange for rewards. Meanwhile, Coinbase also earns revenue as the custodian for eight spot Bitcoin ETFs and from Coinbase One, a subscription plan that provides enhanced trading features for over 400,000 seasoned investors. During the most severe moments of the last 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 it generated in the first quarter came from payment-related income and "sequencer fees." The sequencer can be viewed as the infrastructure that verifies, orders, and packages transactions on Base before publishing them to L1. In return, the sequencer takes a cut from the fees paid by users, which Coinbase describes as a "key 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 very strong." She said that as transaction volume grows (a key growth metric for Coinbase), Base could "become a significant long-term contributor to our revenue and profits."

However, Pollak acknowledges that getting non-crypto people into the cryptocurrency space remains a huge challenge, stating that persuading people to enter the space should not be based on political or ideological considerations, but rather to provide them with high-quality products they want to continue using. Later this summer, Base will collaborate with major brands like Coca-Cola to launch the "Onchain Summer" promotion, offering $2 million in prizes, grants, and points to encourage potential users.

"To really break through, you need to show people something," he said. "We’ve made it through the tough times."