BITS + BIPS

This episode reveals the strategic thinking behind Base’s potential token launch, signaling a new competitive era where crypto-native user acquisition collides with institutional capital and regulatory strategy.

Part 1: Unchained with Laura Shin

Base Signals a Token is Coming

• Jesse Pollock’s announcement that Base is exploring a token marks a significant strategic shift for the Coinbase-backed Layer 2. Ryan Ye, formerly of Coinbase Ventures, notes that while Base achieved substantial user and builder growth without a token, this move signals their intent to “supercharge” its next phase of growth and compete at the highest level.
• The announcement is particularly notable given Coinbase's status as a public, centralized company and the first crypto firm in the S&P 500, navigating a complex U.S. regulatory environment.
• Ryan views this as a “natural evolution” for Base, which has already built a critical mass of builders and liquidity, now seeking to leverage token incentives for further expansion.

The Strategy Behind "Exploring" a Token

• The choice to “explore” a token rather than immediately launch one is a calculated move. Ryan suggests this approach serves two purposes: it generates a surge of user activity and builder interest while giving the Base team time to navigate complex regulatory and technical details.
• The Clarity Act: A key factor in the timing is the pending Clarity Act in the U.S. Congress, which aims to establish clearer classifications for digital assets. Ryan believes the token launch is unlikely to happen until this legislation is signed into law, as it will define the “goalposts” for launching a compliant, decentralized token.
• Controlling the Narrative: Announcing their exploration preemptively allows Base to manage expectations and build momentum, particularly for their new Base App, which is expected to be a central part of their user acquisition strategy.

Committing to Ethereum

• Jesse Pollock’s statement reaffirming Base's commitment to building on Ethereum is a strategic alignment with the network that is becoming increasingly institutionalized. Ryan frames Base as the “institutional and retail BD arm of Ethereum,” leveraging its established developer community and network effects.
• EVM (Ethereum Virtual Machine): The software environment that executes smart contracts on Ethereum. By building on the EVM, Base ensures compatibility with the largest ecosystem of developers and applications in crypto.
• Ryan notes that this alignment allows Base to grow with Ethereum, which is recognized alongside Bitcoin and stablecoins as a core crypto asset by Wall Street.

Projecting the Token Allocation

• Ryan Ye speculates on a token allocation model divided among three key groups: the team (Coinbase), early backers/treasury, and the community. He estimates Coinbase could retain a significant portion to ensure long-term incentive alignment.
• Coinbase's Stake: Ryan projects Coinbase might hold 20-40% of the token supply on its balance sheet.
• Treasury and Community: An additional portion, perhaps 20%, could be held in an independent treasury, with the remainder distributed to the community via airdrops, a public sale, or other continuous methods.
• ICO Beast agrees this is a “totally reasonable” amount, suggesting that a large allocation to Coinbase signals confidence and discourages immediate selling pressure that often follows community-heavy airdrops.

The Path to Decentralization

• The discussion explores how Base might “decentralize” by spinning out its core team into a separate entity, similar to how Uniswap Labs operates in relation to the Uniswap protocol. This structure could help navigate regulatory requirements for decentralization.
• Ryan suggests a model where an offshore foundation issues the token while an onshore entity (e.g., a Delaware C Corp) holds the IP and employs the team, maintaining a formal relationship with the parent company, Coinbase.
• This arms-length structure is a common strategy for U.S.-based crypto projects to manage token issuance and community governance while centralizing product development.

Launch Mechanics and Airdrop Speculation

• The conversation turns to how the token might be launched, with a points-farming campaign and a potential public sale being key possibilities. ICO Beast emphasizes the critical need for sophisticated filtering to ensure fair distribution.
• Airdrop Strategy: A points campaign, potentially run through the new Base App, is seen as a likely method to reward genuine users and bootstrap the ecosystem.
• Sybil Filtering: A process to identify and exclude “farmers” who use multiple wallets to unfairly claim airdrops. ICO Beast argues that an aggressive sybil filter is essential for a successful launch, stating, “ultimately the most successful airdrop in my opinion is going to be one that aggressively sybil filters.”
• Public Sale: Ryan suggests Base could leverage a platform like Echo to conduct a large-scale ICO-style sale through Coinbase, creating a crypto-native alternative to Robinhood's IPO access product.

Defining the Base Token's Utility

• The token's utility is projected to be multifaceted, likely combining economic incentives with a central role in the on-chain economy.
• Sequencer Revenue: The token could be tied to the network's profitability. A portion of the sequencer fees—revenue generated from ordering transactions on the Layer 2—could be used to burn tokens, creating a direct link between network activity and token value.
• DeFi Liquidity: The Base token is expected to become the primary liquidity asset on the network, similar to how Coinbase has promoted USDC. It would likely be the default pairing for new tokens, deepening on-chain liquidity.
• Governance: While governance is a possibility, Ryan believes it would initially be limited, with Coinbase retaining control over critical product and engineering decisions to align with its broader on-chain strategy.

Integrating with Solana and the Competitive Landscape

• Base's integration with Solana is interpreted as a direct acknowledgment of its primary competitor. The move highlights the distinct strengths of each ecosystem: Base's deep DeFi liquidity versus Solana's vibrant consumer and user culture.
• Ryan states, “It's just Base admitting that Solana is its biggest competition.”
• The integration allows projects on both chains to tap into the other's strengths—Base projects can access Solana's user base, while Solana projects can access Base's liquidity without completely migrating.
• This sets the stage for a more intense competition in DeFi, as institutional liquidity on Ethereum-based L2s like Base goes head-to-head with Solana's rapidly growing user-centric ecosystem.

Part 2: Bits and Bips

An Institutional Take on the Base Token

• The conversation shifts to an institutional perspective, focusing on the token's implications for Coinbase (COIN) shareholders and the regulatory hurdles. The panel agrees that the move signals a new era of innovation driven by increasing regulatory clarity in the U.S.
• Shareholder Impact: The panel discusses whether the token could be seen as diluting value for COIN stockholders. However, the consensus is that it's a strategic move by management to expand Coinbase's on-chain footprint.
• Securities Law: The token's design—specifically its rights to cash flow or governance—will determine its classification as a security. Max from Franklin Templeton notes the industry is moving past the fear of the Howey Test, a U.S. Supreme Court case used to determine if a transaction qualifies as an “investment contract” and is therefore subject to securities laws.

Valuing L2s and Digital Assets

• For investors and researchers, valuing an L2 token without direct cash flows presents a challenge. Max from Franklin Templeton offers a detailed look at how a major institution is building frameworks to solve this.
• Six-Factor Model: Franklin Templeton is developing a model to value digital assets across five sectors (cryptocurrency, smart contracts, DeFi, consumer culture, utility).
• The six factors include:
  • Quality: Total supply vs. circulating supply and inflation.
  • Daily Active Use: On-chain user metrics.
  • Size: Log of market cap.
  • Growth: Network-based factors.
  • Intangibles: GitHub activity, social media sentiment (analyzed with AI/NLP).
  • Momentum: Price trends.

The Global Competition and M&A Outlook

• The discussion broadens to the global “super app” race, where crypto protocols, fintech companies, and Big Tech are competing to control the end-user relationship.
• Telegram's TON: Nick Cary from Blockchain.com highlights Telegram as a formidable competitor, especially in global markets, with its integrated TON blockchain creating a seamless user experience for payments, gaming, and messaging.
• M&A Activity: The panel predicts a wave of acquisitions as traditional financial institutions and tech companies look to buy, rather than build, their crypto capabilities. Rahm Alawalia notes that smaller, reasonably priced companies from the 2021 cycle are prime targets.

The Privacy Paradox

• The panel debates the viability of privacy as a core value proposition in crypto. While the technology is well-suited for privacy-by-design, market behavior shows that most users prioritize convenience over data sovereignty.
• Nick Cary argues for the importance of privacy, stating, “You have to have privacy by design from the very beginning. It's not something you can bolt on later.”
• However, the limited adoption of privacy-focused projects like Monero and Zcash suggests that a mass-market demand for privacy has yet to materialize, posing a challenge for projects centered on this ethos.

Macro Outlook: The FOMC Rate Cut

• The episode concludes with an analysis of the upcoming FOMC meeting and the expected interest rate cut. The panel discusses its potential impact on risk assets like crypto.
• Market Expectation: The market has priced in a 91% probability of a 25 basis point cut.
• Impact on Crypto: While a rate cut is generally bullish for risk assets, the panel notes that crypto markets are also driven by powerful internal catalysts, such as Q4 seasonality, the Bitcoin cycle, and the supply-constraining effects of ETFs and Digital Asset Treasury companies (DATs).

Conclusion

The Base token represents a pivotal moment where crypto-native growth tactics meet institutional strategy. Investors and researchers must now monitor both the evolving U.S. regulatory landscape and the on-chain battle for user adoption, as these will define the next winners in the platform wars.