Ethereum layer-2 platform Base sees 90% profit drop amid 80% transaction increase, influenced by Ethereum blobs and Dencun hard fork.
Base, an Ethereum layer-2 platform, has experienced a significant drop in profits despite a notable increase in transaction volume. This article breaks down the factors contributing to this financial shift and its implications for the platform and its operator, Coinbase.
Base has seen an impressive 80% surge in transactions, indicating a high level of activity and user engagement on the platform. However, this increase in transactions has not translated into higher profits. In fact, Base's weekly profits have plummeted by over 90%, dropping from an average of $5.6 million to around $407,000.
The introduction of Ethereum blobs with the Dencun hard fork in March is a key factor in this profit decline. Ethereum blobs have reduced median layer-2 fees, making transactions cheaper for users. While this fee reduction has boosted transaction volume, it has also made operating a layer-2 platform like Base less profitable.
Additionally, the Dencun hard fork has turned ETH into an inflationary asset, further impacting the financial dynamics of the platform. This change has added another layer of complexity to the profitability equation for Base and similar platforms.
Coinbase, the operator of Base, has managed to remain profitable despite the significant drop in profits from the platform. This resilience can be attributed to Coinbase's diversified revenue streams and its ability to adapt to changing market conditions. However, the situation highlights the challenges faced by layer-2 platforms in maintaining profitability amidst evolving technological and economic landscapes.
While lower transaction fees can drive user engagement, they can also impact the financial sustainability of the platform. For platform operators, the challenge lies in balancing user growth with profitability. Innovations like Ethereum blobs and hard forks can have far-reaching implications, necessitating strategic adjustments to maintain financial health.
