During a soft session in the equities market on Thursday afternoon, cryptocurrency exchange Coinbase (NASDAQ:COIN) saw shares jump conspicuously higher. Despite the virtual currency complex’s troubles, investors took encouragement at Coinbase’s release of Base, a layer-2 blockchain network. While expanding relevancies bolstered COIN stock, blockchain utility historically depends on underlying crypto sentiment, which currently rates as relatively weak.
Coinbase’s social media post states, “Base is an Ethereum L2 that offers a secure, low-cost, developer-friendly way for anyone, anywhere, to build decentralized apps.” Further, in the same post, the company added that “[its] goal with Base is to make onchain the next online and onboard 1B+ users into the cryptoeconomy.”
Specifically, Base represents an Ethereum (ETH-USD) layer-2 network co-developed by the Optimism (OP-USD) team. In summary, layer 2 represents a “…collective term to describe a specific set of Ethereum scaling solutions.”
Fundamentally, layer 2 underscores improvements from the original layer-1 blockchain architecture. However, while decentralized and secure, first-generation blockchains struggled with the scalability of exponentially rising demand. Layer-2 chains effectively imbue decentralized protocols with enhanced scalability.
Initially, COIN stock garnered intense intrigue because the underlying enterprise enabled greater conveniences for retail investors. Structured similarly to any popular stock trading platform, Coinbase fostered broader engagement. Now, the company aims to do the same for the blockchain developers’ community.
Nevertheless, the move carries both potential rewards and significant risks.
Relevancies for COIN Stock May Be at the Whim of Speculation
On the optimistic front, COIN stock has always enjoyed a burgeoning total addressable market. As excitement over cryptos builds, Coinbase provides an easy, intuitive mechanism for participation. By offering a similar convenience for blockchain architects, Coinbase may take on greater relevancies.
While estimates about decentralized applications (dapps) and the broader catch-all decentralized finance (DeFi) industry vary significantly, they all share significant upside potential.
For instance, Emergen Research stated that the dapps market reached a valuation of $10.52 billion in 2019. However, experts project that by 2027, this sector will command a market value of $368.25 billion. This represents a compound annual growth rate (CAGR) of 56.1% between 2020 and the forecasted period’s end.
On the other hand, Grand View Research estimates that the global DeFi market reached a valuation of $13.61 billion last year. Further, analysts anticipate that the segment will expand at a 46% CAGR from 2023 to 2030. At the culmination of the forecasted period, total DeFi revenue may hit $231.19 billion. Either way, it’s a massive addressable market that presumably should help COIN stock.
However, it’s not a clearcut catalyst. Unfortunately, dapps tend to decline as cryptos enter a bearish cycle. Five years ago, NewsBTC noted that as virtual currencies extended their losses following the late 2017/early 2018 implosion, dapps suffered from decelerated engagement.
Fast forward to last December, crypto publications reported that blockchain developers decreased by nearly 60% in 2022 due to bear market conditions. In other words, utility and capitalization — though completely different vehicles – eventually merge into the same lane.
Why It Matters
Another factor to remember regarding COIN stock and its viability centers on public trust. With the implosion of the once-popular platform FTX, investors may be cautious about crypto-related endeavors. Thus, prospective traders must exercise extreme caution.
On the date of publication, Josh Enomoto held a LONG position in ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.