Forecast: DeFi summer 2.0 ahead, with a chance of thunderstorms

Could Coinbase's Layer 2 network Base be kicking off the second DeFi Summer? Early signs are promising in terms of activities and cross-chain bridge transactions, but will it be enough to get things moving?

Just how big was Base’s launch, let’s run the numbers:

$162 million - the recorded value bridged to Base on the day of its official launch, surpassing Mantle's $67 million and Linea's $47 million, as recorded by Dune Analytics. Mantle and Linea are two other Layer 2s that went live in the past month.

$200 million - the volume of new DEXes on the chain on a 24-hour basis over the July 29th weekend for altcoin traders.

$100 million - the all-time-high market capitalization of now-rugged BALD,  a meme coin inspired by Coinbase founder Brian Armstrong.

100 protocols - the number of partners launched by Base, over 20 of which have $100,000 or more in total value locked (TVL) according to data from DeFiLlama.

Base's strong start, showing high trading volume, a diverse range of protocols, open and permissionless design, and appeal to casual traders all remind us of the characteristics of the first DeFi Summer in 2020. This similarity suggests the possibility of experiencing another period of significant growth and excitement in the DeFi space.

Based boys setting the summer stage

However, even before the whole Base launch kicked off, there's been a crazy amount of action happening in the DeFi world, triggered by the relatively low swings in the prices of Bitcoin.

Before the recent drop to 26,000 levels last week, CoinDesk reported that with the exception of a brief, Ripple-related, mid-July move up to $31,800, bitcoin has traded in an increasingly tighter range for the past six weeks, its price mostly sticking between $29,000-$30,000, and then for the past few days rarely moving out of the $29,000-$29,500 area.

As WOOFi Marketing Lead George Heath explained, because of the lack of fluctuations in the prices of Bitcoin, traders are venturing into DeFi in their droves, throwing money at micro market cap shitcoins in the hopes of pulling wild returns. As crypto traders seek higher returns, they are turning to higher-risk plays, and Base offers these opportunities, being a new ecosystem. This is even though new ecosystems tend to have rug pulls.

“It’s like playing on a slot machine in a never-sleeping casino - you can win the jackpot if you’re lucky enough to land upon an early-stage gem like UNIBOT, but more often than not the house wins from 5% buy/sell tax and you’re the one left holding a bag of worthless vaporware,” Heath said.

Haseeb Qureshi told Unchained Podcast that these same degens propelled the volume on Base’s launch. “It looks like the activities are pretty strong on Base. It seems like a lot of activity on top of Base is meme coins, lots of farming lots of degenerate excitement,” he noted.

Unibot intensifying shitcoining

Heath noted that these crypto degens are a tight-knit crew and have a unique trading behavior. They're all about sharing tips, tricks, and hot investment leads in places like Telegram groups and online hangouts.

“I think we owe much of this resurgence in shitcoining to Unibot. Before it came along, the user experience of apeing into low caps was excruciating- like using [a] dial-up connection at your nan’s house back in the early 2000s. Unibot however is like surfing the web on a Chromebook, and its faster speeds and extra tools are feeding the addiction of on-chain investors who believe they’re just one snipe away from the next 100x” Heath noted.

Related insights: Do Telegram trading bots deliver on their promises of convenience and profit?

So how is Base's role pivotal for DeFi Summer 2.0?

To say that Base started tons of activities on DeFi would be wrong, but it is igniting the heat, thanks to its unique features that make it appealing, apart from being owned by Coinbase.

Alignment with Ethereum: Unlike typical Layer 2 solutions, Base does not have its own network token. This design choice is in line with its philosophy of remaining closely connected to the Ethereum ecosystem. Base seeks to attract Ethereum developers and users by replicating Ethereum's features and capabilities.

Utilization of widely-adopted OP Stack: Base is constructed using the OP Stack, which is widely adopted among Layer 2 developers working with optimistic rollups within the Ethereum ecosystem. By leveraging this technology, Base ensures compatibility and interoperability with other Layer 2 solutions.

Collab with OP Labs to be a super chain: The development team behind Base works closely with OP Labs, the core developers of OP Stack. This partnership underscores Base's alignment with a broader vision of creating an interconnected “superchain" of Layer 2 solutions.

The allure of lower transaction fee sharing: Base developers have committed to distributing the network's transaction fees to the Optimism Collective. This collaborative approach emphasizes Base's integration into the larger Ethereum ecosystem and its cooperative efforts to foster the growth of Layer 2 technology.

“It takes a long time to get any traction at all. I think people sort of preemptively migrated to Base, on the expectation that Coinbase will make it successful - attract developers and attract a lot of new applications, use cases, and integration with Coinbase, the exchange, in novel ways”

“I think this is demonstrating the brand that Coinbase has built. [That] alone is selling the dream for a lot of users. If this was a product of like a random developer team, I don't think you would see any similar activity or usage,” said Robert Leshner in Unchained Podcast.

Is it really because of Base though?

Base's rapid growth may be influenced by fake users and manipulated data, which can skew reported metrics like active addresses and transaction volumes. This could distort the true popularity and success of the platform, raising doubts about its credibility and the authenticity of user engagement.

For example, there were reports that this rapid growth might be fueled by Sybil attackers and airdrop farmers. Blockworks reported that Base's active addresses of 100,000 compared to Ethereum's nearly 430,000 raises skepticism.

“On its face, it’s unlikely that Base has already managed to capture a quarter of the active addresses on Ethereum. What’s more, the number of active addresses isn’t the same as the number of active users. This raises the possibility that a portion of those addresses are managed by Sybil users,” the report noted.

“I would be very cautious about the user numbers, it's clearly not 100,000 users…[with] the benefit of Coinbase, I would be very curious to see the numbers like how many Coinbase wallet trade on Base because that would be a pretty good metric. That’s [how] it can position itself [for] success,” Wintermute CEO Evgeny Gaevoy told Unchained Podcast.

During the Unchained Podcast, speakers highlighted a crucial concern about Base's absence of policing and the absence of fraud-proofs. On the other hand, the Binance BNB chain has a form of fraud protection, although its current system appears to be primarily geared towards addressing potential bridge hacks.

It is also noteworthy to mention that despite a successful launch, the prices of COIN and OP did not see an increase.

What we did last summer

The DeFi Summer of 2020 thrived due to yield farming, token incentives, DEX popularity, rising crypto interest, and speculative excitement, resulting in remarkable growth and enthusiasm.

Notably, it was marked by the release of truly innovative dApps for the first time. Uniswap stood out by introducing the revolutionary concept of Automated Market Makers (AMMs) that enabled users to swap cryptocurrencies without relying on traditional order books, instead utilizing liquidity pools to facilitate seamless and decentralized exchanges.

Does DeFi Summer 2.0 need that same level of groundbreaking innovation? Looking at the current scenario, yield farming and speculative excitement seem ticking off the next summer while Base is carrying the weight in terms of an innovative player.

So the DeFi Summer 2.0 is happening but it’s different

Heath said DeFi Summer is playing out again, but this time it's different in nature.

“There’s a host of Layer 2s set to transition out of testnet in the next 12 months, and as they do, we’ll see the same extreme inflows of capital into them just like we saw with Base. That’s because each ecosystem tends to have its own meme token, and speculators want to place bets in the hope they pick the right one before it goes parabolic in price. It doesn’t matter that Bald rugged, we’ll likely see similar scenarios unfold again soon because CT has a short-term memory and there is vastly more greed than there is fear,” Heath noted.

As an indicator of increasing activity, Shiba Inu's Ethereum Layer-2 blockchain, Shibarium, is going live, aligning with the push for DeFi expansion. The eagerly anticipated Shibarium network garnered over 21 million wallets during its testnet phase and is poised to establish Shiba Inu as a substantial player in the DeFi landscape.

As reported by CoinDesk, Shibarium aims to attract users to a low-fee environment with a primary focus on financial services and gaming. Operating on Ethereum's layer-2, the network will leverage tokens like BONE, TREAT, SHIB, and LEASH for its blockchain applications, potentially driving up their values through heightened demand.

What matters most is composability

Base features, focusing on composability, has the potential to be a driving force in reigniting DeFi Summer, as it enhances interoperability and brings widespread benefits to the ecosystem where advances in one area benefit the entire ecosystem due to interoperability. This creates a hidden network effect that consistently improves the DeFi space.

Illustration by Bold Leonidas https://twitter.com/boldleonidas

As blockchains continue to emerge and expand, interoperability remains a critical consideration in deciding what makes a blockchain successful. With this, WOOFi took the position to become a first-mover as we recognized the potential of Base, and what it could do for not only us but also the whole on-chain ecosystem.

Not only removing high barriers of entry for users but also addressing practical challenges associated with conducting cross-chain transactions, WOOFi is committed to promoting the exploration of diverse decentralized ecosystems.

Sustained summer or at least longer-lasting, remains to be seen.

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