BASE Token Economics Proposal
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BASE Token Economics Proposal
BASE has entered a landscape where existing L2 tokens struggle to capture network value.
Navigating Web3 tides with focused insightsAuthor: Achim Struve, Outlier Ventures
Translation: AididiaoJP, Foresight News
Given that many of our portfolio companies are building on Base, we have a strong interest in the success of this ecosystem.
This proposal aims to build community by outlining a challenge to traditional L2 token design. It addresses the fundamental revenue vs. growth paradox through an adaptive quote currency mechanism. The BASE token represents an opportunity to redesign L2 economics from first principles.
BASE Token Discussion: Redesigning L2 Token Economics
Layer 2s face a fundamental economic challenge: competitive pressure to keep transaction fees low undermines revenue capacity. Base has achieved $4.95 billion in TVL, 1 million daily active users, and $5.1 million in monthly transaction fees primarily due to its native integration with Coinbase, competitively low average transaction fees of just $0.02, and deep integration with the broader EVM-based ecosystem.
This proposal outlines a potential solution for designing a token for Base. This is not merely about staying ahead—it’s about establishing leadership. The key recommendation is to reduce reliance on fee extraction as the primary revenue source. Combining a proven bribe-enabled quote currency mechanism with adaptive economics creates sustainable value capture for Coinbase, Base, and the BASE token.
Opportunities for the BASE Token
Traditional L2s focus on transaction fees while overlooking the main value drivers of successful crypto assets. As @mosayeri observed, "the crypto space has long misjudged the value accrual narrative for L1 assets, believing the primary driver to be transaction fees." The value of ETH and SOL stems primarily from being locked as quote currencies in AMM pools, rather than from gas fees.
This presents an opportunity for BASE to establish itself as the primary quote currency on whitelisted DEXs within the Base ecosystem. Instead of competing for diminishing fee revenues, BASE generates demand through real liquidity needs across trading pairs.
Quote Currency Mechanism
Users lock BASE tokens to receive veBASE (vote-escrowed BASE), which grants governance rights over the fee distribution algorithm. veBASE holders direct rewards to AMM pools that use BASE as their quote currency, with allocation ratios automatically adjusted based on network health metrics. Ecosystem growth directly increases demand for locked BASE tokens, as they are tied to liquidity incentives.
This system builds upon established quote currency concepts like those used by Virtuals, while incorporating vote-escrow voting mechanisms similar to Aerodrome—but without redistributing LP fees to voters. A portion of sequencer revenue is used to sustainably fund incentives for pools voted to be denominated in BASE. This remains effective even after the initial launch phase. Unlike static allocation models, dynamic fee distribution responds to real-time conditions via fine-tuned machine learning algorithms. These algorithms analyze network utilization, DEX volume patterns, and ecosystem growth indicators to determine overall incentive emissions.
This mechanism will trigger liquidity competition akin to Curve Wars, where protocols accumulate BASE governance tokens to secure liquidity incentives. As the Base ecosystem expands, more protocols require BASE liquidity, reducing circulating supply and creating natural demand pressure. At the same time, this approach enables large-scale token swaps with leading protocols already established on Base, further strengthening decentralized ownership within the ecosystem. Base can use tokens from other ecosystems to bootstrap its own BASE-denominated liquidity pools. Transaction fees collected from protocol-owned liquidity can serve as a sustainable long-term revenue stream.
Adaptive Economic System
Current L2 token designs use fixed allocation schedules that cannot respond to changing market conditions. BASE introduces a sophisticated adaptive system that goes beyond simple fee adjustments like Ethereum's EIP-1559.
Building on earlier published adoption-adjusted vesting principles, BASE implements a dynamic emission schedule across two strategic allocation pools that respond to ecosystem demand signals:
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Distribution-focused allocation pool (Coinbase strategic reserve, protocol treasury, community and users): Receives increased emissions during periods of strong KPI performance, optimizing value distribution when adoption is high.
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Growth & Build allocation pool (ecosystem fund and builders, validators, and infrastructure): Receives increased incentives during periods of weak KPI performance, stimulating development and network security when additional support is most needed.
The Growth & Build allocation pool includes all quote currency pool incentives, distributed via the ecosystem fund to protocols using BASE as their primary trading pair. This directly aligns the adaptive emission system with quote currency value capture.
Emissions never reach zero within any allocation pool’s vesting period; the system adjusts relative weights between pools based on market conditions and ecosystem health. Machine learning models analyze multiple factors to prevent governance bottlenecks while ensuring optimal stakeholder alignment across market cycles.
BASE Token Allocation Framework
Example of BASE token allocation and maximum vesting duration; actual vesting periods may vary depending on precise adaptive emission parameters.
Key Features:
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Adaptive Emission System: All allocations use dynamic schedules—distribution-focused pools receive higher emissions during strong adoption, while growth & build pools receive boosted incentives during downturns.
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COIN Shareholder Alignment: Coinbase’s 20% strategic reserve creates direct value alignment without regulatory complexity.
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Progressive Decentralization: Validator incentives (20%) ensure network security during launch, while community allocations support sustainable decentralized ownership of the BASE token.
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Balanced Development: Equal weighting between community rewards and ecosystem development ensures success in both user adoption and builder retention.
Final allocation requires extensive token engineering analysis, legal review, and community input to achieve economic sustainability, regulatory compliance, and user alignment.
Strategic Value and Impact for Coinbase
Base tokenization represents a fundamental shift toward revenue diversification. While Base currently generates modest sequencer fees (kept low for competitive reasons), tokenization could immediately create over $4 billion in value through strategic reserve holdings.
The current model faces limitations. Brian Armstrong has highlighted the emphasis on low fees, recognizing that higher fees would push users toward competitors offering token incentives—creating a revenue vs. growth paradox.
Tokenization breaks this paradox by shifting incentives from fee extraction to ecosystem acceleration and value accumulation. The 20% strategic reserve aligns Coinbase’s interests with Base’s long-term success while eliminating pressure to maximize fees. Token emissions fund growth without impacting the balance sheet, enabling competitive rewards that match those of other L2s.
The strategic impact extends beyond immediate returns through multiple revenue diversification opportunities. Tokenization allows Coinbase to offer institutional custody services for BASE holdings, generating recurring custody fees while positioning itself as the primary institutional gateway to BASE exposure. Integration with Coinbase One reduces customer acquisition costs by offering BASE rewards, discounts, and platform privileges to subscribers, creating stickier customer relationships and higher lifetime value.
Allocation Strategy
The allocation strategy should balance Coinbase’s user base with participants in the Base ecosystem. While @Architect9000 suggests "airdropping only to Coinbase One members" as an anti-Sybil mechanism and for customer alignment, fair distribution requires including active on-chain Base users and verified builders from the Discord community.
Roles earned in the Base community Discord server can be used to measure user consistency and commitment, linked to individual BASE airdrop allocations.
This dual approach ensures both CEX user retention and genuine L2 ecosystem participation.
Tokenization positions BASE as institution-grade collateral bridging TradFi and DeFi. As @YTJiaFF pointed out, "with COIN backing, the BASE token will become a secure bridge connecting public companies with crypto assets." Institutions can custody their BASE holdings with Coinbase while using these assets as on-chain collateral in DeFi protocols and off-chain collateral in traditional credit markets. This dual-collateral functionality creates the first crypto token specifically designed for corporate credit markets, allowing traditional financial institutions to access crypto liquidity while maintaining regulatory compliance through established custodial relationships.
The Path to Progressive Decentralization
The transition follows a three-stage approach that balances innovation with stability. As @SONAR observed, Base has achieved "Stage 1 decentralization out of 3 stages," and "once Stage 2 arrives, it will require paying third-party sequencers," making tokenization strategically necessary.
Stage 1: Coinbase retains sequencer control while launching token incentives and community governance for fee distribution. In this controlled environment, the quote currency model is validated through basic KPI-driven incentive distribution.
Stage 2: Hybrid model with an initial set of decentralized validators requiring BASE staking, while Coinbase retains 3 permanent seats to ensure transitional stability. This stage introduces prediction market governance (Futarchy), where veBASE holders bet on implementation success—proposals proven by markets receive fast-track approval.
Stage 3: Full decentralization with open validator participation and complete community control. Coinbase transitions to a regular network participant while maintaining strategic token holdings. Advanced cross-chain MEV coordination becomes operational, and institutional credit markets expand into traditional finance.
Market Positioning and Competitive Advantage
BASE enters a landscape where existing L2 tokens struggle to capture network value. ARB, OP, and MATIC have underperformed ETH despite significant ecosystem growth, highlighting structural flaws in traditional L2 token design. These protocols face selling pressure from token unlocks without matching demand.
BASE’s quote currency model solves these structural issues by creating real utility demand through AMM quote liquidity deposits. This generates organic buy-side pressure that scales with ecosystem growth, moving beyond speculative utility toward essential infrastructure participation.
Competitive differentiation extends beyond token design to include regulatory clarity, institutional access, and enterprise-grade compliance. Coinbase’s regulatory expertise offers advantages unmatched by decentralized competitors, while the quote currency model provides a clearer utility definition, reducing securities classification risk.
Conclusion: A Defining Choice Between Fee Capture and Exponential Value
The core question is not whether Coinbase should launch a token, but whether they should capture limited fee revenue or create exponential value through tokenization.
The current revenue structure projects $180 million over three years (monthly $5 million x 12 months x 3 years). In contrast, strategic BASE tokenization could generate approximately $4 billion in combined value through:
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Quote currency demand
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Adaptive smart incentive distribution
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POL generating revenue comparable to current sequencer fees
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Ecosystem acceleration
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An additional $2 billion in valuation
This would result in a total value creation of around $4 billion (initial fully diluted valuation of $10 billion x 0.2 = $2 billion from allocation).
These are conservative estimates assuming valuations remain on par with other L2s, adjusted according to current fee and TVL data. Note that the Coinbase premium is not included.
This represents a significant value creation opportunity for Coinbase. The quote currency model resolves the growth vs. revenue paradox while positioning BASE as foundational infrastructure for the expanding Base ecosystem. Early dominance driven by this L2 token design creates a competitive advantage that can further strengthen Base’s leading market position.
For the broader crypto ecosystem, BASE tokenization could mark a maturation of L2 economics—moving beyond dependence on transaction fees toward genuine utility-driven value capture. As @jack_anorak observed, "The BASE token is a product decision—Base needs token incentives, and it must be neutral blockspace."
Coinbase’s choice between constrained fee capture and exponential tokenized value represents a defining moment that will shape BASE’s trajectory and Coinbase’s standing in the crypto industry.
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