Ark: Coinbase and Robinhood compete to tokenize financial markets

By Lorenzo Valente, Frank Downing, and Raye Hadi, Ark Invest; Translated by Golden Finance

Ethereum Layer 2 solutions are execution environments designed to enhance Ethereum's scalability through off-chain transaction processing and leverage its strong security through on-chain transaction settlement. These blockchains, built on Ethereum, have their own ecosystems—including applications, liquidity, and users—and pass compressed transaction data to Ethereum's Layer 1 for settlement verification. Layer 2 is crucial to Ethereum's scaling vision, aiming to meet global demands and use cases, from DeFi to microtransactions, while ensuring network security.

Last year, Coinbase's Base, one of the more noteworthy Layer 2 platforms, generated approximately $89 million in revenue—only 14% of which went to Ethereum. Base's revenue primarily comes from sequence fees (also known as base fees) paid by users for transactions. Despite this, Base faces competition, particularly from projects like Robinhood's announced L2, Kraken's L2 Ink, the Securitize/Ethena-backed blockchain Converge, and Worldcoin. Both Coinbase and Robinhood have chosen technology stacks that offer out-of-the-box infrastructure and ease of deployment, using Ethereum as their primary blockchain technology. Base enjoys a first-mover advantage thanks to its growing user base and strong network effects. Robinhood, on the other hand, may have an advantage in tokenization, leveraging its extensive stock offerings to bridge the gap between traditional finance and blockchain infrastructure. Both Coinbase and Robinhood firmly believe that financial markets will be reshaped on-chain, and their rapid development of L2 platforms is a strategic move to seize the lead. With technology stacks tailored for on-chain opportunities, both companies are committed to building scalable and seamless platforms while navigating the complex regulatory landscape. Coinbase's ecosystem is more aligned with this opportunity, while Robinhood uses its superior user interface as a competitive advantage.

Ultimately, success will depend on which platform can simplify the complexity of cryptocurrency and provide a better user experience. As the Layer-2 landscape evolves, the competition between Base and Robinhood will drive innovation in on-chain finance.