A few days ago, I read about a concept in Japanese philosophy: basho (場). Roughly translated as "place," but philosopher Kitaro Nishida imbued it with meaning far beyond a geographical location; it's more like a circumstance: a field within which all things can become themselves. In other words, people don't appear in a place by chance, but are shaped by the place they inhabit. Today, I'll use this theory to interpret Base. Last month, its active address count plummeted to an 18-month low. Reflecting on this phenomenon, I realized that Base merely built a location, never creating the conditions for things to grow and take shape. When Coinbase launched Base in 2023, the crypto-native community experienced a rare surge of faith. Everyone believed it could finally solve Ethereum's oldest problem: infrastructure everywhere, but no real users. Coinbase, with 100 million users and unparalleled distribution capabilities, possessed a unique advantage. The door opened, and users were already waiting outside. For a time, this confidence seemed validated. Base's growth rate surpassed all previous Layer 2 deployments. In October 2025, its total value locked (TVL) reached $5.6 billion, and its fee revenue was unmatched in the entire L2 blockchain space. Therefore, in September 2025, Base confirmed the issuance of its token, seemingly foreshadowing an experiment destined for success. Yes, a place was turning into a basho. Then, the users left. The data makes it clearer: Base's active addresses returned to the levels of July 2024. The token issuance expectation perfectly met the needs of those who would "airdrop": get their last reward and then leave. Base's bet on the creator economy in 2025 also failed. Its core is the Zora protocol, which defaults to tokenizing content. By the end of the year, 6.52 million creator and content tokens had been issued on Base via Zora, of which only 17,800 remained consistently active throughout the year, accounting for 0.3%. The remaining 99.7% were ignored. Base's daily active addresses peaked at 1.72 million in June 2025. By March 2026, only 458,000 remained, a 73% drop from its peak. After Armstrong announced in September 2025 that Base was considering issuing its own token, active addresses decreased by 54% within just six months, indicating a complete exodus of speculative capital. Sociologist Ray Oldenburg studied what makes people repeatedly return to a place regardless of reward. He called these "third spaces," such as bars, barbershops, and city squares. These are not highly productive spaces, yet they provide a reason to return, unrelated to incentives. The core idea is that the desire to return cannot be artificially created; it can only grow naturally from the long-term possibilities offered by the place.The cryptocurrency industry designed its marketplaces to exploit users, only to wonder why no one stays. This is the place of no basho: people pass by, take what they need, and leave because there's no cost to leaving. No identities are formed, no ability to replicate elsewhere within three weeks is established, nothing makes leaving a loss. Are there unique relationships on this chain? We've never built things this way, have we? You can't build a basho with financial incentives. Incentives can certainly pull people in, but they can't make them want to stay. The desire to stay must come from the long-term potential nurtured by the marketplace. Kitaro Nishida calls this "site logic," referring to how the relational field shapes what emerges within it. The crypto industry designed marketplaces for exploitation, only to be surprised to find that all that was born was exploitation. Brian Armstrong publicly stated that Base App is now focused on becoming Coinbase's self-custodial, trading version. The vision of building social stickiness and allowing users to establish worthy identities on-chain for social interaction and creation has vanished. From a data perspective, this was a rational decision, but it also acknowledges that this vision never truly materialized. Base has a place where it now focuses solely on serving past users, because that's all it can offer. Base is the most striking microcosm of the entire L2 model. Since June 2025, the overall usage of small and medium-sized L2s has declined by 61%. Most chains outside the top three have become zombie chains: active enough not to shut down, but too deserted to be significant. The daily active user ratio of L2 relative to L1 has dropped from 15 times in mid-2024 to 10–11 times today. Most new L2s experience a complete collapse in usage after their incentive cycles end. The entire L2 ecosystem is cooling down, not just Base. The Rollup-centric roadmap was once a theory about user adoption: lower entry costs → user influx → ecosystem formation → compound growth. The Ethereum Foundation released a 38-page vision document this year outlining Ethereum's future direction. Meanwhile, the largest L2 has bottomed out in activity and left the OP Stack, while the second largest L2 has stagnated. Lowering entry costs does not equate to creating the conditions for things to take shape. The industry solved the "entry" problem, but assumed that "belonging" would follow. It won't happen automatically, because belonging isn't a feature that can be launched. Farcaster is the closest the crypto world has come to building a basho. Because a specific group of people built a specific culture on it: developers share their work, discuss Ethereum, and form opinions about each other over months.This takes time, and competitors can't replicate it with higher rewards. Friend.tech tried the same incentive mechanism, reaching the top in a week and disappearing in a month. The same mechanism failed to cultivate a culture. The difference isn't in the product, but in whether people stay long enough for something to truly take shape. What truly retains users? Chains that retain users during a downturn don't rely on more generous incentives. Arbitrum's daily active addresses peaked at 740,000 in June 2024, but now stand at 157,000, a similar 79% drop. Both chains are declining, but their underlying logic is completely different. Base users log in to trade, and they leave when trading volume decreases. Arbitrum users, however, are unaffected by fee levels; the correlation between user numbers and fee revenue is almost zero. Base attracts tourists, while Arbitrum somehow retains its users. Hyperliquid's stability stems from its unique trading experience, fostering a community identity unlike any other. Token incentives are almost irrelevant; being part of the community has become part of their behavior and identity. Things shape users, and users, in turn, shape things. The crypto industry is still optimizing "how to get people to come," while the question of "how to create an environment" is only ever thought about after data crashes, never considered in the initial chain design. I believe Base has the strongest distribution capabilities in history and could have solved this problem better than any other chain. Currently, it's a transaction application. This is a reasonable product direction, but it's something over 40 products have already been doing. Transaction applications can't create bashos, they can only create sessions: users come in when they have a transaction need, and leave after completing it. To truly become a successful application, a continuous connection needs to be established. Users need to build a relationship between each visit, making the next visit feel like a return, not just an arrival. Armstrong's transformation is largely based on the lessons Base learned from data. Social layers, the creator economy, on-chain identity—these things that should have transformed Base from "being used" to "being a dwelling place"—all require patience, and the system doesn't reward patience. The Ethereum ecosystem needs Base to be more than just a transaction venue. The foundation of the entire L2 narrative lies in the fact that the chain can become the infrastructure around which people build their lives. If L2, the most powerful distribution platform in crypto history, ultimately settles for becoming a faster Coinbase, then this narrative itself falls apart. Kitaro Nishida argues that the deepest basho is where the boundary between self and place begins to dissolve. You cannot completely separate "who you are" from "where you are shaped."This sounds abstract, but on a public blockchain, it means: a user can't imagine their financial life without that blockchain; a developer's entire toolkit is built on a particular ecosystem; their identity is virtually nonexistent elsewhere. To my knowledge, something like this has never been built on any L2 blockchain. It might not even be possible to build it with an incentive program. Even if you have 100 million potential users, if there's nothing worth keeping, it will eventually just disappear. Base understands now. [Foresight News]
Base’s Growth Dilemma: The L2 Ecosystem’s Identity Crisis
The recent revelation of Base’s declining user metrics – with daily active addresses plunging 73% from its peak of 1.72 million to just 458,000 – represents more than just a single project’s struggle. It epitomizes a fundamental crisis in the Layer 2 ecosystem’s value proposition and raises critical questions about the sustainability of blockchain-based platforms.
The Basho Paradox: Building Places, Not Communities
Base’s predicament perfectly illustrates what philosopher Kitaro Nishida termed the “basho” paradox: having built a physical “place” (infrastructure), but failing to cultivate the relational “field” that transforms mere location into meaningful destination. Coinbase brought unmatched distribution capabilities to Base – 100 million potential users at the doorstep – yet the project couldn’t convert this initial interest into sustained engagement.
The data tells a stark story: Base’s active addresses began declining sharply after the September 2025 token announcement, with a 54% exodus of speculative capital within six months. More damningly, its creator economy initiative via Zora resulted in 6.52 million creator tokens being issued, but only 0.3% (17,800) remained consistently active throughout the year. These numbers aren’t just disappointing; they’re indicative of a fundamental flaw in the incentive-driven approach that dominates crypto development.
The L2 Ecosystem’s Cooling: A Systemic Problem
Base’s struggles are not isolated but reflect a broader L2 ecosystem malaise. Since June 2025, aggregate usage across small and medium L2s has declined by 61%, with most chains outside the top three devolving into “zombie chains” – technically operational but functionally irrelevant. The daily active user ratio of L2s relative to L1 has fallen from 15:1 to 10-11:1, suggesting the initial excitement around Layer 2 solutions is fading.
This cooling challenges the core thesis of the “Rollup-centric roadmap”: that lower entry costs would naturally lead to user influx, ecosystem formation, and compound growth. The industry solved the “entry” problem but mistakenly assumed “belonging” would follow automatically. As Base’s experience demonstrates, belonging isn’t a feature that can be deployed; it must be cultivated organically over time.
Comparative Analysis: Base vs. Arbitrum vs. Hyperliquid
The divergent trajectories of Base, Arbitrum, and Hyperliquid reveal crucial insights about sustainable user engagement:
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Base: Functions as a transaction application where users arrive for specific needs and depart afterward. Its correlation between trading volume and user activity is near-perfect, indicating it has failed to establish reasons for users to return beyond immediate transactional needs.
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Arbitrum: Despite an even steeper 79% decline in daily active addresses from its peak, Arbitrum somehow retains its core user base. Notably, there’s almost zero correlation between its user numbers and fee revenue, suggesting its value proposition extends beyond simple transactional utility.
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Hyperliquid: Has achieved stability through a unique trading experience that has fostered a distinct community identity. Token incentives are nearly irrelevant; being part of the community has itself become a behavioral and identity marker.
The Farcaster Precedent: Culture as Moat
Farcaster stands out as the crypto industry’s most successful example of what the article terms “basho” creation. By enabling a specific group of developers to build a culture around sharing work, discussing Ethereum, and forming opinions over months, Farcaster created something competitors couldn’t replicate with higher rewards. This contrasts sharply with Friend.tech, which reached the top of app stores within a week but disappeared within a month using identical incentive mechanisms.
The difference isn’t in the product but in whether people stay long enough for authentic culture to emerge. As the article astutely notes: “The difference isn’t in the product, but in whether people stay long enough for something to truly take shape.”
Strategic Implications for Coinbase and the L2 Narrative
Coinbase’s recent strategic pivot – focusing Base on becoming a self-custodial trading platform rather than a social/creative layer – represents an admission that its original vision failed. This is a rational, data-driven decision but comes at the cost of abandoning the narrative that Base could transform from “being used” to “being a dwelling place.”
From a market perspective, this shift has significant implications. The entire L2 narrative was predicated on the idea that these chains would become the infrastructure around which people build their digital lives. If the most powerful distribution platform in crypto history ultimately settles for becoming a faster Coinbase, the L2 value proposition collapses. The Ethereum ecosystem needs Base to be more than just a transaction venue.
Investment Considerations and Market Outlook
For investors, Base’s dilemma offers several critical lessons:
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Token Incentives Are Not Sufficient: The market is becoming increasingly skeptical that token distributions alone can create sustainable ecosystems. Projects without authentic cultures will struggle to maintain post-valuation momentum.
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Community Moats Are Valuable: As seen with Farcaster and Hyperliquid, authentic communities that develop organically represent defensible moats that cannot be easily replicated through financial incentives alone.
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The L2 Landscape Will Consolidate: With most smaller L2s becoming zombie chains, capital will likely concentrate around projects that demonstrate genuine user retention capabilities beyond simple trading volume.
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Identity Solutions Will Gain Prominence: As the market recognizes the limitations of incentive-driven growth, on-chain identity solutions that help users establish meaningful digital presences will become increasingly valuable differentiators.
Looking ahead, the L2 ecosystem faces a critical juncture. Projects that can successfully transition from incentive-driven growth to community-driven development will likely emerge as the long-term winners. Those that cannot may find themselves in a cycle of perpetual token distribution to maintain relevance, with ever-diminishing returns on user acquisition costs.
The broader crypto market must come to terms with a fundamental truth: people don’t appear in a place by chance, but are shaped by the place they inhabit. Building successful blockchain platforms requires more than just robust infrastructure or generous incentives; it demands the creation of environments where authentic communities can flourish and where users can envision their digital futures.