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Base, an Ethereum Layer 2 scaling solution developed by Coinbase (NASDAQ:COIN), faced criticism after it was revealed that the platform has been transferring all its sequencer fee earnings to Coinbase.
The issue was first brought to light by Santisa, the pseudonymous chief investment officer of Lucidity, who cited Etherscan data to support the claim. According to these records, the Base sequencer wallet has been making regular ether transfers to Coinbase, with a notable transaction of 240 ETH recently.
Base operates on the OP Stack and is designed to offer developers a platform for applications that benefit from low transaction fees. Sequencer fees, in this case, are the costs associated with processing transactions on Base before they are batched and posted to the Ethereum mainnet.
Typically, these fees are allocated for network upkeep and advancement, but the redirection of funds to Coinbase has sparked concerns about transparency and whether corporate gains are being prioritized over the network’s interests.
Andre Cronje, the co-founder of Sonic Labs, a competitor to Base, expressed skepticism about Base’s alignment with Ethereum’s principles. He highlighted the disparity between the sequencer fees collected (approximately $120 million) and the amount paid to Ethereum for data availability and security ($10 million), suggesting that the bulk of revenue was being transferred off-chain for Coinbase’s profit.
In response to the controversy, Base’s strategy team member Kabir Sadarangani addressed the community’s concerns. He explained that the fees were sent to Coinbase for secure, off-chain custody, with the intention of ensuring security and facilitating audits.
Sadarangani also pointed out that Coinbase’s ETH holdings, valued at over $300 million, exceed twice the total ETH earnings of Base over time.
The Base team insists that they are reinvesting all their earnings back into the Ethereum ecosystem. Sadarangani emphasized Base’s commitment to Ethereum, detailing their expenditures on Layer 1 costs, the denomination of external grants in ETH, and their ongoing efforts to move more of Base’s operations on-chain.
This statement was intended to reassure the community of Base’s dedication to supporting the growth and development of Ethereum.
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