Base Under Scrutiny for Transferring Sequencer Fee Earnings to Coinbase

Base, an Ethereum Layer 2 scaling solution incubated by Coinbase, has come under scrutiny for transferring its sequencer fee earnings entirely to Coinbase.

Base, a Layer 2 scaling solution incubated by Coinbase, has been criticized for transferring its sequencer fee earnings entirely to Coinbase.

According to Santisa, the pseudonymous chief investment officer of Lucidity, Base has been sending its entire sequencer fees to the Coinbase exchange. This claim is supported by Etherscan data, which shows regular transfers of varying amounts of ether, labeled from the “Base sequencer” wallet to Coinbase, with the most recent transaction involving 240 ETH.

Incubated by Coinbase, Base is a Layer 2 scaling solution built on the OP Stack, which aims to provide developers with a platform for applications with low transaction fees.

Sequencer fees are charges for transactions processed by the sequencer, which bundles transactions from Base to be executed in batches before posting them to Ethereum’s mainnet. These fees are traditionally used for network maintenance and development.

However, the transfer of these funds to Coinbase has sparked criticism, with some questioning the transparency and prioritization of corporate profits over network-centric benefits.

Andre Cronje, co-founder of Sonic Labs (a blockchain competitor to Base), commented on the matter, questioning how Layer 2 can be considered “Ethereum aligned” when the fees generated are not kept on-chain for the benefit of the network or its users but are being redirected to Coinbase for profit.

Cronje highlighted the significant amount of fees generated ($120 million) versus what is paid to Ethereum for data availability and security ($10 million), suggesting that the majority of this revenue is being moved off-chain to Base's parent company.

The criticism prompted Base’s strategy personnel Kabir Sadarangani to post a response on X. The Base team member clarified that the fees were sent to Coinbase for off-chain custody, mainly for “security and auditing purposes.”

Coinbase holds over $300 million in ETH, Sadarangani noted. “Coinbase has accumulated $300M+ in ETH, which is more than 2x all of Base’s ETH earnings over time.” He added that the Base team has been reinvesting all their earnings and resources into growing Ethereum.

“We spend ETH on L1 costs, we denominate all of our external grants in ETH, our goal is to continue to move more of Base’s costs to function in ETH, and we are working hard to move more of our operations onchain,” Sadarangani further wrote.

The Block has approached Base for further comment.