In a recent development within the realm of Ethereum Layer 2 scaling solutions, a member of Base has addressed rumors circulating about the sequencer role of Coinbase and its purported sale of ether (ETH). The discussion was sparked by remarks from a pseudonymous observer, leading to clarifications regarding Base’s ETH holdings and operational practices.
Kabir.base.eth, a representative of Base, took to social media to assert that Coinbase has accumulated over $300 million in ETH, an amount that more than doubles all of Base’s ETH earnings to date. He stressed, “Base and Coinbase have and continue to hold ETH and publicly disclose our long-term holdings (100K ETH+, $300M+).” This firm stance aims to dispel any misconceptions about the financial activities of Base, particularly regarding the transfer and handling of ETH.
Furthermore, Kabir highlighted the fact that Base utilizes offchain custody for security and auditing purposes, explaining that this is why funds are transferred to Coinbase. He underscored the commitment of the Ethereum Layer 2 solution to utilize as much ETH as possible for operational expenses, including Layer 1 costs and ongoing support initiatives.
The concerns that prompted Kabir’s clarifications arose after Santisa, a pseudonymous observer, alleged that Base has been transferring all sequencer fees to Coinbase since its inception, speculating that the sequencer has likely sold these assets. This claim casts a shadow on the relationship between Base and Coinbase, particularly regarding the maintenance of decentralization and alignment with Ethereum’s broader values.
Coinbase serves a pivotal role as the only sequencer node on Base, responsible for sequencing and finalizing transactions in a specified order, thus improving transaction throughput and speed. In exchange for this critical service, Coinbase charges a fee collected in ETH, further complicating the narrative surrounding the distribution and usage of collected transaction fees.
The apprehensions expressed by Santisa resonate with previous concerns raised by prominent figures within the crypto community, including Andre Cronje, founder of Sonic Labs. Cronje has voiced his worries about the implications of centralized sequencers in Layer 2 solutions, suggesting that they may create profit models that do not align with the foundational principles of Ethereum.
In an ecosystem where Layer 2 scaling solutions generate considerable revenue from transaction fees, the process involves a delicate balance of sending a portion to the Ethereum mainnet for data availability and security. A significant portion of fees collected in ETH may either be retained or sold on the market, which could potentially decrease overall fee revenue and associated ETH burning on the mainnet, impacting ETH’s supply and inflation rates.
Cronje remarked on this phenomenon, stating, “L2s are why Ethereum is inflationary again. SCALE ETHEREUM. They can get the Sonic tech for free. 0 charge. Will 1000x their throughput.” His comments bring to light the ongoing debate regarding scaling solutions and their long-term sustainability and alignment with Ethereum’s core values.
As the conversation surrounding Coinbase and Base evolves, stakeholders in the Ethereum ecosystem will need to navigate the implications of centralized sequencers and their impact on the broader network, emphasizing the importance of transparency and alignment with Ethereum’s foundational goals.
