Coinbase’s layer-2 network, Base, has been at the center of controversy over allegations of selling its Ethereum (ETH) holdings. Concerns were raised by members of the crypto community over the weekend, pointing out that Base has been directing sequencer fees to Coinbase, leading to questions about transparency and potential ETH sales.
However, Base strategist Kabir Sadarangani swiftly refuted these claims, stating that the accusations of lack of transparency and potential ETH sales were unfounded.
The allegations stemmed from observations made by Santisa, the CIO of investment firm Lucidity Cap, who highlighted that Base has been sending all sequencer fees to Coinbase since its inception. He raised concerns about the lack of deployment of these funds on Base or on-chain, suggesting that the lack of transparency could imply that the funds were sold. Sonic The Assistant further analyzed the situation, revealing that the network’s sequencer operations generated a significant profit margin, with all related ETH being transferred from Base to Ethereum and then to Coinbase.
The speculation was fueled by discrepancies in Coinbase’s financial reports. Before Base’s launch, Coinbase held around 118,924 ETH, which only saw a slight increase to 119,696 ETH by Q4 2024. This raised questions about the whereabouts of the significant amount of ETH generated through sequencer operations.
Andre Cronje, the co-founder of Sonic Labs, also criticized Base’s approach, questioning whether the platform operated as a centralized corporate blockchain under Coinbase rather than a truly Ethereum-aligned layer-2 network.
In response to these concerns, Sadarangani defended Base’s financial practices, emphasizing that earnings are reinvested in Ethereum’s ecosystem rather than being liquidated. He clarified that Base and Coinbase collectively hold over 100,000 ETH, making them the largest public company holders of ETH.
Addressing transparency issues, Sadarangani explained that Base utilizes off-chain custody on Coinbase for security and auditing purposes. He reassured the community that the ETH generated is used for operations and grants rather than for liquidation. The goal is to transition more costs to be covered in ETH while increasing on-chain activity.
Sadarangani emphasized that any ETH converted to USD is minimal compared to the overall holdings and the broader Ethereum market. He reiterated Base’s commitment to long-term ecosystem growth over short-term financial gains.
Overall, Base’s denial of the allegations and their commitment to transparency and ecosystem development aim to reassure the crypto community about the network’s integrity and intentions.