Key Points
- Base, a Layer 2 scaling solution, has refuted allegations of selling its Ethereum holdings and reaffirmed its commitment to the Ethereum ecosystem.
- The claims arose after observations of fund movements from Base to Coinbase, sparking concerns over undisclosed transactions.
Base, a Layer 2 scaling solution, has denied claims that it has been selling its Ethereum holdings. Rumors had been circulating that the company was transferring all its sequencer fee earnings to Coinbase.
A member of the Base team, Kabir, dispelled these rumors, stating that the project is dedicated to the growth of the Ethereum ecosystem. He emphasized that all earnings and resources are reinvested back into the project.
Origins of the Allegations
The allegations originated from Santisa, the pseudonymous CIO of investment firm Lucidity Cap. He claimed that Base had been sending all its sequencer fees to Coinbase since its inception.
Santisa expressed concern that the funds were not being used on Base or kept on-chain. He suggested that the lack of transparency made it seem plausible that the funds were being sold.
Analyzing On-Chain Data
A Sonic Assistant analysis on X suggested that Base operates with a 90% profit margin on its L2 sequencer, generating over $100 million in ETH. The data showed that all sequencer-earned ETH was moved from Base to Ethereum and then to Coinbase’s exchange.
However, Coinbase’s financial reports show that only 772 ETH, worth around $2 million, has been added to its balance sheet since Base’s launch in August 2023.
A recent transaction of 240.35 ETH to Coinbase has added fuel to the speculation about undisclosed fund movements. Andre Cronje, co-founder of Sonic Labs, had previously criticized the Layer 2 model, arguing that networks with centralized sequencers generate significant fees while contributing only a small fraction to Ethereum’s security and data availability.
Base’s Commitment to Ethereum
In response to these claims, Kabir stated that Base and Coinbase collectively hold over 100,000 ETH, valued at more than $300 million. This makes it the largest Ethereum reserve among publicly traded companies and Layer 2 organizations.
Kabir explained that Base uses off-chain custody for security and auditing reasons, which is why assets are transferred to Coinbase. He further clarified that Base prioritizes earning and spending in Ethereum, covering Layer 1 expenses and issuing grants in ETH.
While some off-chain expenses, such as salaries, are paid in USD, Kabir noted that the ETH converted for this purpose is minimal compared to their total holdings and the broader Ethereum market. Kabir reaffirmed Base’s commitment to long-term expansion, dismissing speculation as unproductive.
