Base Justifies Routing Sequencer Fees to Coinbase Custody

Base, an Ethereum Layer-2 scaling solution, has faced scrutiny over issues related to transferring its sequencer fee earnings to the crypto exchange Coinbase. Santisa, the pseudonymous chief investment officer of Lucidity, highlighted the problem in an update on X.

Controversy Over Fee Transfers

Notably, Base processes transactions via sequencer, and users pay fees for this sequencer. The fees have reportedly been sent directly to Coinbase.

According to Santisa, there have been frequent transfers of Ethereum (ETH) amounts sent from the Base sequencer wallet to Coinbase. The most recent transaction involved the transfer of 240 ETH.

However, Santisa maintains that it is unclear whether the fees were being reinvested. “We don’t know if they sold, but we do know they didn’t deploy those funds on Base or keep them on-chain,” he wrote.

The post suggests that Coinbase has not reinvested the collected fees back into Base as a form of network incentives. Instead, the funds have been moved off-chain, where they might have been converted into fiat or utilized elsewhere.

Decentralization vs. Centralized Control

Santisa argues that the lack of transparency opens room for assumptions on the part of community members. Some believe that the fees have been “sold” for profit.

Analysts say if the fees were sold for profit instead of being it to grow the Base ecosystem, then they have gone against the broader principles of Ethereum.

Overall, the emphasis is on the lack of transparency on the part of Coinbase. The criticism is that Ethereum prioritizes decentralization while keeping value within the ecosystem. However, the way Coinbase has handled Base’s fees looks more centralized.

Base Personnel Counters Accusations

In a swift response, Kabir Sadarangani, the Base’s Strategy Personnel, clarified the situation. According to Sadarangani, the fees were sent to Coinbase for off-chain custody solely for security and auditing purposes.

Sadarangani explained that Coinbase has accumulated over $300 million in ETH, representing over twice all of Base’s ETH earnings over time. He maintained that all profits have been reinvested into growing the platform.

He urged community members to disregard the FUD message and join in building for long-term growth.