Base defends moving sequencer fees to Coinbase custody for 'security and audit' reasons

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

This move has sparked debates within the community about the management and use of such funds. Santisa, the pseudonymous chief investment officer of Lucidity, first noted on X that Base has been sending its entire sequencer fees to the Coinbase exchange.

Santisa supported these claims with Etherscan data showing 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.

Traditionally, sequencer fees are used for network maintenance and development. However, the transfer of these funds to Coinbase has sparked criticism.

Andre Cronje, co-founder of Sonic Labs (a blockchain competitor to Base), questioned how Base as a Layer 2 could be considered “Ethereum aligned” when the fees generated were not kept on-chain for the benefit of the network or its users.

Cronje noted the significant amount of fees generated ($120 million) versus what was paid to Ethereum for data availability and security ($10 million), claiming that the majority of this revenue was being moved off-chain to Coinbase — the company that incubated Base.

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, primarily for “security and auditing purposes.”

Coinbase holds over $300 million worth of 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 re-investing 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 reached out to Base for further comments.