Coinbase’s Base Under Fire for ETH Fee Handling Controversy

Community Questions Base’s ETH Practices Amid Transparency Concerns

Accusations have surfaced against Base, Coinbase’s Layer-2 network, with critics alleging that the platform has been offloading all Ethereum (ETH) collected from transaction fees instead of reinvesting in Ethereum’s ecosystem as previously suggested. 

The controversy gained traction after Yearn Finance founder Andre Cronje publicly criticized Layer-2 networks for profiting from Ethereum without adequately contributing back. His remarks pointed to Base as a prime example, citing its estimated $120 million in fees collected while only directing $10 million to Ethereum. Cronje framed the issue as a fundamental cause of Ethereum’s inflation, fueling skepticism about Base’s commitment to the broader network.

The debate intensified with on-chain analysis from Santisa, CIO of Lucidity Cap, revealing that since its inception, Base has funneled all sequencer fees directly to Coinbase. While it remains uncertain whether the ETH was liquidated, Santisa pointed out that the funds were neither deployed on Base nor retained on-chain. 

The lack of transparency in Base’s transactions has fueled speculation that the ETH was sold rather than reinvested. Further scrutiny arose after a transaction of 240.35 ETH—worth approximately $618,960—was transferred from Base to Coinbase amid the growing concerns, adding to suspicions that the network has been systematically offloading its holdings.

Financial data has only deepened the controversy. Despite Base accumulating over $100 million in ETH through sequencer fees, Coinbase’s ETH reserves have barely budged. Before Base’s launch in Q2 2023, Coinbase held 118,924 ETH, valued at roughly $230 million. 

By Q4 2024, that figure had increased by a mere 772 ETH—just around $2 million—raising questions about where the rest of the ETH generated from Base’s operations went. The stagnant balance conflicts with Base’s high revenue, leaving a critical gap in the numbers that has fueled distrust in the network’s financial practices.

Base strategist Kabir Sadarangani has attempted to counter the allegations, insisting that the ETH collected is being reinvested into Ethereum’s ecosystem. He emphasized that Base and Coinbase collectively hold over 100,000 ETH, positioning them as the largest public company holders of Ethereum. 

According to Sadarangani, Base’s ETH is retained off-chain for security and auditing purposes while the network aims to transition more of its expenses and grants to be denominated in ETH. While denying any systematic liquidation of ETH, he admitted that some conversions to USD occur, though he described them as minimal compared to overall holdings and market impact.

The controversy has drawn comparisons to Arbitrum, another major Layer-2 network, with Offchain Labs co-founder Steven Goldfeder highlighting a stark difference in approach. Arbitrum’s DAO holds nearly 20,000 ETH and has never sold any, instead opting to explore ways to use its holdings to enhance security and support Ethereum’s growth. 

This contrast has reinforced community perceptions that Base prioritizes profits over Ethereum’s long-term sustainability. The debate has since evolved into a broader discussion on the financial ethics of Layer-2 networks and their responsibility toward Ethereum’s development.

Despite Base’s reassurances, the concerns remain unresolved. Key questions persist about the fate of the ETH collected through Base’s fees, the discrepancy in Coinbase’s ETH reserves, and whether Base will take steps toward greater on-chain transparency. The controversy underscores an ongoing tension between Ethereum’s core supporters and the economic interests of Layer-2 operators, with the crypto community still divided on whether Base’s practices are a necessary business decision or a betrayal of Ethereum’s foundational values.

This article has been refined and enhanced by ChatGPT.