Coinbase’s layer-2 network, Base, has denied allegations of selling its Ethereum (ETH) holdings.

Over the weekend, crypto community members pointed out that Base has funneled sequencer fees to Coinbase, sparking concerns about transparency and potential ETH sales.

However, Base strategist Kabir Sadarangani refuted these claims, asserting that the accusations of a lack of transparency and potential ETH sales were unfounded.

The allegations

On Feb. 8, Santisa, the CIO of investment firm Lucidity Cap, raised the alarm that Base has been sending all sequencer fees to Coinbase since its launch.

He added:

“We don’t know if they sold, but we do know they didn’t deploy those funds on Base or keep them on-chain. The lack of transparency makes it fair to assume they sold. Not very Ethereum-aligned of them.”

Further analysis by Sonic The Assistant pointed out that the network’s sequencer operations generate nearly a 90% profit margin—over $100 million—and all related ETH was sent from Base to Ethereum and then to Coinbase.

Coinbase’s financial reports were puzzling, further adding to the speculation. The Assistant noted that before Base’s launch, Coinbase held approximately 118,924 ETH ($230 million at $1,934 per ETH) as of June 30, 2023. By Q4 2024, this figure had only slightly increased to 119,696 ETH, meaning Coinbase added just 772 ETH ($2 million at current prices) during Base’s operational period.

The Assistant also highlighted a recent transaction where 240.35 ETH ($618,960) was moved off-chain to Coinbase. This prompted questions about the whereabouts of the remaining $100 million in sequencer-generated ETH.

Meanwhile, Andre Cronje, the co-founder of Sonic Labs (formerly Fantom), also criticized Base’s approach. He questioned whether the platform operates as a centralized corporate blockchain under Coinbase or as a truly Ethereum-aligned layer-2 network.

Cronje further challenged the team’s decision to keep fees off-chain rather than maintaining them transparently on Ethereum.

Coinbase address concerns

In response, Sadarangani defended Base’s financial practices, stating that its earnings are reinvested in Ethereum’s ecosystem rather than liquidated.

He pointed out that Coinbase and Base collectively hold over 100,000 ETH, making them the largest public company holders of ETH and surpassing any layer-2 DAO or development entity.

Addressing concerns about transparency, he explained that Base utilizes off-chain custody on Coinbase for security and auditing purposes.

He furthered that the ETH generated is used for operations and grants rather than liquidation. Base aims to transition more costs to be covered in ETH while increasing on-chain activity.

Sadarangani said:

“We earn and spend as much as we can in ETH. 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.

He also clarified that any ETH converted to USD is minimal compared to its overall holdings and the broader Ethereum market. According to him, Base remains committed to long-term ecosystem growth rather than short-term financial gains.

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