Guess who is dumping ETH?

Author: Azuma, Odaily Planet Daily

During this cycle, ETH's performance has significantly lagged behind the overall market. Some attribute this to "heavy burdens," while others criticize the Ethereum Foundation (EF) for being "unworthy." Recently, Layer 2 has once again become the target of community criticism.

On February 9, the DeFi god of the last cycle and current co-founder of Sonic, Andre Cronje (AC), posted on X, angrily criticizing Layer 2 for profiting immensely through continuous selling of sequencer revenues, becoming a parasite on Ethereum.

Becoming Layer 2 ➡️ Running a centralized sequencer ➡️ Collecting $120 million in fees ➡️ Paying $10 million to Ethereum for DA and security ➡️ Then selling $110 million for profit ➡️ And still claiming to be part of the "Ethereum Alliance" … I don't understand how the Ethereum community convinces itself to accept this logic. Layer 2 has become the main reason for Ethereum's inflation again.

Sequencer Revenues of Layer 2

The controversy over Layer 2 sequencer revenues is an old and often-discussed topic.

Sequencers are an essential role in Layer 2, with their main functions being: 1) Collecting user transactions and packaging them into batches in a specific order; 2) Providing instant transaction confirmation for users before the transactions are finally on-chain; 3) Compressing transaction data and submitting it to Layer 1 to reduce gas costs.

In the decentralized vision of Layer 2, the decentralization of sequencer operations is a necessary step, but the reality is that almost all Layer 2 sequencers are operated by development teams, which has been one of the biggest criticisms surrounding Layer 2 for a long time.

Why has Layer 2 been unable to achieve decentralization of sequencers? While there are certainly some technical and operational reasons, another major reason cannot be overlooked ------ In real-world environments, running a sequencer is a very "profitable" business.

The direct revenue sources from running a sequencer mainly include: 1) Transaction fee spreads; 2) MEV capture; 3) Interest from capital deposits.

Odaily Note: The image is a further explanation from Teacher DeepSeek.

How profitable is this business? We can get a rough glimpse through the data from February 4.

On February 4, influenced by collective market fluctuations, Arbitrum collected $1.04 million in fees on Layer 2 in a single day, while the final settlement cost paid to Layer 1 was less than $20,000 ------ This means that in just one day, the chain earned over a million dollars through the transaction fee spread.

Targeting Base

As the most active Layer 2 network in the Ethereum ecosystem, Base has long been at the center of related public opinion. As the debate over Layer 2 sequencer revenues intensified, the community began to target Base.

Lucidity CIO Santisa was the first to fire on X, accusing Base of transferring all sequencer revenues to Coinbase since its mainnet launch, raising suspicions that these ETH have been sold.

Since its launch, BASE has been transferring sequencer fees to Coinbase. We don't know if they have sold them, but we know they haven't deployed these funds on Base or kept them on-chain. Due to the lack of further transparency, we can reasonably assume they have sold them. Their stance is not consistent with Ethereum.

Odaily Note: The image shows the Base sequencer revenue address (0xEc8103eb573150cB92f8AF612e0072843db2295F).

Subsequently, Sonic team member The Assistant further took over, analyzing whether Base has sold these ETH based on Coinbase's financial report data.

The Assistant pointed out that on-chain data can be checked (refer to the address posted by Santisa), Base has earned over $100 million in revenue from sequencers in the past 12 months, with a profit margin exceeding 90%, and all these fees have been transferred to the exchange through the path Base ➡️ Ethereum ➡️ Coinbase.

According to Coinbase's public financial report data, as of June 30, 2023 ( see Q2 2023 financial report, page 66 ), Coinbase held approximately $230 million in ETH on its balance sheet, with ETH priced at $1,934 at that time, meaning Coinbase held 118,924 ETH; as of September 30, 2024 ( see Q3 2024 financial report, page 22 ), Coinbase held 119,696 ETH.

The Assistant finally questioned, Since Base's launch, Coinbase has only increased its holdings by 772 ETH on its balance sheet, so where did the over $100 million in Base sequencer revenue go? The answer seems to be only one…

Some may question that as a (nominally) independent network, Base's revenue should not be counted on Coinbase's balance sheet. This question is also unreasonable, as Coinbase has highlighted the increase in Base's revenue in multiple past financial reports.

Building on The Assistant's investigation, AC retweeted and further fired back:

The Ethereum community is proud of their Layer 2, but what Layer 2 is doing every day is transferring fee revenue from Layer 2 to Layer 1, and then to Coinbase for sale. This is the leader of the Ethereum ecosystem. Ethereum community, wake up.

What is Vitalik's Potential Attitude?

As of the time of writing, Vitalik has not responded to the accusations from AC and other community members, but in a handwritten article on January 24, we can roughly see that Vitalik is dissatisfied with the current state of Layer 2 operations.

In that article, Vitalik mentioned the need to clarify ETH's economic model to ensure that ETH can continue to accumulate value in a Layer 2-intensive world. On the execution level, Vitalik encourages Layer 2 to support ETH by contributing a certain percentage of fees, which can be achieved by burning part of the fees, permanently staking, and donating the proceeds to Ethereum ecosystem public goods or other schemes.

Simply translating this sentence: Layer 2 shouldn't be too greedy; it's time to share some of the cake.