Guess who is crashing ETH?
Original | Odaily Planet Daily
Author | Azuma
In this cycle, ETH's performance has significantly lagged behind the overall market, with some attributing it to 'heavy load', while others criticize the Ethereum Foundation (EF) for being 'unworthy of its position'. Recently, Layer2 has again become the target of community criticism.
On February 9, the former DeFi god of the last cycle and current co-founder of Sonic, Andre Cronje (AC), posted on X, angrily criticizing Layer2 for profiting significantly through continuous sales of sequencer income, becoming a parasite of Ethereum.
Become Layer2 ➔ Run a centralized sequencer ➔ Charge 120 million dollars in fees ➔ Pay 10 million dollars to Ethereum for DA and security ➔ Then sell 110 million dollars for profit ➔ And then claim to be part of the 'Ethereum Alliance'... I don't understand how the Ethereum community convinces itself to accept this logic. Layer2 has become the main cause of Ethereum's inflation again.
Layer2 Sequencer Income
The controversy over Layer2 sequencer income has become a long-standing topic.
Sequencers are an essential role in Layer2, with their main functions being: 1) Collecting user transactions and packaging them into batches in a specific order; 2) Providing instant transaction confirmations for users before the transactions are finally on-chain; 3) Compressing and submitting transaction data to Layer1 to reduce gas costs.
In the decentralized vision of Layer2, the decentralization of sequencer operations is an essential step, but the reality is that almost all Layer2 sequencers are operated by development teams, which has long been one of the biggest criticisms of Layer2.
Why has Layer2 been unable to complete the decentralization of sequencers? While there are certain technical and operational reasons, another significant reason that cannot be ignored is that - in a real environment, the operation of sequencers is a very 'profitable' business.
The direct sources of income from sequencer operations mainly include: 1) Transaction fee spreads; 2) MEV capture; 3) Interest from capital accumulation.
Odaily Note: The image shows further analysis by Teacher DeepSeek.
How profitable is this business? We can get a rough glimpse through the data from February 4.
On February 4, affected by collective fluctuations in the market, Arbitrum collected 1.04 million dollars in fees in a single day at the Layer2 level, while the final settlement cost paid to Layer1 was less than 20,000 dollars - this means that in just one day, the chain earned over a million dollars through transaction fee spreads.
Targeting Base
As the most active Layer2 network in the Ethereum ecosystem, Base has long been at the center of related public opinion. As the debate over Layer2 sequencer income intensifies, the community has begun to target Base.
Lucidity CIOSantisa was the first to fire shots on X, accusing Base of transferring all sequencer income to Coinbase since its autonomous launch, raising suspicions that these ETH have all 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 have not deployed these funds on Base or kept them on-chain. Due to a lack of further transparency, we can reasonably assume they have sold them. Their stance is inconsistent with Ethereum.
Odaily Note: The image shows the income address of the Base sequencer (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 earlier by Santisa), Base has earned over 100 million dollars in revenue through sequencers in the past 12 months, with a profit margin exceeding 90%. All these fees have been transferred to the exchange via Base ➔ Ethereum ➔ Coinbase.
According to Coinbase's public financial report data, as of June 30, 2023 (refer to page 66 of the Q2 2023 financial report), Coinbase held approximately 230 million dollars worth of ETH, with the ETH price at 1934 dollars, meaning Coinbase held 118924 ETH; as of September 30, 2024 (refer to page 22 of the Q3 2024 financial report), Coinbase held 119696 ETH.
The Assistant finally questioned, since the launch of Base, Coinbase has only increased its balance sheet by 772 ETH, so where did the sequencer income worth over 100 million dollars go? The answer seems to be only one...
Some may question that Base, as a (nominal) independent network, should not have its income counted in Coinbase's balance sheet; this question is also unreasonable because Coinbase has highlighted the increase in Base's income in several past financial reports.
Using The Assistant's investigation content, AC forwarded and further fired shots:
The Ethereum community is proud of their Layer 2, but what Layer 2 is doing every day is transferring fee income from Layer 2 to Layer 1, and then transferring it to Coinbase for sale. This is the leader of the Ethereum ecosystem. Wake up, Ethereum community.
What is Vitalik's potential attitude?
As of the publication of this article, Vitalik has not responded to the accusations from AC and other community members, but in his handwritten article on January 24 ((Under public pressure, Vitalik called on L2: Come back and support ETH)), we can roughly see that Vitalik is dissatisfied with the current operation status of Layer 2.
Vitalik mentioned in this article that it is essential to clarify ETH's economic model to ensure that ETH can continue to accumulate value in a Layer 2 intensive world. On the execution front, Vitalik encourages Layer 2 to support ETH by contributing a certain proportion of fees, which can be achieved by burning part of the fees, permanently staking, and donating the profits to Ethereum ecosystem public goods or some other schemes.
Simply translate this sentence: Layer 2 shouldn't be too greedy, it's time to give up some cake.
