Coinbase’s decision not to support Celo Layer 2 upgrade causes stir among stakeholders

Crypto exchange giant Coinbase announced late Wednesday it would not support Celo’s upcoming migration from a Layer 1 to a Layer 2 in Optimism’s Superchain ecosystem, causing criticism from the Celo community.

“The Celo L1 blockchain (Coinbase ticker: CGLD) is migrating to Celo L2 on January 16, 2025,” the exchange posted on X. “Coinbase will not support the migration. Due to migration by hard fork, customers must withdraw CGLD from Coinbase by January 13, 2025 to prevent funds becoming inaccessible.”

It noted that while Coinbase lists the Celo Layer 1 network as CGLD, other wallets and exchanges list it as CELO, confirming that users can send CGLD from Coinbase to another CELO wallet address.

“It's disheartening that Coinbase has chosen not to support the Celo Layer 2 upgrade,” CEO of primary Celo developer cLabs Marek Olszewski responded. “This feels like a wrench in Ethereum's Layer 2-centric scaling roadmap. Why would other EVM-compatible Layer 1s follow suit now?”

Ethereum's Layer 2-centric roadmap focuses on enhancing scalability by utilizing solutions like rollups, which process transactions off-chain to increase throughput and reduce costs while maintaining security via the Ethereum mainnet.

“Did the hard fork just get contentious? How should the Celo community respond?” Olszewski added. “Celo Layer 1 validators can choose to keep the current Layer 1 chain around and rename it to Celo Gold (CGLD) to make Coinbase and its users' lives easier. Luckily, Coinbase is already using this ticker, so CGLD could become a memecoin,” he said. “One nice side effect of this is that should Coinbase decide to support the Layer 2 down the road, they would likely list it with the correct ticker: CELO.”

CELO will remain the native token on Celo’s Layer 2, transitioning to an ERC-20 on Ethereum to enable its Superchain integration, with its 1 billion token supply unchanged.

‘Likely an oversight’

Olszewski wasn’t the only one expressing disappointment in the decision, with Verda Ventures General Partner Alex Witt asking that as the Coinbase-incubated network Base is also part of Ethereum-aligned Optimism Superchain ecosystem of Layer 2 chains, built using the OP Stack, then why would it also not support Celo.

“Celo being a part of the Superchain puts it as close to a 1:1 with Base as it can get,” another community member said. “So, if Base can have direct rails with Coinbase, other Superchain rollups like Celo should too.”

Ethereum educator Anthony Sassano suggested it could simply be an “internal comms issue” at Coinbase, joining a chorus of community members urging the exchange to reconsider its stance. EigenLayer founder Sreeram Kanna concurred. “I think this is likely an oversight internally in Coinbase,” he said. “There is no chance the company building the leading Ethereum Layer 2 in users and a core contributor to OP public goods will choose to discontinue supporting Celo after it  becomes an OP Stack-based Layer 2.”

Others questioned why the decision had been made at the “last minute” when Celo’s planned transition had been known for over a year. Celo first submitted its Layer 2 transition plans in July 2023, subsequently receiving governance approval and proposing to use the OP Stack for the launch this April.

“We saw this as a coming home moment, something the Celo community has been thinking about for a while that hadn’t been possible until recent Layer 2 research developments such as EigenDA — the Ethereum-aligned data availability protocol — making it possible for Celo to maintain its low gas fees as a Layer 2,” Olszewski said last November.

Celo’s Baklava Layer 2 testnet upgrade is anticipated on Dec. 12 ahead of the mid-January mainnet launch. Its Dango Layer 2 testnet launched in July.

Technical complexity, security concerns and regulatory uncertainty

However, some in the crypto community pointed toward a few legitimate reasons why Coinbase may have made the decision.

“Something that most people ignore is that supporting a new chain is a massive technical, operational and regulatory undertaking for exchanges, especially in the U.S.,” former a16z crypto Chief Information Security Officer Nass Eddequiouaq said. “Exchanges and custodians have usually been waiting to see which branch of the fork picks up the activity before adding support for it and deprecating the other one.”

Others highlighted factors including the security risks of introducing vulnerabilities, disruption to the user experience (potentially causing confusion or loss of funds) and Coinbase’s focus on core services — meaning it may not have the resources to support every new Layer 2 or hard fork.

Coinbase has yet to respond to the community's concerns and did not reply to The Block's request for comment.

Meanwhile, Andrew Koller, founder of Kraken’s proposed new Layer 2 chain Ink, also part of the Superchain ecosystem, expressed support for Celo. “Kraken and Ink [love] the Superchain and are fully committed to Ethereum scaling and making Kraken work for Celo users,” Koller said. “We've asked the relevant teams to explore this to see if we can hit everything in time for Jan. 16.”

OP Labs’ Superchain advocate Binji Pande, a former product manager at Coinbase, also weighed in saying, “ok, let’s change this” in response to Olszewski’s post.

Celo's token is down nearly 5% over the past 24 hours, according to The Block's CELO Price Page, currently changing hands for $0.81.