Regulatory uncertainty clouds layer-2 sequencers as industry and SEC differ
Coinbase chief authorized officer Paul Grewal and Base founder Jesse Pollak argued that Layer-2 (L2) sequencers represent infrastructure reasonably than exchanges.
Their statements contradict the present regulatory stance, contemplating SEC Commissioner Hester Peirce has beforehand warned that centralized matching engines may face exchange registration requirements.
Grewal compared Base’s sequencer to Amazon Web Services in a Sept. 22 publish, stating that layer-2 blockchains function as general-purpose infrastructure processing code deterministically.
He argued that L2s “batch all transactions whereas deferring any formal order interplay/matching guidelines to an app’s sensible contracts and frontend.”
Pollak provided technical particulars supporting the infrastructure argument, explaining that Base’s sequencer collects person transactions, orders them first-in/first-out, and batches them to Ethereum for settlement.
He emphasised that sequencers decide transaction processing order however don’t act as matching engines that pair purchase and promote orders.
According to Pollak:
“Transaction matching or execution occurs on the utility stage, inside sensible contracts. The sequencer ensures these transactions are executed in a constant, ordered method, but it surely doesn’t determine matches or management commerce logic.”
He additionally famous that customers can bypass the sequencer by transacting on Base immediately by means of Ethereum, preserving decentralization and censorship resistance from Ethereum’s validator set.
SEC regulatory perspective
Peirce outlined totally different regulatory issues throughout a Sept. 8 interview on The Gwart Show, distinguishing between actually decentralized protocols and centralized entities utilizing blockchain know-how.
She famous that layer-2 options with centralized transaction ordering might face regulatory scrutiny:
“If you will have an identical engine that’s managed by one entity that controls all of the items of that, then that appears much more like an trade.”
Peirce added that operators should take into account trade registration in the event that they facilitate securities transactions by means of centralized techniques.
Additionally, she emphasised the necessity to shield actually decentralized protocols, describing them as code that “no one owns” and can’t register with regulators.
Pollak acknowledged Base’s present centralization, stating the platform has reached “stage 1 decentralization” and enabled permissionless block proposals. The crew continues working towards “stage 2” decentralization and additional decentralizing block constructing.
The disconnect highlighted the necessity for a crypto regulatory framework to unravel points such as the state of Base.
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