A critical regulatory battle is unfolding over the classification of layer-2 (L2) sequencers, pivotal components in the scaling of blockchain networks. Industry leaders argue these sequencers are vital infrastructure, while regulators, specifically the U.S. Securities and Exchange Commission (SEC), view centralized versions with suspicion, potentially categorizing them as unregistered exchanges. This stark disagreement highlights the urgent need for a clear regulatory framework in the evolving crypto landscape.
Industry Leaders Assert Infrastructure Status
Major players like Coinbase Chief Legal Officer Paul Grewal and Base founder Jesse Pollak firmly contend that L2 sequencers function as general-purpose infrastructure. Grewal likens Base’s sequencer to Amazon Web Services, emphasizing that L2s process code deterministically by batching transactions and deferring any formal order interaction or matching rules to an application's smart contracts. Pollak elaborates that sequencers merely collect and order transactions (first-in/first-out) before batching them for settlement on Ethereum. He clarifies that sequencers determine transaction processing order but do not act as matching engines that pair buy and sell orders, asserting that true transaction matching occurs at the application level within smart contracts. Users can also bypass the sequencer entirely, transacting directly on Base via Ethereum, a design choice intended to preserve decentralization.
Regulatory Concerns: Centralization Mirrors Exchanges
Conversely, SEC Commissioner Hester Peirce has voiced significant concerns, warning that centralized matching engines may face exchange registration requirements. She distinguishes between truly decentralized protocols and centralized entities utilizing blockchain technology, noting that L2 solutions with centralized transaction ordering could trigger regulatory scrutiny. Peirce specifically stated that if a matching engine is controlled by a single entity, it "looks a lot more like an exchange," necessitating registration if it facilitates securities transactions. While emphasizing the protection of truly decentralized code, her stance puts pressure on platforms like Base, which Pollak acknowledges is currently in "stage 1 decentralization." Base is actively working towards further decentralization, aiming to address these regulatory ambiguities by moving away from a centralized control point.
