Coinbase chief authorized officer Paul Grewal and Base founder Jesse Pollak argued that Layer-2 (L2) sequencers represent infrastructure fairly than exchanges.
Their statements contradict the present regulatory stance, contemplating SEC Commissioner Hester Peirce has beforehand warned that centralized matching engines could face alternate registration necessities.
Grewal in contrast Base’s sequencer to Amazon Internet Companies in a Sept. 22 put up, 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 good contracts and frontend.”
Pollak offered technical particulars supporting the infrastructure argument, explaining that Base’s sequencer collects consumer 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.
In line with Pollak:
“Transaction matching or execution occurs on the software stage, inside good contracts. The sequencer ensures these transactions are executed in a constant, ordered method, nevertheless it doesn’t determine matches or management commerce logic.”
He additionally famous that customers can bypass the sequencer by transacting on Base instantly via 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 Present, distinguishing between really decentralized protocols and centralized entities utilizing blockchain know-how.
She famous that layer-2 options with centralized transaction ordering could face regulatory scrutiny:
“If in case you 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 alternate.”
Peirce added that operators should contemplate alternate registration in the event that they facilitate securities transactions via centralized programs.
Moreover, she emphasised the necessity to defend really 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 because the state of Base.