Vitalik Buterin, co-founder of Ethereum, has commended the decentralization approach of Ethereum layer 2 Base in light of recent concerns regarding its sequencer and whether it resembles an exchange.
“Base is doing things the right way: an L2 on top of Ethereum that leverages its centralized features to enhance UX, while remaining connected to Ethereum’s decentralized base layer for security,” Vitalik Buterin stated on Tuesday.
He emphasized that Coinbase’s layer-2 does not control users’ funds, asserting, “they cannot steal funds or stop you from withdrawing them.”
True layer-2s are non-custodial, he noted. “They are extensions of Ethereum, not just glorified servers submitting hashes.”
Buterin’s remarks came in response to growing skepticism about the definition of layer-2 networks and worries about centralization. L2s have gained attention following comments made by Securities and Exchange Commissioner Hester Peirce during a podcast on Sept. 7.
Are L2s the same as exchanges?
Numerous layer-2s employ centralized transaction sequencing to offer better rates and mitigate front running by bots. Peirce hinted at potential regulatory considerations if these “matching engines” operate like centralized exchanges.
“If you have a matching engine controlled by one entity that oversees everything, then it resembles an exchange, and we’ll need to reflect on that.”
However, she also mentioned that if the matched assets are not securities, “then we don’t have much to say about it.”
Layer 2s are infrastructure providers like AWS
Paul Grewal, Coinbase’s chief legal officer, argued that labeling layer-2 sequencers like Base as “exchanges” fundamentally misunderstands their roles.
The SEC defines an “exchange” as a marketplace for connecting buyers and sellers of securities, he explained, adding that layer-2s are “general-purpose blockchains functioning as infrastructure.”
They process messages as code, invoking smart contracts, and aggregate all transactions, whether payments, calls, or messages.
Related: Vitalik Buterin proposes minimalism as key to layer-2 blockchain success
He likened layer 2s such as Base to Amazon Web Services: both execute code provided by developers, including exchange applications, yet this does not classify the infrastructure provider as an exchange.
“If an exchange operates on AWS, does that make AWS an exchange? Clearly not.”
Sequencers are not matching engines
Jesse Pollak, co-founder of Base, provided additional insights on sequencer operations.
He stated that users can transact via Base’s sequencer or directly through Ethereum, ensuring full decentralization and censorship resistance.
“It’s like a traffic controller ensuring smooth flow through a high-priority lane that allows vehicles to reach their destinations faster.”
Pollak also clarified the misconception of sequencers as “matching services” similar to traditional exchanges.
“Matching engines pair buy and sell orders at specific prices to execute trades. Sequencers do not do that; they merely determine the order in which transactions are processed.”
If layer 2s were deemed exchanges, they would need to register with the SEC as securities exchanges, comply with comprehensive regulatory mandates, and potentially face operational constraints, which has led to industry pushback.
Magazine: What are native rollups? Full guide to Ethereum’s latest innovation
