TLDR
- Vitalik Buterin praises Base as an extension of Ethereum, not an exchange.
- Base sequencers ensure faster transaction flow without matching buy-sell orders.
- Buterin affirms Base doesn’t have custody over user funds or restrict withdrawals.
- Coinbase’s legal expert clarifies L2 sequencers aren’t equivalent to exchanges.
Ethereum co-founder Vitalik Buterin has defended the Ethereum layer-2 (L2) network, Base, in response to recent concerns about its sequencer and the growing skepticism around L2 networks. Buterin praised Base for its decentralized approach, emphasizing that the project is aligned with Ethereum’s principles while offering enhanced user experience (UX). His comments come amidst increasing debate over the centralization of L2 networks and whether they should be considered exchanges.
Base’s Role as an Infrastructure Extension of Ethereum
Vitalik Buterin provided clarity on the role of Base, stating that it functions as a proper L2 network on top of Ethereum. According to Buterin, Base uses centralized features to improve user experience without compromising on security.
He explained that while Base may use some centralized aspects for better transaction processing, it remains fully connected to Ethereum’s decentralized base layer.
He also reassured users by pointing out that Coinbase, which operates Base, does not hold custody over users’ funds. “They cannot steal funds or stop you from withdrawing funds,” Buterin emphasized. This ensures that users maintain full control over their assets, something Buterin says is fundamental to a true L2 network. “True layer-2s are non-custodial,” he added.
Concerns About Centralization and Regulatory Issues
The debate surrounding L2 networks has intensified due to concerns about their potential centralization. Many L2s, including Base, use centralized sequencers to process transactions. While this approach helps improve performance and prevent issues like front-running by bots, it has raised questions about whether such systems resemble centralized exchanges.
SEC Commissioner Hester Peirce recently mentioned that if these sequencers act like “matching engines,” they could be classified as exchanges under US law. This could have regulatory consequences for the entire L2 ecosystem. However, Peirce also acknowledged that if the assets being transacted on these platforms are not considered securities, regulatory concerns would be minimal.
L2s Are Not Exchanges, According to Legal Experts
In response to these concerns, Coinbase’s Chief Legal Officer, Paul Grewal, argued that equating L2 sequencers to exchanges is a misunderstanding. Grewal pointed out that the primary function of L2 networks like Base is to provide infrastructure.
He compared L2s to services such as Amazon Web Services (AWS), which host applications, including exchanges, but are not themselves exchanges.
Base’s sequencers manage the order of transactions but do not match buy and sell orders like in a traditional exchange. This clarification helps distinguish Base’s function from that of centralized exchanges, which are designed specifically to match orders between buyers and sellers. Grewal stressed that L2s are not operating as marketplaces, but rather as general-purpose infrastructure for decentralized applications.
Sequencers Clarified: Not Matching Engines
Jesse Pollak, co-founder of Base, further elaborated on how sequencers work. Pollak explained that sequencers do not act as matching engines. Instead, they ensure the smooth processing of transactions by determining the order in which they are processed. This role is more akin to that of a traffic controller, who organizes the flow of traffic but does not control the vehicles themselves.
Pollak emphasized that users can choose to transact either through the sequencer or directly on Ethereum, ensuring decentralization and censorship resistance. By doing so, Base offers users more flexibility while maintaining the security and reliability of the Ethereum network.
As the conversation about L2 networks continues, it remains to be seen how regulators will classify these systems. Buterin’s defense of Base and the broader L2 model highlights a critical point: L2 networks like Base are integral to Ethereum’s growth, offering scalability and improved performance while staying true to the decentralized principles of the blockchain.
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