Regulatory Storm Brews Over Layer-2 Sequencers as Crypto Industry Clashes with SEC
Layer-2 sequencers face regulatory limbo as blockchain builders and Washington regulators dig in for a showdown.
The Compliance Conundrum
SEC officials claim current sequencing models operate in regulatory gray zones—while developers argue their tech inherently complies with existing frameworks. Neither side shows signs of backing down.
Technical Innovation vs Regulatory Interpretation
Sequencer technology continues evolving faster than regulatory guidance can keep pace. Projects deploy new cryptographic proofs while regulators scramble to apply decades-old securities laws.
Industry executives privately admit the uncertainty creates deployment delays—though publicly maintain their compliance-first approach. Meanwhile, trading volumes suggest investors couldn't care less about the regulatory spat.
The standoff highlights crypto's eternal struggle: building decentralized future while appeasing centralized regulators. Wall Street bankers probably find the whole debate adorable—they've been gaming regulatory loopholes for decades.
SEC regulatory perspective
Peirce outlined different regulatory considerations during a Sept. 8 interview on The Gwart Show, distinguishing between truly decentralized protocols and centralized entities using blockchain technology.
She noted that layer-2 solutions with centralized transaction ordering may face regulatory scrutiny:
“If you have a matching engine that’s controlled by one entity that controls all the pieces of that, then that looks a lot more like an exchange.”
Peirce added that operators must consider exchange registration if they facilitate securities transactions through centralized systems.
Additionally, she emphasized the need to protect truly decentralized protocols, describing them as code that “nobody owns” and cannot register with regulators.
Pollak acknowledged Base’s current centralization, stating the platform has reached “stage 1 decentralization” and enabled permissionless block proposals. The team continues working toward “stage 2” decentralization and further decentralizing block building.
The disconnect highlighted the need for a crypto regulatory framework to solve issues such as the state of Base.
