It has been previously warned by Peirce that centralized matching engines may face exchange registration requirements, but industry figures disagree that centralized sequencers are exchanges.
The case was made by Coinbase chief legal officer Paul Grewal and Base founder Jesse Pollak that Layer-2 (L2) sequencers constitute infrastructure rather than exchanges.
A contradiction of the current regulatory stance is presented by their statements, given that SEC Commissioner Hester Peirce has previously warned that centralized matching engines may face exchange registration requirements.
A comparison to Amazon Web Services was drawn by Grewal in a Sept. 22 post, where he argued that L2 blockchains operate as general-purpose infrastructure that processes code deterministically.
L2s were described by him as batching “all transactions while deferring any formal order interaction/matching rules to an app’s smart contracts and frontend.”
Technical details supporting the infrastructure argument were provided by Pollak, explaining that Base’s sequencer collects user transactions, arranges them on a first-in/first-out basis, and then bundles them to Ethereum for settlement.
It was emphasized by him that sequencers determine transaction processing order but do not act as matching engines that pair buy and sell orders.
“Transaction matching or execution happens at the application level, within smart contracts. The sequencer ensures these transactions are executed in a consistent, ordered manner, but it doesn’t decide matches or control trade logic.”
According to Pollak:
The sequencer can also be bypassed by users, he noted, who transact on Base directly through Ethereum, which preserves decentralization and censorship resistance from Ethereum’s validator set.
Inside the SEC’s Regulatory Outlook
Different regulatory considerations were addressed by Peirce during a Sept. 8 interview on The Gwart Show. She distinguished between truly decentralized protocols and centralized entities that use blockchain.
It was noted by her 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.”
It was added by Peirce that operators must consider exchange registration if they facilitate securities transactions through centralized systems.
She also emphasized the need to protect truly decentralized protocols, noting that they are “owned by nobody” and cannot be registered with regulators.
Base’s current centralization was admitted by Pollak, who stated the platform has reached “stage 1 decentralization” and enabled permissionless block proposals. The team remains focused on “stage 2” and further decentralizing block building.
The need for a crypto regulatory framework was highlighted by the disconnect, as it could solve issues such as the status of Base.
