Ethereum co-founder Vitalik Buterin has said that L2 networks, including Base, are extensions of Ethereum, not exchanges, despite SEC warnings.

Buterin defends Base: “L2 is an extension of Ethereum, not an exchange”

Ethereum co-founder Vitalik Buterin has responded to concerns about potential regulation of layer-2 networks, emphasizing that they remain Ethereum infrastructure, not centralized exchanges.

“Base does everything right: it’s L2 on Ethereum, using centralized features for UX convenience, while providing security thanks to Ethereum’s decentralized foundation,” Buterin said. He emphasized that L2 has no custodial control over users’ funds: “They can’t steal or lock your money.”

Regulatory Perspective

The debate has heated up since SEC Commissioner Hester Pierce compared L2 sequencers to exchanges’ “matching engines,” noting that if all the processes are controlled by a single entity, it can look like an exchange.

However, Coinbase CLO Paul Grewal explained that L2s are infrastructure blockchains that execute code and aggregate transactions, not trading platforms. “If an exchange runs on AWS, that doesn’t make AWS an exchange,” he said.

What sequencers actually do

Base co-founder Jesse Pollack added that users can always choose to trade through a sequencer or directly on Ethereum, maintaining decentralization. He explained that sequencers don’t select trades, but only determine the order in which transactions are processed, unlike traditional exchange systems.

If L2s were to be classified as exchanges, they would have to register with the SEC and adhere to strict regulatory requirements. This is why the industry is actively opposing this interpretation.

Related: Vitalik Buterin: Low-Risk DeFi Could Be Ethereum’s Google