Ethereum is a legacy chain that has scaled over time to handle the wants of the ever-demanding international person base. To alleviate the mainnet of the deluge of transactions, extra layer-2 platforms have sprouted.
They’re cheaper to transact on and scalable, permitting customers to deploy intensive decentralized functions that received’t be possible on the bottom layer.
Ethereum Layer-2s Are A Success, However There Is A Drawback
Based on L2Beat, layer-2 platforms on Ethereum presently handle over $39 billion in complete worth locked (TVL). Even so, Nikita Zhavoronkov, a lead developer at Blockchair, is anxious and thinks layer-2s are a “huge legal liability waiting to happen.”
Taking to X, Zhavoronkov argues that layer-2 protocols on Ethereum and Bitcoin are weak to regulator crackdown. Within the developer’s evaluation, these platforms resemble cash service companies (MSBs), contemplating how they’re designed to function. Since they aren’t regulated, the developer mentioned they is likely to be working illegally.
High of the record, Zhavoronkov argues that the majority present layer-2 options should not actually decentralized. They level to utilizing multi-signature contracts or “emergency councils” managed by restricted teams as proof of centralized management.
Furthermore, the developer highlighted the custodial nature of many layer-2s. Customers don’t straight management person funds based mostly on how these scalable platforms function. The analyst says this tinge of centralization presents a vulnerability if regulators goal these entities.
Zhavoronkov provides that although layer-2 platforms are enablers, working from a trustless base, they perform as for-profit companies, producing income from transaction charges. As a result of a few of them, like Optimism and Arbitrum, subject tokens, income accrued can impression token costs.
The developer contends that for this reason layer-2 platforms aren’t any totally different from conventional firms than actually decentralized platforms.
Extra Headwinds For ETH, United States SEC Reported Investigation
Given their mode of operation and mannequin, Zhavoronkov’s assertion that layer-2 options might be labeled as MSBs below United States legal guidelines is a priority. Such a classification might topic these protocols to stringent laws, compliance necessities, and potential sanctions.
This not solely threatens to stifle innovation but additionally has the potential to hamper Ethereum’s scalability severely.
Whereas some have dismissed Zhavoronkov’s viewpoint as “distorted,” the truth that Ethereum is reportedly below investigation by the US Securities and Change Fee (SEC) provides a layer of complexity to the scenario.
Analysts say the SEC’s classification of ETH as a safety moderately than a commodity like BTC might additional delay the approval of spot Ethereum exchange-traded funds (ETFs).
Function picture from Canva, chart from TradingView
