Ethereum is a legacy chain that has expanded over time to address the needs of an ever-demanding global user base. More layer 2 platforms have sprung up to alleviate the mainnet from flooding transactions.
Low transaction costs and scalability enable users to deploy intensive decentralized applications that would not be feasible on the base layer.
Ethereum Layer-2 is a success, but there are problems.
According to L2Beat, Ethereum’s layer 2 platform is currently manage It has a total fixed value (TVL) of more than $39 billion. Nonetheless, Nikita Zhavoronkov, lead developer at Blockchair, believes that Layer 2 is concerned about “the enormous legal liability that will arise in the future.”
Go to X, Zhavoronkov assert Ethereum and Bitcoin’s layer 2 protocols are vulnerable to crackdowns by regulators. According to the developers, these platforms are similar to money service businesses (MSBs) in terms of how they operate. Because it is unregulated, developers may operate illegally, he said.
Leading the list is Zhavoronkov, who argues that most existing layer 2 solutions are not actually decentralized. They point to the use of multi-signature contracts or “emergency committees” controlled by limited groups as evidence of centralized control.
The developer also highlighted many of the management characteristics of Layer 2. Users do not directly control their funds, which is how these scalable platforms work. Analysts say this tendency toward centralization represents a vulnerability if regulators target these institutions.
Zhavoronkov adds that layer 2 platforms are enablers that operate on a trustless basis, but function as for-profit enterprises that generate revenue from transaction fees. Some companies, such as Optimism and Arbitrum, issue tokens, so the revenue generated may affect the price of the token.
Developers argue that this is why layer 2 platforms are no different from traditional companies than truly decentralized platforms.
Report of additional headwinds for ETH in the US
Zhavoronkov’s assertion that Layer 2 solutions could be classified as MSBs under U.S. law, given their mode of operation and model, is a cause for concern. This classification can subject these protocols to stringent regulations, compliance requirements, and potential sanctions.
this Not only will it hinder innovation, but it also has the potential to seriously hinder Ethereum’s scalability..
While some have dismissed Zhavoronkov’s views as “distorted,” the fact that Ethereum is under investigation by the U.S. Securities and Exchange Commission (SEC) further complicates the situation.
Analysts say approval of a spot Ethereum exchange-traded fund (ETF) could be further delayed if the SEC classifies ETH as a security rather than a commodity like BTC.
Featured image from Canva, chart from TradingView