Bitrabo Editorial
Over time, Ethereum has evolved to cater to a growing global user base by introducing various layer-2 platforms to alleviate the mainnet’s transaction load. These layer-2 solutions offer cost-effective and scalable transactions, enabling the deployment of complex decentralized applications not feasible on the base layer.
Success of Ethereum Layer-2s with an Underlying Problem
The current total value locked (TVL) on Ethereum’s layer-2 platforms stands at over $39 billion, as reported by L2Beat. However, Nikita Zhavoronkov, a lead developer at Blockchair, has raised concerns about the legal implications of these layer-2 solutions, labeling them as a potential legal liability.
Zhavoronkov argues that the design and operation of layer-2 protocols on Ethereum and Bitcoin resemble money service businesses (MSBs), which could pose a regulatory risk due to lack of oversight.
The concerns raised by Zhavoronkov include the centralization of control in many layer-2 solutions, the custodial nature of user funds, and the revenue generation mechanisms through transaction fees and token issuance, depicting these platforms more as for-profit entities than decentralized systems.
Challenges for Ethereum Intensify with SEC Investigation
If classified as MSBs under US laws, layer-2 solutions might face stringent regulatory measures and sanctions, potentially impeding innovation and scalability on Ethereum. Moreover, the United States Securities and Exchange Commission (SEC) reportedly investigating Ethereum could further complicate matters, possibly hampering the approval of spot Ethereum exchange-traded funds (ETFs).
While some dismiss Zhavoronkov’s concerns as biased, the regulatory scrutiny surrounding Ethereum raises significant challenges for the platform’s future development and adoption.