🚨SEC Commissioner Crypto Mom Hester Peirce stated: Any Layer2 that relies on centralized sequencers may be deemed by the SEC as an "exchange."

The core logic is simple - what it's called doesn't matter, the focus is on the actual functionality. If the matching engine and order execution are all controlled by a single entity, then it is no different from a traditional exchange.

In the past few years, in order to combat MEV and improve efficiency, most L2s have chosen centralized sorters, which has alleviated issues such as front-running and sandwich attacks, but also left the compliance risk of single point accountability.

So if this issue is officially brought up for regulation, L2 only has two paths ahead:

1️⃣ Either obediently register, admit that you are an exchange, and accept a whole set of compliance framework;
2️⃣ Either dismantle single-point control and move towards multi-signature, sorted networks, or other trust-minimized solutions.

Currently, the L2 that completely relies on centralized sorters are:

Arbitrum (single Arbitrum Sequencer node)
Optimism (Single Block Producer)
Base (single Coinbase Sequencer node)
Linea (centralized sorter based on Besu)
Starknet (Single Sequencer)

Decentralized projects that have been implemented:

Metis (the first Layer 2 to run a decentralized sequencer)