MegaETH Raises Red Flags for Centralization Risks in Layer 2 Scaling

• MegaETH runs on one server, letting it censor, front-run, or even steal user funds. Centralization is a real risk.

• L2 fees mostly go to MegaETH, not Ethereum. Users pay $0.003 while ETH sees just 0.2% of value.

• Despite risks, MegaETH scales efficiently—but true decentralization still favors L1s like SOL, SUI, and NEAR.

A new wave of concern has emerged in the Ethereum ecosystem as MegaETH, a prominent Layer 2 (L2) solution, faces criticism for extreme centralization risks. According to crypto analyst Justin Bons on X, MegaETH can censor, front-run, and even steal all user funds without delay.

He warns that its entire network runs on a single centralized server, making its claimed high-speed performance less impressive. Bons emphasizes that less than 0.2% of fees return to Ethereum, labeling the system as “exceptionally parasitic.”

Bons explains that MegaETH’s architecture exposes users to critical admin key risks. Its smart contract, managed via a 4-of-8 multisignature, could be upgraded to send all deposited tokens to a new address. “This is currently the case for all major L2s!” he stated.

While major exploits have not yet occurred, Bons warns that similar security setups in other contracts have failed, making a large-scale fund loss only a matter of time. Additionally, MegaETH relies on a single permissioned sequencer, giving it the ability to censor transactions or prioritize profits through MEV. Consequently, decentralization claims become misleading.

Centralization vs. Performance

MegaETH’s hardware demands are extreme. Operating one sequencer costs over $100,000 per year, twenty times higher than a Solana validator. Although two backup sequencers exist, Bons argues that the path to true decentralization essentially recreates L1 consensus mechanisms, negating L2 advantages.

Moreover, the 10ms transaction speed claim ignores latency across global distances, undermining MegaETH’s speed comparisons to L1s like ETH, SOL, SUI, or NEAR. Bons adds, “Having a single centralized server solves many bottlenecks that real cryptocurrencies have to work around.”

Economically, MegaETH contributes very little to Ethereum. Charging $0.003 per transaction while the L2 operation costs just $0.000006 per user operation, MegaETH captures nearly all value for itself. Bons highlights this parasitic relationship, noting that MegaETH settles on EigenDA, not ETH.

Despite these criticisms, Bons acknowledges MegaETH’s engineering feat: “MegaETH is the most interesting & best L2 from my perspective, as unlike other ETH L2’s, it actually scales!”