Unlocking Efficiency and Alignment - The Power of L1-Sequenced Based Rollups

Introduction to Based Rollups

In the evolving landscape of blockchain technology, “based” rollups, also known as L1-sequenced rollups, represent a notable advancement. Characterized by their integration with the foundational Layer 1 (L1) blockchains such as Ethereum, these rollups are directly sequenced by the activities on the L1 blockchain. This ensures that each rollup block is processed together with the subsequent L1 block, via a coordinated effort across L1 proposers, searchers, and builders.¹.

The designation “based” underscores their deep-rooted connection with the base L1 layers, embodying a shared commitment towards decentralization and the elimination of separate tokens, aligning seamlessly with the principles of Ethereum.

Advantages of Based Rollups

The adoption of based rollups brings several benefits, encapsulated as follows:

• Robustness and Decentralization: Leveraging the inherent stability and decentralized nature of L1 blockchains, based rollups are insulated against common vulnerabilities such as compromised settlement assurances, exposure to maximal extractable value (MEV) manipulation, and the dilution of network integrity through large-scale withdrawals in the event of sequencer malfunctions.

• Simplification of Processes: The operational framework of based rollups is markedly simpler compared to alternate sequencing methodologies. This is attributed to the absence of requirements for sequencer signature validations, emergency fallback mechanisms, or the establishment of an independent proof-of-stake consensus, thereby reducing the scope for developmental errors and cost implications.

• Enhanced Cost-efficiency: By eliminating the need for gas-intensive signature validations, based rollups offer a more economical solution. Additionally, they circumvent the regulatory complexities associated with token-based operations.

• Economic Synergy with L1: The economic benefits, particularly MEV, generated by based rollups contribute to the financial robustness of the L1 blockchain, potentially augmenting the value of its native token, like ETH in Ethereum. This symbiotic relationship fosters legitimacy for rollups while preserving their revenue-generating capabilities through layer 2 congestion charges.

• Operational Sovereignty: Despite the sequencing responsibilities being shouldered by the L1 blockchain, based rollups retain their autonomy. This includes the ability to implement governance mechanisms, levy base fees, and judiciously allocate the accrued fees.

Challenges Faced by Based Rollups

Notwithstanding their advantages, based rollups encounter specific challenges:

• Limited MEV Revenue Streams: The relinquishment of MEV to the L1 blockchain might constrain the direct revenue avenues for rollups, relegating them to primarily depend on base fees. However, this limitation can potentially be offset by leveraging their enhanced security and alignment with the L1 ecosystem to command market dominance.

• Sequencing Limitations: The dependence on L1 for sequencing may curtail the flexibility of rollups, posing challenges in delivering specific services such as expedited pre-confirmations and prioritized transaction processing.

The Expansive Design Territory of Based Rollups

The conceptual and technical expanse of based rollups is broad, with numerous aspects still under exploration. One area of interest is the potential for rollups to partially retain MEV internally, rather than conceding the entire MEV share to L1.

Proposed mechanisms include:

• Internal Auction Systems: By embedding an auction framework within the L1 contract, such as a Dutch auction, rollups could directly capitalize on MEV. This mechanism would necessitate the payment of a fee in ETH to the contract by the batch submitter, enabling the rollup to benefit from MEV directly.

• Batch Reconfiguration through Incentives: Another innovative approach involves the option to revoke and supplant recent batches (up to a predetermined limit) in favor of higher bribes offered to the contract. This strategy, while increasing the finality timeframe for transactions, introduces a dynamic akin to L2 reorganizations. The approach also raises efficiency concerns, such as potential gas wastage due to the reorganization of batches not optimized for bid competitiveness. Additionally, this could impede the seamless atomic composability among rollups, especially when concurrent batch submissions occur within the same L1 block.

References