Original author: Donovan Choy
Original translation by: Deep Tide TechFlow
Ethereum loves Rollups. Recently, 'based' Rollups have garnered a lot of attention.
What makes based Rollups special? The core lies in its sequencer.
Traditional Layer-2s use centralized sequencers to handle user transactions and submit them to Layer-1 for settlement, while based Rollups delegate the sequencing task to Ethereum Layer-1 validators, a mechanism known as 'based sequencing'.
This design has two major advantages: resistance to censorship and enhanced interoperability.
By allowing Layer-1 to act as a sequencer, based Rollups can provide the same activity guarantees as the Ethereum mainnet while avoiding the censorship issues that may arise from centralized sequencers.
Read more: MagicBlock open-sources a16z-backed 'temporary Rollup' technology
Another significant advantage is the substantial improvement in interoperability. Proponents of based Rollups (like Justin Drake) refer to this as 'synchronous composability', meaning transactions on Ethereum can be synchronized or bridged across different Layer-2s.
In simple terms, smart contracts on based Rollups can almost instantly call other contracts on Layer-1 within the same block, as if they were all on the same chain.
This synchrony and the idea of 'money legos' is not a new concept; it has always been an important part of Ethereum's original vision.
Read more: Rethinking Ethereum consensus through Beam Chain
However, the current decentralized state of Rollups leads to asynchronous transactions between Arbitrum and Optimism, creating fee uncertainties. This uncertainty is further exacerbated by calculating gas fees at different times rather than uniformly within Ethereum's 12-second time slots.
In addition to enabling Ethereum to achieve better interoperability, this mechanism also brings significant cost savings. Ahmad Mazen Bitar, the technical lead at Nethermind, explained:
"Users can initiate a transaction on Layer-1, utilize Layer-2's deep liquidity pool to complete the operation, and then return to Layer-1. This synchronous composability makes the whole process more efficient."
Currently, the largest based Rollup is Taiko, which has seen significant growth in both TVL and daily transaction volume this month.
Source: DefiLlama
Other early based Rollup projects are also in development, such as Surge from the Nethermind team and UniFi from the Puffer Finance team. These projects are all based on the Taiko fork.
Nevertheless, based Rollups also face some challenges. As the sequencing task is handled by Layer-1 validators, its performance is limited by Layer-1's 12-second block time.
Therefore, the advantages of based Rollups (such as synchronous composability) may be difficult to fully realize in practice. It requires completing real-time zero-knowledge proofs within a 12-second time slot; otherwise, composable transactions cannot be executed quickly.
To this end, Taiko has introduced various technologies, including zk proofs from Risc Zero and Succinct Labs, as well as Intel SGX-based trusted execution environments (TEE). This makes Taiko the first based Rollup to implement multiple proofs in a production environment without relying on a single trusted party.
"The performance of provers is rapidly improving. We are seeing more trusted execution environments (TEE), more efficient and lower-cost zero-knowledge virtual machines (zkVM), and verifiable state machines (AVS) being introduced. We believe the progress of zk technology is going very smoothly, and the goal of generating proofs within sub-time slot delays is not far away," said Taiko co-founder Brecht Devos in an interview with Blockworks.
However, based Rollups also face some challenges. For example, the absence of a centralized sequencer may lead to the loss of MEV (Maximum Extractable Value), an important source of income. However, Devos stated that this issue can be addressed through some innovative methods.
In the Taiko network, 'MEV can be captured by auctioning 'execution tickets' to Layer-1 block proposers,' Devos explained to Blockworks.
Therefore, while based Rollups by default delegate sequencing rights to Layer-1 validators, this is not the only solution.
Matthew Edelen is the co-founder of Spire Labs, a company focused on Rollup infrastructure. He recently shared a similar view on the Bell Curve podcast: “Auctions are not the only way to allocate sequencing rights. We can allocate 99% of sequencing rights through auctions while giving the remaining 1% to friends or independent stakers to portray a better image on L2 Beat.”
In the long run, MEV (Maximum Extractable Value) may not be a major issue. This view comes from a simple cost-benefit analysis: currently, most of the income from blockchains comes from congestion fees, which far exceed MEV income. Moreover, as more efficient MEV solutions continue to emerge, the proportion of MEV income is gradually decreasing.
Therefore, for Rollups, a better revenue model is to leverage the network effects brought by synchronous composability to profit from congestion fees rather than relying on MEV fees.
As Justin Drake said in The Rollup podcast:
"Currently, the ratio of congestion fees to contention fees is about 80:20. In Ethereum's mainnet (Layer-1) income, 80% comes from congestion fees—approximately 3200 ETH daily since the implementation of EIP-1559. Since the merge, MEV income has been around 800 ETH daily. I believe this ratio will become even more skewed, possibly evolving from 80:20 to 99:1."
In summary, the advantages of Based Rollup have brought the Ethereum user experience back to its original state.
Interestingly, this return actually evokes the characteristics that blockchain has possessed since its inception. Synchronous composability and transaction ordering at the Layer-1 level have always been core features of blockchain since the birth of the Bitcoin network.
The differentiation of execution layer responsibilities is mainly due to the recent centralized development path of Rollups (and the multi-chain architectures of Polkadot, Cosmos, and Avalanche). Today, Rollup-based solutions are ready to reclaim this original intention.
