From Theory to Practice: Can Based Rollup Achieve L1 Sorting-Driven Rollup Solutions?

Author: YBB Capital Researcher Ac-Core

Introduction:

Ethereum works by having each node store and execute every transaction submitted by users. To scale the entire network, Ethereum has adopted the Rollup solution. In simple terms, it moves most transaction processing off-chain (L2), thereby reducing the burden on the Ethereum mainnet (L1) and lowering transaction fees. That is, Rollup = a set of smart contracts on L1 + network nodes on L2, which consists of on-chain smart contracts and off-chain aggregators. Its settlement, consensus, and data availability rely on Ethereum itself, only responsible for executing transactions. The L2 network nodes consist of multiple parts, with the sequencer being the most important. However, currently, the sequencers of Rollup face centralization issues.

Rollup and Sequencer

Rollup is a scaling solution for Ethereum (L1) that executes transactions off-chain and packages them into blocks. For each block, Rollup publishes the data needed to reconstruct the chain state (as a source of data availability) to the data availability layer and publishes the proof of off-chain execution correctness to the settlement layer (there are two types of Rollup; in the case of ZK-rollup, zero-knowledge proofs are published for each block, while in the case of Optimistic rollup, fraud proofs are only published in the event of a dispute). After EIP-4844, when data publication switches to blobs, this layer may be referred to as the "data publication layer." The smart contracts of Rollup on L1 verify the published proofs, and each Rollup has one or more bridges to facilitate data transfer between chains as well as deposits and withdrawals.

In the implementation logic of Rollup, the sequencer is a key component responsible for receiving transaction requests on L2, determining their execution order, and packaging transactions into batches (Batch) to ultimately send to the Rollup smart contract on L1, playing an important role in improving transaction processing efficiency and reducing costs.

The functions and working principles of the sequencer mainly consist of four parts.

1. Receiving Transactions: The sequencer receives transaction requests from users or applications. These transactions are first processed on L2, rather than directly on the Ethereum mainnet;

2. Sorting Transactions: The sequencer is responsible for sorting the received transactions and determining their execution order. This process is similar to what Ethereum miners do before packaging transactions into blocks;

3. Packaging Transactions: The sequencer packages the sorted transactions into batches, which contain summary information of multiple transactions;

4. Submitting to L1: Finally, the sequencer submits the packaged transaction batches to the Ethereum mainnet (L1) for settlement and data storage. This allows L1 to verify and store the state updates from L2.

Although Rollup technology provides an effective scaling solution, there are still some issues in the design and implementation of the sequencer, with centralization being the foremost concern. Most Rollup projects currently rely on centralized sequencers, typically controlled by a single entity or a few entities, leading to the obvious risks of lack of transparency and single points of failure.

Setting aside the above rigid explanations, discussions about decentralized sequencer solutions for L2, whether it is the L2 solution of Metis directly opening the staking of sequencer pool nodes to the market mentioned in previous articles by YBB Capital, or the independent project Espresso, are essentially about the distribution of the "profit cake" of sequencing and the future expectations of market speculation. Therefore, interests and legitimacy are the key factors that cannot be avoided.

Historical Background and Design of Based Rollup

Image source: @drakefjustin

The concept of Rollup was first proposed by Ethereum founder Vitalik Buterin, whose initial idea was to achieve a completely unconstrained "Total Anarchy" state to allow anyone to expand transactions without limits. In light of the current issues with sequencers, in 2023, Ethereum researcher Justin Drake proposed a solution where the sequencer is managed by Ethereum L1 itself, called Based Rollups, which is defined as follows (source can be found in extended link 1):

Definition:

"When the aggregated sequencing is driven by the base layer (L1), we call it L1-based or L1-sequenced aggregation. Specifically, L1-based aggregation refers to the next L1 proposer being able to collaborate with L1 searchers and builders to include the next Rollup block in the next L1 block without permission."

Advantages:

• Liveness: Based Rollup enjoys the same liveness guarantees as L1. Note that non-Based Rollups with escape hatches have reduced liveness (escape hatches are a security mechanism in Rollup that allows users to safely withdraw assets from L2 back to the L1 main chain when issues arise in the Rollup system. It is similar to an emergency exit);

Weaker settlement guarantees: Transactions through escape hatches must wait for a timeout period before settlement is guaranteed;

MEV based on censorship: Rollups with escape hatches are susceptible to adverse MEV effects from short-term sequencer censorship during the timeout period;

Network effects at risk: Large-scale exits triggered by sequencer liveness failures (e.g., a 51% attack on a decentralized PoS sequencing mechanism) would undermine the network effects of Rollup. Note that unlike L1, Rollup cannot gracefully recover from sequencer liveness failures using social consensus. In all known non-Based Rollup designs, large-scale exits hang like the sword of Damocles;

Gas penalties: Transactions settled through escape hatches typically impose Gas penalties on their users (e.g., due to suboptimal data compression from non-batch packaged transactions).

• Decentralization: Based Rollup inherits the decentralization of L1, naturally reusing the infrastructure of L1 searchers - builders - proposers. L1 searchers and builders are incentivized to include Rollup blocks in their L1 blocks to extract Rollup's MEV. This, in turn, incentivizes L1 block proposers to package Rollup blocks on L1.

• Simplicity: Based Rollup sequencing is the simplest, even simpler than centralized sequencing. Based Rollup does not require verification of sequencer signatures, escape hatches, or external PoS consensus.

Historical Note: In January 2021, Vitalik referred to the L1-based sequencing scheme as "total anarchy," which carries the risk of simultaneously submitting multiple Rollup blocks, leading to wasted Gas and work. The current block proposer-builder separation scheme (Proposer-Builder Separation, PBS) can strictly control L1 sequencing, allowing at most one Rollup block per L1 block, thus avoiding Gas waste. When the n+1 block of Rollup (or for k >= 1, n+k) includes the SNARK proof of block n, it can avoid wasting the proof work of ZK-rollup.

• Cost: The Gas overhead of Based Rollup is zero ------ it does not even require verification of signatures from decentralized or centralized sequencers. The simplicity of Based Rollup reduces development costs, shortens release times, and minimizes the exposure of code vulnerabilities. The sequencing of Based Rollup also does not require tokens, avoiding the regulatory burden of token-based sequencers.

• L1 Economic Alignment: The MEV derived from Based Rollup naturally flows to its underlying L1. This flow strengthens the economic security of L1 and increases the economic scarcity of L1 native tokens in the case of MEV destruction. This close economic tie with L1 may help build the legitimacy of Based Rollup. Importantly, although sacrificing MEV revenue, Based Rollup retains the option to earn revenue from L2 congestion fees (e.g., L2 base fees in the form of EIP-1559).

• Sovereignty: Although sequencing is delegated to L1, Based Rollup retains sovereignty. Based Rollup can have a governance token, charge base fees, and utilize the proceeds from these base fees when appropriate (e.g., Optimism funds public goods).

Disadvantages:

• No MEV Revenue: Based Rollup relinquishes MEV to L1, limiting its revenue to base fees. Counterintuitively, this may increase the total revenue of Based Rollup. The reason is that the landscape of Rollup seems to be winner-takes-all, and the winning Rollup may leverage the security, decentralization, simplicity, and consistency of Based Rollup to achieve dominance and ultimately maximize revenue.

• Constrained Sequencing: Delegating sequencing to L1 reduces sequencing flexibility. This makes certain sequencing services more difficult or even impossible to implement:

• Pre-confirmation: Rapid pre-confirmation is not an issue for centralized sequencing and can be achieved through external PoS consensus. Using L1 sequencing for rapid pre-confirmation is an open question with many promising research directions, including EigenL, Inclusion Lists, and Builder Bonds.

• First-Come, First-Served (FCFS): Arbitrum-style FCFS sequencing is uncertain whether it can be implemented on Based Rollup. EigenL may provide an FCFS overlay for L1 sequenced Based Rollup.

Naming:

The name "Based Rollup" derives from its closeness to the base chain (Base L1). This coincides with Coinbase's recent announcement of the Base chain, which is a remarkable coincidence. In fact, Coinbase shared two design goals in their Base announcement:

• Tokenlessness: "We have no plans to issue new network tokens."

• Decentralization: "We […] plan to gradually decentralize the blockchain over time."

Base can achieve tokenless decentralization by becoming a Based Rollup.

Image source: @jchaskin22

In summary, Based Rollup allows anyone to scale to Rollup blocks, publishing the sorted transaction state changes to L1 to extract MEV from L2, with all sequencing and security provided by Ethereum L1. This avoids the need for external proof-of-stake consensus and specific Rollup token requirements. Compared to other Rollups, which require the essential "emergency escape hatch" function to secure assets, Based Rollup's vision can eliminate this process, allowing transactions on Rollup to be completed smoothly while ensuring Ethereum's secure operation.

Taiko Labs on Based Rollup

Image source: Taiko official website

Taiko Labs is the main team developing and promoting Based Rollup, which is Taiko Labs' project in Ethereum's second-layer scaling solutions. Its vision is to solve the scalability issues of the Ethereum mainnet through innovative technologies like Based Rollup. It has three main characteristics:

1. Fully equivalent to Ethereum's EVM (Type 1) ZK-EVM: The (Type 1) zkEVM used has complete compatibility with Ethereum, allowing developers to seamlessly migrate decentralized applications (dApps) between Ethereum and Taiko without worrying about the risk of smart contract execution failures;

2. Open Source: All of Taiko's source code is publicly available on GitHub, allowing anyone to view, build, or modify it. This open-source model ensures that the development of blockchain technology is not limited to the efforts of a small team but encompasses a global community of developers;

3. Fully Decentralized: In addition to ensuring high compatibility with EVM, Taiko is also committed to achieving complete decentralization of the protocol. Taiko plans to submit blocks and generate zkPs through decentralized proposers and validators to ensure the decentralized nature of the system.

Taiko is committed to building a Type 1 ZK-EVM that is fully equivalent to Ethereum, as mentioned by Vitalik Buterin in "The different types of ZK-EVMs" (see extended link 2). The goal is to be fully compatible with Ethereum to verify Ethereum blocks (at least verifiable execution layers, excluding beacon chain consensus but including all transactions, smart contracts, and account logic, and will not replace hashes, state/transaction trees, and other consensus logic). Therefore, compared to other types, Type 1 is the most complex and challenging to approach a native solution.

Image source: Vitalik Buterin: "The different types of ZK-EVMs"

Other Core Structures:

Base Competitive Rollup (BCR)

is an innovative blockchain scaling solution developed by Taiko Labs. BCR aims to improve the efficiency and security of Rollup through competitive mechanisms, allowing different participants to freely compete to submit blocks and generate proofs, thereby enhancing the overall performance and decentralization of the network, summarized as follows.

• Features

Open Competition: Allows any qualified participant to compete to submit blocks and generate proofs, reducing centralized control and increasing the decentralization of the network. Competitors earn rewards and transaction fees by providing better services;

Efficient Scaling: Can effectively enhance the efficiency of block generation and verification. Multiple competitors can work in parallel, avoiding single points of bottleneck, improving transaction processing speed and network scalability;

Security: By involving multiple participants in a competitive mechanism, the system's resistance to attacks is improved. Blocks and proofs generated through multi-party competition increase the transparency and security of the system, making it difficult for a single entity to control or attack.

• Advantages

EVM Compatibility: BCR is fully compatible with the Ethereum Virtual Machine (EVM), allowing existing Ethereum smart contracts and decentralized applications (DApps) to easily migrate to BCR without significant modifications;

High Throughput: Since BCR can process transactions and generate blocks in parallel, the network's throughput is significantly increased, enabling it to handle higher transaction volumes while reducing transaction costs and delays;

Decentralization: Through decentralized block generation and proof mechanisms, the network's decentralized characteristics are ensured, reducing the risk of control by centralized entities.

• Disadvantages

Increased Complexity: The system's complexity requires sophisticated algorithms and protocols to coordinate block generation and verification among multiple competitors, and the complexity of smart contracts may require additional logic to handle competition results;

Potential Issues: In the competitive mechanism of BCR, when multiple competitors simultaneously compute and submit blocks, it may lead to increased fees. Users may face higher transaction fees when using BCR, especially during busy or highly competitive times. Additionally, resource-rich large nodes may gain an advantage in competition, leading to centralization.

BBR-Based Booster Rollup

The booster in BBR is a special participant responsible for optimizing transaction batches, compressing transaction data, and parallel processing of multiple transaction batches. Its actual role is to separate execution and storage, maintaining L2 execution while keeping L1 decentralized, and ensuring that smart contracts maintain consistent addresses on L1 and all BBRs.

At the same time, it also faces challenges such as increased system complexity, resource consumption, and potential centralization. In the future, BBR still needs further optimization and expansion to meet the evolving demands of blockchain technology.

Image source: Taiko Labs

Conclusion:

Overall, Based Rollup represents a significant shift in Ethereum's second-layer scaling approach, directly delegating the sequencing of Rollup to L1 proposers. By utilizing the separation design of proposers and builders, L1 performs all the roles of sequencers for Rollup. This also allows MEV to be expanded, enabling L2 searchers to bundle transactions and send them to L2 builders, who are also searchers on L1. These complete L2 blocks then become part of L1 blocks, ultimately processed by L1 builders and the Ethereum mainnet.

Whether Based Rollup can be assumed as the ultimate solution for Rollup remains to be seen, but it is undeniable that it is a significant innovation in Ethereum's second-layer scaling at this stage, providing a more secure and decentralized solution for scaling. If the same thinking is applied to the Bitcoin ecosystem, the implementation difficulty compared to Ethereum's native and decentralized VM with strong scalability is understandable. Therefore, the entire industry still has a long way to go in solving the problem of truly decentralized scaling.

Extended Links:

【1】 Based rollups---superpowers from L1 sequencing https://ethresear.ch/t/based-rollups-superpowers-from-l1-sequencing/15016/1

【2】 The different types of ZK-EVMs https://vitalik.eth.limo/general/2022/08/04/zkevm.html

Reference Articles:
【1】 The Game of Trust: Rollups Controlled by Multi-signatures and Committees https://mp.weixin.qq.com/s?_biz=Mzk0OTYwMDM1Mg==\&mid=2247486544\&idx=1\&sn=7a0ee8eb1d32e6ef0bd08354986c0a1f\&source=41#wechatredirect

【2】 Taiko Research Report: Achieving Seamless Scaling and Full Compatibility for Ethereum Layer 2 Solutions https://www.panewslab.com/zh/articledetails/id09jfto.html