The Rollup of Ethereum has Centralization Issues: An In-Depth Discussion on Decentralized Sequencers

1. Key Points

• Transaction ordering has become an increasingly serious problem in the second layer (L2) field. The main purpose of L2 rollups is to provide users with a secure place for low-cost transactions, and then submit the transaction data to the upper layer first layer (L1).

• The sorter is an entity responsible for organizing transactions into groups. It receives unordered transactions from users, processes them off-chain into groups, and then generates compressed ordered transaction batches to submit to the parent L1.

• Rollups actually do not require a sequencer; this is just a design choice to provide a better experience for users. However, using the Ethereum base layer for sequencing may be less efficient and more costly. Therefore, most of the current major L2 rollup projects choose to run centralized sequencers, which are more convenient, cost-effective, and user-friendly.

• Due to the sorter controlling the order of transactions, it has the right to review user transactions ( although a complete review is unlikely ). The sorter can also extract the maximum extractable value ( MEV ), which may cause economic losses to users. Moreover, if the only centralized sorter goes down, the entire rollup will be affected, leading to validity issues.

• The solution is a shared, decentralized sequencer. In addition to addressing issues such as censorship, MEV extraction, and validity, shared sequencers also introduce cross-rollup functionality, opening up various new possibilities. Projects like Espresso, Astria, and Radius are developing innovative shared sequencing solutions.

2. Introduction

With the proliferation of the Ethereum L2 rollup ecosystem, the often-overlooked aspect of sequencers has become increasingly important. Sequencers are responsible for transaction ordering, and by utilizing sequencers, rollups can provide a better user experience, lower fees, and faster transaction confirmations. However, currently all major Ethereum L2 projects have found that running their own centralized sequencers is the most convenient, user-friendly, and cost-effective approach. Considering the power of sequencers in transaction review, MEV extraction, and single points of failure, this could be seen as an undesirable outcome that is not in line with the spirit of cryptocurrency.

Although most cryptocurrency projects include decentralized sequencers as part of their roadmap, there is no consensus on how to achieve decentralization. Notably, Arbitrum and Optimism have launched solutions since the second half of 2021, but have not made substantial progress in decentralized sequencers.

This report will delve into the role of sorters and the current state of the Ethereum rollup space, exploring projects that are developing solutions, particularly decentralized shared sorting networks. We will detail these projects and the uniqueness of their solutions, and contemplate what this might mean for the future development of the Ethereum L2 rollup space.

3. What is a sorter?

Blockchain is essentially a distributed ledger composed of timestamped transaction data ordered by blocks. Initially, this transaction data was unordered and unorganized. Once sorted, it can be organized into blocks and executed to create a new state of the blockchain. For L1 blockchains like Ethereum, transaction sorting occurs at the base layer itself.

In the most popular scalability solution on Ethereum - L2 rollup, transaction ordering has become an increasingly serious problem. L2 rollup provides users with an execution layer, and then submits transaction data to the upper L1. A single batch of transactions submitted to L1 typically contains hundreds or thousands of compressed L2 transactions, thereby reducing the cost of sending data to L1.

In L2 rollups, the sequencer is the entity authorized to group transactions in order. It receives unordered transactions from users, processes them off-chain into groups, and then generates compressed ordered transaction batches. These transactions can be included in blocks and sent to the parent L1. The sequencer also provides an almost instant receipt as a "soft confirmation" immediately after receiving user transactions. A "hard confirmation" is received after the transaction has been sent to the L1 layer.

Why do Rollups need to use sequencers, and why is it a problem?

The fundamental goal of the sorter is to improve user experience. Using the sorter for L2 transactions is akin to using a "fast lane", meaning lower fees and faster transaction confirmations. The sorter can compress hundreds or thousands of L2 transactions into a single L1 transaction, thereby saving gas fees. In addition, the soft confirmations provided by the sorter allow rollup transactions to offer users quick block confirmations.

It is important to remember that rollups do not require a sequencer; they are simply a design choice made for a better user experience. For example, rollups can also use Ethereum L1 for sequencing. However, the base layer of Ethereum can be relatively inefficient and expensive, especially considering the high volume of L2 transactions. This means that currently, every major L2 project has found it more convenient, cheaper, and easier for users to operate a centralized sequencer.

Since the sequencer controls the order of transactions, it has the authority to exclude user transactions from it ( even though users can submit transactions directly to L1 ). The sequencer can also extract MEV from transactions, which may cause economic losses to the user base. If there is only one sequencer, the centralization risk is greater. If the only sequencer fails, the entire rollup will be affected, leading to validity issues.

MEV correlation

MEV refers to the additional value obtained from block production that exceeds the basic mining ( or staking ) rewards and gas fees. It is extracted by manipulating the order of transactions within the block, such as front-running and sandwich attacks.

Due to the fact that the sorter can understand all user transactions off-chain and is usually operated by the project itself or affiliated teams, many users are concerned about potential MEV extraction. Even without these concerns, centralized sorters can affect the trustworthiness and degree of decentralization of the protocol.

Status of the Sorter Market

Currently, all major Ethereum L2s rely on centralized sequencers. As more and more Ethereum transactions are moved to L2, a large number of transactions will be influenced by centralized forces in the form of a unique sequencer.

Most L2 projects have made the decentralization of sequencers a part of their roadmap. However, Arbitrum and Optimism launched their solutions at the end of 2021, but have not made substantial progress in decentralized sequencers.

Most top projects seem to be allocating resources to improve core products and features, rather than focusing on Decentralization. This is understandable in a competitive environment, but as the network matures, discussions are quickly shifting towards prioritizing decentralization and enhancing credibility.

Other issues

There is some discussion about the level of risk associated with relying on centralized sorters.

Although the sorter controls the order of transactions, it ultimately cannot completely exclude users from rollup transactions. Users can bypass the sorter and submit transactions directly to L1 as long as they are willing to pay the additional fee (. The sorter may cause transaction delays and users to incur additional costs, but it cannot fully censor. This may be one of the reasons why large L2 projects pay less attention to decentralized sorters.

Perhaps the bigger issue lies in effectiveness. If the only centralized sorter encounters a problem, the entire rollup will be affected. Although users can still access L1 directly to complete transactions, this is not sustainable and does not apply to most transactions.

Given that one of the fundamental ideas of cryptocurrency is to avoid reliance on a single centralized provider, the centralization of sorters is clearly an important issue that needs to be addressed, and it is one of the key improvements that shared sorters will bring to the L2 rollup market.

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4. Solution: Decentralized Shared Sorter

) Overview

The new solution to the problems mentioned above is a decentralized shared sequencer. Although the solutions of different projects vary, the basic concept remains the same. "Shared" means that multiple rollups can use the same network, and transactions from multiple rollups are aggregated in a memory pool before being sequenced. "Decentralization" refers to the leader rotation mechanism, where a leader is selected from a group of decentralized actors to perform the sequencing. This helps prevent censorship and provides validity guarantees.

The shared sequencer aims to alleviate the MEV extraction problem, provide censorship resistance, and enhance the effectiveness guarantees of rollups. Additionally, there are two more points worth noting:

• Decentralization as a Service: The shared sequencer solution provides decentralized services for multiple rollups without the need to build a network independently. This is a major advantage, as currently no project has decentralized sequencers, indicating that this is not an easy task.

• Cross-rollup composability: By processing the transaction ordering of multiple rollups, a shared sequencer can provide unique interoperability guarantees, such as conditional transaction inclusion, opening up new possibilities.

Here are a few major shared sorter projects:

Espresso

Espresso Systems is committed to building tools that bring Web3 into the mainstream, with a particular focus on L2 rollups and the Ethereum ecosystem.

Espresso sorter is a decentralized shared sorting network designed for decentralized rollup, while providing secure, high-throughput, low-latency transaction sorting and data availability. It acts as a middleware network between rollup and the underlying L1, designed to be independent of virtual machines.

The core is the HotShot consensus protocol, based on the HotStuff protocol and incorporating several recent developments. HotShot is open and permissionless, adopting a PoS security model, and aims to scale to include all Ethereum validators.

Espresso aims to achieve Ethereum-level security for its sequencer by leveraging the existing set of validators on Ethereum. There are two key reasons for this: 1### Security: Utilizing Ethereum validators can achieve levels of security and decentralization that are difficult to realize on one's own. 2) Incentive Alignment: It is reasonable for Ethereum validators to participate in the operation of the protocols used by L2 rollup.

Espresso will achieve this collaboration by partnering with EigenLayer. EigenLayer allows users to stake Ether across multiple protocols, thereby extending economic security beyond Ethereum.

Espresso also uses the Tiramisu data availability solution to address the high costs of L1 data. Tiramisu consists of three layers: Savoiardi ) anti-bribery layer (, Mascarpone ) efficient data recovery (, and Cocoa ) optional content delivery network (.

Espresso has announced multiple collaborations, including integrations with Polygon zkEVM, Injective, AltLayer, Caldera, and Spire. They have launched the Americano and Doppio testnets and released a white paper and performance benchmarks.

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) Astria

Astria is building a shared sequencer network while developing Astria EVM. Their network allows multiple rollups to share a decentralized sequencer.