As Ethereum’s network congestion continues to rise, rollup networks like Arbitrum, Optimism, and Coinbase’s Base are becoming attractive alternatives for conducting transactions. These layer 2 networks are responsible for verifying, ordering, and compressing transactions into packages that can be shipped down to the main Ethereum chain. The entity responsible for this process is known as the sequencer, which is paid a small portion of the fees collected from users.
However, the reliance on a centralized sequencer has raised concerns about single points of failure, potential censorship, and the possibility of authorities shutting it all down. Coinbase’s Base network, for example, is estimated to produce an estimated $30 million of net revenue annually. Despite the potential for juicy revenue, technology exists for decentralized L2 sequencing, which would spread out the sequencer role across multiple parties. Coinbase and other rollup platforms plan to embrace this tech, but thus far, decentralized sequencers have proven difficult to implement at scale without slowing things down or introducing security risks.
When it comes to layer 2 security concerns, sequencers may be a red herring. Blockchain users mostly care that their transactions are processed as expected, and their wallets are safe from unauthorized transactions of lost funds. If they act maliciously, centralized sequencers can theoretically slow things down or re-order transactions to extract MEV – but they don’t generally have the ability to fully censor, augment or spoof new transactions.
When it comes to the things that make an L2 a good L2, said Sandy Peng, co-founder of the Scroll rollup, decentralizing sequencers is lower down on our priority list. Notably, the popular Optimism rollup and Coinbase’s Base chain lack fraud proofs and an escape hatch mechanism for users to withdraw their funds onto Ethereum in the event that a sequencer fails.
Ethereum co-founder Vitalik Buterin has proposed a set of stages, numbered zero to two, for classifying the decentralization of different rollup networks. According to Buterin’s model, every leading rollup network currently relies on some kind of training wheels. Until they have working fraud proofs, Optimism and Base will be considered stage 0. The most direct competitor to Optimism and Base, Arbitrum, scores more highly because it has fraud proofs, but is still generally considered a stage 1 rollup.
The training wheels of L2Best documents stretch from the lack of fraud proofs (or validity proofs, in the case of ZK rollups) to centralized upgrade controls. If the L2 watchdog shows anything, it’s that centralized sequencers are far from the biggest issue L2 platforms will need to contend with in order to make good on the promise of borrowing Ethereum’s security.