The Centralized Sequencer Problem of Ethereum Layer 2 Networks and Decentralization Solutions

1. Key Points

• The sorter is responsible for ordering and packaging transactions on the Layer 2 network, and is a key component. Currently, mainstream Layer 2 networks generally use centralized sorters, which pose risks such as censorship, MEV extraction, and single points of failure.

• The decentralized shared sorter network is a solution to these problems, providing sorting services for multiple Layer 2 networks, achieving censorship resistance, fast confirmation, and cross-rollup interoperability.

• Projects such as Espresso, Astria, and Radius are developing Decentralization shared sequencer solutions, each with its own features. Espresso utilizes EigenLayer, Astria collaborates with Celestia, and Radius adopts encrypted memory pools.

• Existing Layer 2 networks face three options: continue using a centralized sequencer, integrate a third-party shared sequencer, or develop a Decentralization solution on their own. Each option has its pros and cons.

• The decentralization of the sorter will be an important trend in the development of the Layer 2 ecosystem, relating to security, interoperability, and user experience. In the future, more projects will join this track.

2. Introduction

With the popularity of Ethereum Layer 2 scaling networks, the key component of the sequencer is attracting more and more attention. The sequencer is responsible for transaction ordering and can provide a better user experience, lower fees, and faster confirmations. However, mainstream Layer 2 networks currently generally adopt centralized sequencers, which pose risks such as censorship, MEV extraction, and single points of failure, contradicting the spirit of decentralization in cryptocurrency.

Although most Layer 2 projects have included the decentralization of sequencers in their roadmap, there is currently no consensus on the implementation method. This report will delve into the role of sequencers, the current state, and the decentralized shared sequencer solutions under development. We will detail the technical features of major projects such as Espresso, Astria, and Radius, and consider the implications for the future of the Ethereum Layer 2 ecosystem.

3. What is a sorter?

Blockchain is essentially a distributed ledger, composed of timestamped transaction data arranged in blocks. This transaction data is initially unordered and needs to be organized into blocks and executed after sorting, in order to create a new blockchain state. For Layer 1 blockchains like Ethereum, this transaction sorting occurs at the base layer itself.

In Layer 2 rollup networks, transaction ordering has become an important issue. The main function of rollup is to provide users with a secure place for low-cost transactions. Simply put, Layer 2 rollup provides users with an execution layer, and then submits the transaction data to the upper Layer 1. A single batch of transactions submitted to Layer 1 typically contains hundreds or thousands of compressed Layer 2 transactions, thereby reducing the cost of sending data to Layer 1.

In the Layer 2 rollup world, a sequencer is an entity that has the authority to sort transactions into batches. The sequencer receives unordered transactions from users, processes them into batches off-chain, and then generates a batch of compressed ordered transactions. These transactions can be placed into a block and sent to Layer 1. The sequencer also provides users with near-instant receipts as "soft confirmations," while "hard confirmations" are received after the transactions are sent to Layer 1.

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 Layer 2 transactions is similar to using a "fast lane", allowing for lower fees and faster confirmations. The sorter can batch compress hundreds or thousands of Layer 2 transactions into a single Layer 1 transaction, thereby saving gas fees. In addition, the soft confirmations provided by the sorter enable rollup transactions to offer users quick confirmations.

Importantly, rollups do not have to use a sequencer; this is just a design choice made for a better user experience. For example, rollups can also use Ethereum Layer 1 for sequencing, but this may be less efficient and more costly. This is why, so far, every major Layer 2 project has chosen to operate centralized sequencers, believing that it is more convenient, cheaper, and easier to use.

However, since the sequencer controls the order of transactions, it theoretically has the authority to exclude user transactions from it ( even though users can submit transactions directly to Layer 1 ). The sequencer can also extract MEV from the transaction pool, which could lead to economic losses for users. If there is only one centralized sequencer, the risk of a single point of failure becomes greater.

With this setup, the sorter can be seen as a semi-trusted party for the user. Although the sorter cannot prevent users from using Layer 2, it can delay user transactions, lead to additional gas fees, and extract value from user transactions.

The relevance of MEV

MEV(, the Maximum Extractable Value, ) is particularly important here. MEV refers to the additional value obtained from block production beyond standard block rewards and gas fees, extracted by manipulating the order of transactions within the block. Common forms include front-running and sandwich attacks.

Given the role of the sorters in Layer 2 rollup, they can understand all off-chain user transactions. Since these sorters are often run by the projects themselves or affiliated teams, many users are concerned about the inability to see potential MEV extraction. Even without these concerns, the use of centralized sorters will affect the degree of decentralization of these protocols.

Current Status of the Sorter Market

Currently, all major Ethereum Layer 2 networks rely on centralized sequencers. As more and more Ethereum transactions move to Layer 2, although the Ethereum validator set itself is decentralized, a large number of transactions seem to be influenced by centralized forces in the form of centralized sequencers.

Most Layer 2 projects have included the decentralization of sequencers in their roadmaps. However, it is worth noting that Arbitrum and Optimism launched their own solutions at the end of 2021, and it can be said that they have not made significant 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 networks mature, discussions are quickly shifting towards sorting Decentralization and enhancing credibility.

Other issues

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

As mentioned earlier, due to the sequencer controlling the order of transactions, they can exclude user transactions and extract MEV. However, sequencers ultimately cannot completely exclude users from rollup transactions; users can bypass the sequencer and submit transactions directly to Layer 1 as long as they are willing to pay higher gas fees. This may be one of the reasons why some large Layer 2 projects have not paid much attention to decentralized sequencers in the past. However, the issue of sequencers reordering transactions to extract MEV remains a problem, especially for private memory pools.

Perhaps the bigger issue is usability. If the only centralized sequencer encounters a problem, the entire rollup network will be affected. While users can still directly access Layer 1 to complete transactions, this is not a sustainable approach and is not suitable for most transactions. Considering that one of the fundamental ideas of cryptocurrency is to avoid reliance on a single centralized provider, the centralization of sequencers is clearly an important issue that needs to be addressed.

4. Solution: Decentralization Shared Sorter

( Overview

The new solution to the above problem is a decentralized shared sequencer. The specific implementations of different projects vary, but the basic concept is to replace a single centralized sequencer with a decentralized network. Here, "shared" refers to multiple rollups being able to use the same network, where transactions from multiple rollups are aggregated in a memory pool before sorting. This helps to reduce the possibility of MEV extraction and censorship. "Decentralization" refers to the use of a leader rotation mechanism to select a sequencer from a group of decentralized nodes. This helps to prevent censorship and provides availability guarantees.

This is very similar to the way various Layer 1 operate using a leader rotation mechanism. In fact, building a decentralized sorting layer is similar to building a decentralized Layer 1, both requiring the construction of a validator set. Different projects have taken different approaches to meet this requirement.

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

1. Decentralization as a Service: The shared sequencer solution aims to provide sequencer decentralization services for any number of rollups. All of these rollups will benefit from the censorship resistance and availability provided by the decentralized network, without having to build that network themselves. Considering that this could be a very costly and time-consuming process, this is a major selling point of the shared sequencer network.

2. Cross-rollup composability: Because these shared sequencer solutions are designed to handle transaction ordering for multiple rollups, they can provide unique interoperability guarantees that are currently not achievable. For example, users can specify that a transaction on Rollup 1 is only executed if a specific transaction on Rollup 2 is also included in the same block. This conditional transaction inclusion can unlock new possibilities, including atomic cross-rollup arbitrage, among others.

In the following, we will focus on several major shared sorter projects and their strategies.

) Espresso

Espresso Systems is dedicated to building tools that bring Web3 into the mainstream, with a particular focus on Layer 2 rollups and the Ethereum ecosystem.

The Espresso sorter is a decentralized shared sorting network designed for decentralized rollup, while providing secure, high-throughput, low-latency transaction sorting and data availability. Its design aims to handle decentralized sorting and data availability for rollup, acting as a middleware network between rollup and the underlying Layer 1.

The core of the Espresso sorter is the HotShot consensus protocol. HotShot is open and permissionless, decentralizing the power of the sorter network while providing high throughput and fast finality, as well as ensuring security and availability. HotShot adopts a proof-of-stake security model, and one of the key requirements proposed by the Espresso team is to achieve robust performance without affecting the size of the validator set.

Espresso Systems aims to achieve Ethereum-level security for its sequencer by utilizing Ethereum's existing validator set. There are two key reasons for this setup:

1. Security: The cost of launching a Decentralization PoS consensus protocol is extremely high. By using the same validators as Ethereum, the sorter can achieve a level of security, availability, and decentralization that is very difficult for it to reach on its own.

2. Incentive Alignment: Conceptually, it makes sense to involve Ethereum Layer 1 validators in running the protocols used by Ethereum Layer 2 rollups. Decentralizing the sequencer and collaborating with Layer 1 validators to ensure its security is a good way to alleviate associated concerns.

Espresso will seek to achieve this by establishing a partnership with EigenLayer. Through EigenLayer's re-staking, users can stake their Ethereum and Ethereum liquid staking tokens across multiple protocols, thereby extending economic security beyond Ethereum itself.

Espresso also utilizes its efficient Tiramisu data availability solution to reduce transaction costs. Tiramisu has three layers: the Savoiardi base layer provides the highest level of security, the Mascarpone middle layer ensures efficient data recovery through the election of a small data management committee, and the Cocoa top layer provides a content delivery network for Tiramisu.

Espresso Systems recently announced multiple partnerships, including integrations with projects like Polygon zkEVM, Injective, AltLayer, Caldera, and Spire. They also launched the Doppio testnet, which is the second major milestone for HotShot and the Espresso sorter.

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( Astria

Astria is building a shared sequencer network while developing Astria EVM as the first rollup supported by this network.

Astria's shared sequencer network allows multiple different rollups to share a single, permissionless, decentralized sequencer network. With this network, Astria provides a ready-to-use solution that gives rollups censorship resistance, fast block confirmation, and atomic cross-rollup composability.

The Astria network itself is a middleware blockchain that achieves consensus on a set of ordered transactions using CometBFT. This network accepts transactions from multiple rollups, sorts them into a block, and writes them into the data availability layer.

Rollups can immediately obtain sorted blocks from Astria after block creation, providing users with quick confirmation through a "soft commitment." Alternatively, rollups can retrieve ordered blocks from the data availability layer for a "hard commitment."

Astria EVM will be the first one by Astria.