Ethereum's Rollup is centralized: Exploring Decentralized Orderers

1. Key Points

• Transaction ordering has become an increasingly serious issue in the second layer (L2) domain. L2 rollups provide users with a cost-effective execution layer for transactions, which then submits transaction data to the first layer (L1) Ethereum.

• The sorter is responsible for organizing transactions into batches. They receive unordered transactions, process them off-chain into groups, and generate compressed ordered transaction batches to submit to L1.

• Rollups do not necessarily require a sequencer; this is merely a design choice to provide a better user experience. However, currently all major L2 projects have found that running a centralized sequencer is more convenient, cheaper, and user-friendly.

• Centralized order book has issues such as transaction censorship, MEV extraction, and single points of failure. The solution is a shared decentralized order book network.

• Shared sequencers provide decentralized services for rollups. In addition to addressing the aforementioned issues, they can also enable cross-rollup functionality, opening up 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 improve rollups by providing a better user experience, lower fees, and faster transaction confirmations. However, currently all major L2 projects use centralized sequencers, which may be seen as contrary to the spirit of cryptocurrency.

Although most L2 projects plan to decentralize their sequencers, there is no consensus on how to achieve this. Since the second half of 2021, Arbitrum and Optimism have made limited progress on decentralized sequencers.

This report will detail the role of sorters and the current state of the Ethereum rollup space, delving into projects that are developing solutions, namely a decentralized shared sorting network. We will introduce the uniqueness of these projects and contemplate what this means for the future of the Ethereum L2 rollup space.

3. What is a sorter?

Blockchain is a distributed ledger composed of time-stamped transaction data sorted into blocks. Initially, the transaction data is unordered, and after sorting, it is organized into blocks and executed, creating 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 important issue. Rollups provide users with a low-cost execution layer for transactions and then submit the transaction data to L1. A single batch of submitted transactions often contains hundreds or thousands of compressed L2 transactions, reducing the cost of sending data to L1.

In L2 rollups, the sequencer is responsible for ordering transactions into batches. They receive unordered transactions, process them off-chain into batches, and generate compressed ordered transaction batches. These transactions can be included in blocks and sent to L1. Batch transactions can also be used at the data availability (DA) layer. The sequencer also provides users with "soft confirmation" as an almost instant receipt.

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

The fundamental goal of a sorter is to improve user experience. Using a sorter for L2 transactions is similar to a "fast lane", which can reduce fees and accelerate transaction confirmations. The sorter can compress hundreds or thousands of L2 transactions into a single L1 transaction, saving gas fees. Additionally, the soft confirmations provided by the sorter allow rollup transactions to be confirmed quickly.

Importantly, rollups do not require a sequencer; this is merely a design choice for a better user experience. For example, rollups can also use Ethereum L1 for sequencing, but this may be relatively inefficient and costly. This means that currently all major L2 projects have found it more convenient, cheaper, and user-friendly to run centralized sequencers.

Given that sorters control the order of transactions, they can exclude user transactions and also extract MEV. If there is only one sorter, the centralization risk is greater. If the only sorter fails, the entire rollup will be affected. A multi-sorter setup can reduce this risk.

With this setup, the sorter can be seen as a semi-trusted party for the user. While it cannot prevent users from using L2, it can delay transactions, incur additional gas fees, and extract value from transactions.

The relevance of MEV

MEV refers to the value extracted from block production that exceeds the normal rewards, achieved by manipulating the order of transactions. Common forms include front-running and sandwich attacks.

Given the role of sequencers in L2 rollups, they can understand all off-chain transactions. Since they are usually run by the projects themselves, many users are concerned about the inability to see potential MEV extraction. Even without these concerns, centralized sequencers can affect the degree of decentralization of the protocol.

The current status of the sorter market

Currently, all major Ethereum L2s rely on centralized sequencers. As more and more transactions move to L2, a large number of transactions will be influenced by centralized forces.

Most L2 projects plan to decentralize the sequencer, but progress has been limited. Many projects are allocating resources to improve core products rather than focusing on decentralization. This is somewhat understandable, but as projects mature, discussions are quickly shifting towards sequencer decentralization.

Other issues

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

Sorters can exclude transactions and extract MEV, but users can ultimately bypass the sorter and submit transactions directly to L1. While this may cause delays and additional costs, sorters cannot fully audit. This may be one of the reasons why large L2 projects are less focused on decentralized sorters.

Perhaps a bigger issue is real-time performance. If the only centralized sorter encounters problems, the entire rollup will be affected. Although users can still access L1 directly, this is not a long-term viable method.

Given that one of the fundamental principles of cryptocurrency is to prevent reliance on a single centralized provider, the centralization of the sorter is clearly an important issue that needs to be addressed.

4. Solution: Decentralized Shared Sorter

Overview

The new solution to the above problem is a Decentralization shared sorter. The specific solutions for different projects vary, but the basic concept is the same.

"Sharing" refers to multiple rollups being able to use the same network, with transactions from multiple rollups aggregated in a single mempool before sorting. This helps reduce MEV extraction and censorship.

"Decentralization" refers to the use of a leader rotation mechanism, where not a single actor sorts all transactions, but a leader is selected from a group of decentralized actors. This helps prevent censorship and provides validity guarantees.

The shared sorter is designed to alleviate MEV extraction, provide censorship resistance, and enhance the effectiveness guarantees of rollups. Additionally, there are two other points worth noting:

1. Decentralization as a Service: Shared sequencers provide decentralized services for any number of rollups, allowing them to benefit from censorship resistance and efficiency without having to build a network themselves. This is a major selling point, as no project has yet achieved sequencer decentralization, indicating that it is not an easy task.

2. Cross-rollup composability: By handling the ordering of multiple rollups, unique interoperability guarantees can be provided. For example, users can specify that transactions in Rollup 1 only execute if a specific transaction from Rollup 2 is also included in the same block. This can unlock new possibilities, such as atomic cross-rollup arbitrage.

Many projects are developing shared sorting solutions, and below are a few highlights and their strategies.

Espresso

Espresso Systems is committed to building tools that bring Web3 to the mainstream, with a particular focus on L2 rollups and the Ethereum ecosystem. Before developing shared sequencers, they focused on improving blockchain privacy and developed the CAPE application. They also contribute to open-source developer tools through initiatives like the Jellyfish cryptography library and Hyperplonk.

In November 2022, Espresso began sharing their work on the Espresso Sequencer.

Overview

Espresso Sequencer is a decentralized shared sorting network designed for decentralized rollups, while providing secure, high-throughput, low-latency transaction sorting and data availability.

Its design purpose is to handle the decentralized ordering and data availability of rollups, acting as a middleware network between the rollup and the underlying L1.

The design of Espresso Sequencer is unrelated to the virtual machine (VM) and can be used for non-Ethereum VMs, zero-knowledge VMs, and optimistic VMs.

How does it work?

The core of the sorter is the consensus protocol HotShot. HotShot is based on the HotStuff consensus protocol and incorporates the latest developments from various fields.

HotShot is open and permissionless, decentralizing the power of the participating sorter network while ensuring security and efficiency, providing high throughput and fast finality. HotShot adopts a proof-of-stake ( PoS ) security model. One of the key requirements proposed by the Espresso team is to achieve strong performance without impacting the scale of the validator set. Specifically, HotShot should be able to scale to include all Ethereum validators (, currently over 700,000 ) participants.

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

1. Security: The cost of launching a decentralized PoS consensus protocol is extremely high, and it requires a significant amount of energy. Even so, obtaining a sufficient number of network participants can still be a huge challenge. By using the same validators as Ethereum, the sorter can achieve a level of security, effectiveness, and decentralization that is difficult for itself to reach.

2. Incentive Alignment: Conceptually, it makes sense for Ethereum L1 validators to participate in operating the protocols that Ethereum L2 rollups run on. In practice, in a centralized sequencer setup, almost all fees and MEV generated by the rollup may be captured by the sequencer. If there is no ( or very little ) shared with L1 validators, then there are reasons to be concerned about whether this will affect the security of the rollup.

Espresso will seek to establish this partnership through re-staking contracts, particularly with EigenLayer. Through EigenLayer's re-staking, users can stake their ETH and ETH liquid staking tokens across multiple protocols, thereby extending economic security beyond Ethereum itself.

Tiramisu Data Availability

Most rollups rely on L1 blockchains ( such as Ethereum ) to provide data. However, this is not ideal, as L1 block space is scarce and expensive, leading to high user transaction fees. Espresso Systems addresses this issue with its efficient Tiramisu data availability solution.

Tiramisu has three layers:

1. Savoiardi: Anti-bribery layer, providing the highest level of security.
2. Mascarpone: Ensure efficient data recovery by electing a small data management committee.
3. Cocoa: Provides content delivery network for Tiramisu, helping to achieve "Web2-level performance".

Espresso Systems considered flexibility and modularity when designing its protocol, and its rollup using its sorter can use any other data availability solution if it does not want to use Tiramisu.

Latest Update

• November 28, 2022: Americano is the first test network of Espresso Sequencer and HotShot.
• July 20, 2023: Doppio is the second major milestone and testnet for HotShot and Espresso Sequencer. The white paper for the entire project was released simultaneously. Doppio brings multiple efficiency improvements to HotShot.
• August 4, 2023: The Doppio test network is officially open to the public. Performance benchmarks and next steps have been released.

![Binance Research Institute