Rollups are a hot topic in the Web3 technology that has evolved to solve the scalability problems faced in the blockchain network. This is a promising technique to solve the blockchain problem. Rollups are one solution for speeding up your transactions while upholding the idea of high-level security and decentralization. These rollups being a key player in challenging the traditional Web3 technology, this guide takes from the fundamental basics of based rollups and their offering advantages.
What Is Based Rollup And How Does It Work?
To know what Base rollups are, first, we will talk about what rollups are. The Rollup mechanism uses a cryptographic technique that acts as a scaling solution that executes transactions on the Layer 2 network and then compresses the results to Layer 1 Ethereum. This approach enables transaction data to be posted to Ethereum in a more cost-efficient manner by allowing the submission of an entire batch of data through a single transaction.
“Base can achieve tokenless decentralization by becoming based.” – Justin Drake
That concludes the introduction to Based Rollups by Ethereum Foundation researcher Justin Drake.
Based rollups are quite simple and are not in direct competition with ZK rollups and optimistic rollups. Optimistic and ZK rollups employ distinct methods for validating state, while based rollups differ in their approach to sequencing. Traditional rollups, whether optimistic or zero-knowledge, rely on their internal sequencer. In contrast, a based rollup leverages the sequencing capabilities of its underlying Layer 1 protocol.
Some Notable Advantages Of Based Rollups
Benefit Ethereum liveness
Based Rollups offer several advantages over traditional rollup networks, particularly in terms of sequencing. By utilizing Ethereum to sequence transactions, they leverage Ethereum’s inherent liveness, enhancing their reliability and efficiency.
Decentralization
Based rollups can capitalize on the varied array of participants responsible for generating blocks on the Ethereum network. Moreover, anyone has the opportunity to engage in sequencing without permission when they identify a Miner Extractable Value (MEV) opportunity in the mempool of Based Rollups.
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Economic alignment
When an MEV opportunity arises in Based Rollups, individuals and entities on the Ethereum network will submit bids to sequence it. As a result, the revenue generated from Based Rollups’ MEV naturally channels into Ethereum’s Layer 1.
No tokens required
Unlike traditional rollup networks, which necessitate the existence of a token for future decentralization of the sequencer, Based Rollups leverage the Ethereum network for sequencing, eliminating the need for a token.
Simplicity
Based Rollups offer simplicity compared to a centralized sequencer setup. With Based Rollups, there’s no need to validate sequencer signatures, implement an escape hatch mechanism for user withdrawals in case of sequencer downtime, or develop new algorithms for decentralized sequencers down the line.
Sovereignty
Based rollups maintain the possibility of sovereignty while entrusting sequencing to Layer 1 (L1). They can introduce a governance token, impose base fees, and allocate the proceeds from these fees according to their preferences.
Cost
Based sequencing eliminates gas overhead, removing the necessity to verify signatures from either centralized or decentralized sequencers. Its simplicity minimizes development costs, accelerates time to market, and reduces the risk of bugs related to sequencing and escape hatches. Furthermore, being tokenless, based sequencing sidesteps the regulatory complexities associated with token-based sequencing.
Based Rollup – L2 Mev (Maximal Extractable Value) Flow Mechanism
- L2 searchers gather L2 transactions and organize them into bundles before forwarding them to L2 block builders,
- L2 block builders receive these bundles and assemble them into blocks. Additionally, L2 block builders have the capability to execute the MEV-boost, similar to the functionality utilized by L1 builders,
- L1 builders will incorporate L2 blocks into their own L1 blocks whenever there is even a small amount of MEV present in the block (provided the gas limit hasn’t been exceeded). Given the existence of decentralized exchanges (DEXs) deployed on L2, there will consistently be some level of MEV alongside transaction fees,
- Blocks from L2 are transmitted to L1 via Private Order Flow to prevent potential theft of MEV,
- By monitoring the Ethereum mempool, the Based Rollup mempool, and the state of both chains, a searcher can compile bundles featuring cross-chain MEV between Based Rollup and Ethereum. Furthermore, opportunities for cross-chain MEV extraction also exist between different Based Rollups.
(SOURCE: TAIKO)
Why Are Blockchain Rollups Necessary?
Blockspace holds intrinsic value as it fuels data storage on blockchains. However, each block has a finite capacity for transactions. When transaction volume surpasses the blockchain’s processing capability, users may resort to excessive gas bidding to secure the inclusion of their transactions within the network’s limited block space.
Scalability refers to a blockchain network’s capacity to manage growing transaction volumes efficiently. Blockchains with limited scalability often lead to slow transaction processing, elevated gas fees, and unprocessed transactions, posing usability challenges. Consequently, scalability plays a pivotal role in ensuring the widespread adoption and usability of a blockchain network. Numerous blockchains prioritize scalability, sometimes at the expense of other technological aspects like decentralization.
Challenges In Based Rollups
Constrained sequencing
Delegating sequencing to Layer 1 (L1) reduces sequencing flexibility, posing challenges for certain sequencing services like fast pre-confirmations and first come, first served (FCFS) ordering. While centralized sequencing and external PoS consensus enable quick pre-confirmations, achieving the same with L1 sequencing remains an open problem. Promising research avenues such as EigenLayer offer potential solutions for enhancing FCFS ordering in conjunction with L1 sequencing.
Low MEV income
Based rollups redirect MEV to Layer 1 (L1), relying solely on base fees for revenue. Surprisingly, this strategy could potentially boost overall income for based rollups. The competitive rollup environment favors the possibility of one dominant winner, which could leverage the enhanced security, decentralization, simplicity, and alignment of based rollups to maximize revenue.
Reduced flexibility
Based rollup networks face limitations in sequencing flexibility, hindering their capacity to implement custom sequencing models.
Shedding Thoughts
Based rollups are committed to advancing Layer 2 scalability. By utilizing the existing infrastructure of Layer 1 (L1), the based rollup model aims to enhance the effectiveness of rollups, making them even more efficient as scaling solutions for the expanding Web3 ecosystem. The primary weaknesses of Based Rollups are profitability and slow finality. Ethereum block producers may find limited incentive to participate in sequencing due to potentially low MEV revenue. Moreover, reliance on Ethereum for sequencing may result in sluggish finality. For enterprises seeking high scalability and decentralization without token minting capabilities, Based Rollups could be a viable option.
