Based Rollups: Puffer Finance's Innovative Solution

Recently, a liquidity re-staking protocol active in the EigenLayer ecosystem launched a new solution called Based Rollups, aiming to provide a more secure and efficient decentralized option for Rollups, especially in terms of the decentralization of sequencers. As a typical LST protocol, proposing new technical solutions that combine its own characteristics is undoubtedly a great narrative expansion.

The decentralization of sequencers is one of the current focal points of the community, as it is almost the weakest link in the Rollups system, directly affecting user experience. Based Rollups attempts to outsource sequencing to Layer 1 for decentralization, which not only reduces the risk of over-centralization of Rollups sequencers but also significantly lowers transaction costs and increases system activity. Developers can easily deploy and manage their own Rollups chains based on the Based Rollups architecture, just like deploying smart contracts, while enjoying the security and decentralization features of Ethereum.

Current Challenges Facing Rollups

Currently, ZK or OP Rollups rely on centralized sequencers to determine the order of transactions. This centralization brings many risks, including sequencer failures, diminished user trust, and the resultant MEV issues. To mitigate these risks, many Rollups offer an "escape hatch" mechanism that allows users to exit Rollups in the event of a sequencer failure, but this increases latency and gas fees, and may be subject to malicious exploitation. Therefore, a Rollups solution with decentralized sequencers has become urgent.

How Based Rollups Work

In Based Rollups, Layer 1 proposers can collaborate with L1 searchers and builders to include Rollups blocks in the next L1 block without permission. The final order of L2 blocks and transaction sorting is determined by the L1 proposer. Typically, L1 proposers do not directly build L2 blocks; instead, this is done by L2 builders, which does not increase the workload of L1 proposers.

In some implementations of Based Rollups, the execution layer processes transactions off-chain, while the consensus layer determines the order of transactions using the Ethereum consensus layer. Transaction data is published on Ethereum, and the transaction status can ultimately be verified on Ethereum.

Advantages of Based Rollups

1. Inherit L1 censorship resistance and enhance transaction activity: Since Based Rollups are operated by Ethereum L1 proposers and validator nodes, they inherit Ethereum's censorship resistance without the need for a safety hatch mechanism. This ensures transaction activity and avoids delays and fairness issues brought by the safety hatch.

2. Reduce Transaction Costs: Transactions on Based Rollups do not require additional Gas fees and do not need to verify signatures from centralized orderers, eliminating the need for escape hatches or external PoS consensus, further reducing costs.

3. Inheriting L1 decentralization, simplifying the system and enhancing security: Based Rollups only execute transactions off-chain, while ordering, data visibility, and validation are all conducted on L1. This reuses the architecture of L1, simplifies the system, and eliminates the need for additional signature verification, escape hatches, or external consensus mechanisms.

4. Flexible Token Governance: Although ordering is delegated to L1, Based Rollups can still have governance tokens to collect base fees, or choose to operate without tokenization.

Challenges Faced by Based Rollups

MEV income decrease

Most Based Rollups' MEV flows to L1 proposers, which reduces the MEV revenue of Rollups. However, the option to derive income from L2 congestion fees is still preserved. Based Rollups hoping to capture their own MEV may introduce auction mechanisms, such as Dutch auctions, requiring batch submitters to pay a certain amount of ETH to the contract.

Limited flexibility in sorting

Based Rollups delegating sorting to L1 will reduce sorting flexibility, making it impossible to achieve pre-confirmation and first-come, first-served sorting. To address this issue, some researchers have proposed using a re-staking mechanism, allowing some L1 proposers to commit to including Based Rollups blocks in future L1 blocks.

Improvement Plan

A certain protocol proposed integrating pre-confirmation with Based Rollups through its architecture, providing fast (100 milliseconds) confirmation times while retaining the advantages of Based Rollups.

Pre-confirmation Mechanism

Pre-confirmation ensures that decentralized sequencers can effectively submit transactions to L1. Ethereum validators propose blocks in order. If the pre-confirmers fail to fulfill their commitments, they will face penalties to ensure higher reliability.

Quick Confirmation

By integrating pre-confirmation with Based Rollups, this solution can provide a user experience comparable to centralized sorters, achieving a confirmation time of 100 milliseconds while ensuring its liveness. This integration allows Based Rollup to retain its original advantages, helping to address the Ethereum liquidity fragmentation issue and promoting a more unified and efficient Rollup ecosystem.

New Architecture

The newly proposed architecture utilizes validator nodes to expand a single centralized sequencer into thousands of decentralized sequencers. The main components include:

• Users submit Rollup transactions, which are processed by validators and provide pre-confirmation.
• Validators re-stake to ensure reliability.
• Pre-confirmation penalty mechanism to prevent validators from breaking their promises.
• Validators propose blocks containing pre-confirmed Rollup sequences to Ethereum L1.
• Smart contracts accept Rollup transactions.
• The liquidity pool collects fees generated from Rollup transactions, increasing the earnings of holders.

Universal Gas Token

The proposal introduces a universal Gas token that generates rewards through a specific mechanism and is managed by a decentralized autonomous organization to reduce market risks, such as loan liquidations caused by Ethereum price fluctuations.

No Gas trading scenario

Users can earn income by locking assets in the Rollup native bridge, generating native yield. This enables the solution to support some trading scenarios that do not require Gas fees, which has significant implications for both Web2 and Web3.

dApp Chain Based on This Solution

Developers can launch a dApp chain based on this solution as easily as deploying a smart contract, inheriting the security and decentralization features of Ethereum. Developers can earn transaction fees from the dApp's Rollups chain without having to operate a centralized sequencer themselves, and can also achieve cross-chain transactions and interoperability.

Transactions by users on this dApp chain can be quickly confirmed within 100 milliseconds, with a pre-confirmation mechanism ensuring that transactions are submitted to L1.

Summary

By collaborating with the Ethereum ecosystem, this solution provides a more secure and efficient solution for Rollups. This decentralized sorting method not only reduces the risks of current centralized sorters but also significantly lowers transaction costs and enhances system activity.

With the integration of the pre-confirmation mechanism and fast confirmation times, Based Rollups will become an ideal choice for various applications including GameFi, ensuring transaction finality while guaranteeing user experience. Additionally, the dApp chain based on this solution allows developers to easily deploy and manage their own Rollups chains without worrying about the operational issues of centralized orderers, while enjoying the security and decentralization features of Ethereum.