Ethereum's Rollups are centralized: Analyzing Decentralization of Orderers

1. Key Points

• Transaction ordering has become an increasingly serious issue in the second layer ( "L2" ) domain. L2 rollups provide users with an execution layer and then submit transaction data to the upper first layer ( "L1" ), such as Ethereum's Arbitrum, Optimism, zkSync, etc.

• The sorter is responsible for grouping transactions in order. It receives users' unordered transactions, processes them off-chain into groups, and generates compressed ordered transaction batches. These batches can then be placed into blocks and sent to the parent L1.

• Rollups do not actually require a sequencer; this is merely a design choice made to provide users with a better experience. For example, rollups can also use the underlying layer for sequencing, but this may be less efficient and more expensive. Currently, each major L2 rollup project has found that operating a centralized sequencer is more convenient, cheaper, and friendlier to users.

• Due to the sorter controlling the transaction order, it has the right to review user transactions ( although a complete review is unlikely ). The sorter can also extract the maximum extractable value ( "MEV" ), which may cause economic losses to users. Furthermore, if the only centralized sorter goes down, the entire rollup will be affected, which is a serious validity issue.

• The solution is a shared, decentralized sequencer. This not only addresses issues such as censorship, MEV extraction, and validity, but also enables cross-rollup functionality, opening up new possibilities. Projects like Espresso, Astria, and Radius are developing innovative shared sequencing solutions, each with its unique features.

2. Introduction

With the popularity of the Ethereum L2 rollup ecosystem, the often-overlooked aspect of sequencers is becoming increasingly important. Sequencers are responsible for transaction ordering and can provide a better user experience, lower fees, and faster transaction confirmations. However, currently all major Ethereum L2 companies are running their own unique centralized sequencers, which may be seen as an undesirable outcome and does not align with the spirit of cryptocurrency.

Although most companies regard decentralized sequencers as part of their roadmap, there is still no real consensus on how to achieve decentralization. Notably, Arbitrum and Optimism have not made significant progress in decentralized sequencers since the second half of 2021.

This report will delve into the role of sorters and the current state of the Ethereum rollup space, exploring projects that are developing solutions, namely decentralized shared sorting networks. We will provide detailed descriptions of these projects and the uniqueness of their solutions, and consider what this may mean for the future development of the Ethereum L2 rollup space.

3. What is a sorter?

Blockchain is a distributed data ledger, composed of transaction data that is timestamped and sorted into blocks. Initially, this transaction data is unordered, and it must be organized into blocks and executed after sorting, creating a new state of the blockchain. For first-layer blockchains like Ethereum, the transaction sorting occurs at the Ethereum base layer itself.

In the most popular scalability solution on Ethereum - Layer-2( "L2" ) rollup, transaction ordering has become an increasingly serious issue. L2 rollup provides users with an execution layer, then submits transaction data to the upper layer L1, such as Ethereum's Arbitrum, Optimism, zkSync, etc. The single batch of transactions submitted to L1 usually contains hundreds or thousands of compressed L2 transactions, thereby reducing the cost of sending data to L1.

In L2 rollups, the sequencer is responsible for ordering transactions into batches. They receive unordered transactions from users, process them off-chain into batches, and generate compressed ordered transaction batches. These batches can then be placed into blocks and sent to the parent L1. Batch transactions can also be used on the data availability ( "DA" ) layer (, which is typically on Ethereum ). The sequencer also provides users with near-instant receipts as "soft confirmations," while "hard confirmations" are received after the transaction has been sent to the L1 layer.

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

The fundamental goal of the sorter is to improve the user experience. Using the sorter for L2 transactions is similar to using a "fast lane", which means lower fees and faster transaction confirmations. The sorter can batch compress hundreds or thousands of L2 transactions into a single L1 transaction, thus saving gas fees. In addition, the soft confirmations provided by the sorter mean that rollup transactions can offer users quick block confirmations.

It is important to remember that rollups do not require a sequencer; this is simply a design choice made for better user experience. For example, rollups can also use Ethereum L1 for sequencing. However, the Ethereum base layer may be relatively inefficient and expensive, especially considering the high volume of L2 transactions. This means that currently, every major L2 rollup project has found it more convenient, cheaper, and easier for users to operate centralized sequencers.

Given that the sequencer controls the order of transactions, theoretically it has the right not to include user transactions in ) even though users can also submit transactions directly to L1 ###. The sequencer can also extract MEV from the transaction pool, which may cause economic losses to users. If there is only one sequencer, the risk of centralization is greater. If the only sequencer fails, the entire rollup will be affected, which is a serious validity issue.

( The correlation of MEV

MEV refers to the additional value obtained from block production that exceeds the regular mining rewards and gas fees. It is value extracted by manipulating the order of transactions within a block, with common forms including front-running and sandwich attacks.

Given the role of the sorter in L2 rollup, they can see 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, centralized sorters will affect the trustlessness and decentralization of these protocols.

) The current state of the sorter market

Currently, all major Ethereum L2 rollups rely on centralized sequencers. As more and more Ethereum transactions move to L2 solutions, a large number of transactions will be influenced by centralized power in the form of a unique sequencer.

Most companies have made the decentralization of sorters a part of their roadmap. However, since Arbitrum and Optimism launched their solutions at the end of 2021, there has been no substantial progress in decentralized sorters.

Most top companies seem to allocate resources to improve core products and features, rather than focusing on Decentralization. This is somewhat understandable, as in a competitive environment, focusing on Decentralization before having a competitive product is not in the best interest of any company. However, as network companies mature, discussions are quickly turning to sorting Decentralization and enhancing credibility.

Other issues

It is worth emphasizing that there is some discussion about the level of risk associated with relying on centralized sorters.

Although sorters control the order of transactions, they ultimately cannot completely exclude users from rollup transactions. Users can bypass the sorters and submit transactions directly to L1 as long as they are willing to pay the increased gas costs. Malicious sorters may cause transaction delays and users to incur additional fees, but they cannot be completely censored. This may be one of the reasons why large L2 companies have previously not focused much on decentralized sorters.

Perhaps the bigger issue lies in real-time performance. If the only centralized sorter encounters problems, the entire rollup will be adversely affected. Although users can still complete transactions by directly accessing L1, this is not a sustainable method and is unlikely to be applicable for most transactions. Given that one of the fundamental principles of cryptocurrency is to prevent reliance on a single centralized provider, the centralization of sorters is clearly an urgent issue that needs to be addressed.

4. Solution: Decentralization Sharing Sorter

Overview

The new solution to the aforementioned problem is a decentralized shared sorter. Although the solutions of different projects vary, the basic concept is the same. "Shared" refers to multiple rollups being able to use the same network, where transactions from multiple rollups are aggregated in a mempool before being sorted. "Decentralization" refers to the concept of leader rotation, where a leader is selected from a group of decentralized actors to perform the sorting. This helps to prevent censorship and provides validity guarantees.

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

• Decentralization as a Service: The shared sequencer solution provides sequencer decentralization services for any number of rollups, allowing all rollups to benefit from a decentralized network without having to establish that network themselves.
• Cross rollup composability: By handling the transaction ordering of multiple rollups, shared sequencers can provide unique interoperability guarantees that are currently unattainable, opening up new possibilities.

![Binance Research Institute interprets Decentralization Sorter: The cornerstone of Layer2 security, expanding the usage scenarios of native tokens]###https://img-cdn.gateio.im/webp-social/moments-825829026dfe6eac7918343e0340ba6a.webp(

) Espresso

Espresso Systems is building a decentralized shared ordering network, aimed at decentralizing rollups while providing secure, high throughput, and low latency transaction orders and data availability.

Main features:

• Use HotShot consensus protocol
• Try to use the existing validator set of Ethereum through EigenLayer
• Use Tiramisu data availability solution
• Established partnerships with multiple projects, including Polygon zkEVM, Injective, AltLayer, Caldera, etc.

![Binance Research Institute interprets Decentralization Sorter: The cornerstone of Layer2 security, expanding the use cases for native tokens]###https://img-cdn.gateio.im/webp-social/moments-765808320cc4ba3a805cf4bc7f43accb.webp(

) Astria

Astria is building a shared sequencer network while developing Astria EVM.

Main features:

• Achieve consensus on a set of ordered transactions using CometBFT
• Work closely with Celestia to achieve data availability
• Launched the development cluster, simplifying the process of launching rollups on the Astria network.

![Binance Research Interpretation of Decentralization Sorters: The Cornerstone of Layer 2 Security, Expanding the Use Cases for Native Tokens]###https://img-cdn.gateio.im/webp-social/moments-11b5b59fbc7bc320470851f992910687.webp(

) Radius

Radius is building a trustless shared sorting layer, using cryptographic techniques to decentralize the sorter, prevent censorship, and minimize harmful MEV.

Main Features:

• Use encrypted memory pool
• Create an encrypted memory pool using the zk-based encryption scheme PVDE
• Propose an optimized block space design to create an auction-based MEV market.

![Binance Research Institute Interpret Decentralization Sorter: The Cornerstone of Layer2 Security, Expanding Native Token Use Cases]###https://img-cdn.gateio.im/webp-social/moments-f73a8eeea18c4e3171b8f088b8a0c6de.webp(

5. Outlook

Existing L2 rollups seem to have to make a decision among the following options:

1. Continue to use a unique centralized sorter
2. Integrating Sorting Network with Third Party
3. Develop internal proprietary solutions

Every choice has its pros and cons. As secondary cryptocurrencies continue to emerge in the crypto world, their scale and transaction volume are also constantly growing, and the issues surrounding decentralization and interoperability will continue to fester. We expect that at least some companies will choose to integrate with third-party sorting networks, while others may choose to develop their own internal solutions.