Will Based Rollups Change the Ethereum Ecosystem Landscape Taiko and Puffer Lead the Way in Unordered Rollups

Recently, Taiko issued tokens, and Ethereum researcher Justin Drake reiterated the Based Rollups concept he proposed a year ago on Twitter, indicating that Based Rollups will be the endgame. This has strengthened market attention to this technology. This article will introduce the recent developments in Based Rollups.

Justin Drake: Based Rollups to reach the endgame
What problems does Based Rollups aim to solve: Sequencer
Complex design of Rollups
Centralization of Sequencers in Rollups
Introduction to Based Rollups: removing Sequencers
Architecture of Based Rollups
Advantages of Based Rollups
Disadvantages of Based Rollups
Introduction to Based Rollups projects
Taiko
Puffer Finance
Innovative drive of Based Rollups for Ethereum
Justin believes that the ecosystem will be driven by two main technologies in the near future, namely Based Rollups and Pre Confirmation (preconf). He has organized related projects and infrastructure for these two technologies and specifically pointed out that Based Rollups will bring about the endgame, showing his expectations for this technology.

Justin’s ecosystem organization for Based Rollups and preconf
Most of the innovations in existing Rollups come from breakthroughs in verification models, such as fraud proofs in OP Rollups or zero-knowledge proof systems in ZK Rollups. These technologies have made significant progress and are meaningful, with corresponding infrastructure still flourishing, such as ZK co-processors or proof aggregation layers.

However, the centralization of Sequencers and the associated security issues seem to be increasingly important in the market without a solution.

Asset security in Rollups is also a significant issue to consider. For example, if the Sequencer of a Rollup manipulates the order of transactions to extract MEV from users, or excludes specific users’ transactions due to regulations, technical issues, or other intentions, users may suffer losses or even be unable to recover their assets.

Therefore, current industry standards for achieving stage 2 Rollups require the establishment of comprehensive escape mechanisms, including escape hatches and Force Inclusion facilities, to protect user asset security.

However, any mechanism to make transaction sequencing fairer or to protect asset security will increase the complexity and development difficulty of Rollups. In reality, ordinary users are unable to operate these tools.

On the other hand, the centralization issue of Sequencers remains imminent.

The Sequencer can determine the order of transactions, and the significant MEV profit factor, coupled with the incomplete decentralization of Sequencers, means that current mainstream Rollups are essentially centralized in terms of Sequencers and are not open source.

In the face of the design issues in the aforementioned Rollups, Based Rollups have emerged, attempting to remove the role of Sequencers directly.

If the fear of Sequencers committing wrongdoing, making mistakes, centralization, or exploiting MEV exists, then instead of adding more preventive measures and compromised designs, it is better to simply discard the Sequencer and think of other solutions.

All of this can be traced back to Justin’s first proposal of the Based Rollups concept in the Ethereum community last March. Justin referred to it as Based Rollups or L1-sequenced Rollups.

Based Rollups discard the design of Sequencers and assign the sorting work to L1 nodes, specifically Layer1 searchers or anyone who can submit transaction information to Layer1 proposers, all designed to be permissionless.

In the past, when transaction information was uploaded to Layer1 in traditional Rollups, the contract on Layer1 would confirm whether the transaction was uploaded by a qualified Sequencer (usually the Sequencer of the Rollups project itself); Based Rollups have no restrictions, and anyone can submit transaction information at any time.

Based Rollups assign sorting work directly to Layer1 validators and block producers.

Layer1 searchers (possibly also Based Builders) and builders are incentivized by Baesd Rollups or third parties to include transaction information from Rollups in blocks and submit them to block producers.

By assigning sorting work to Layer1 block producers, the overall design structure of Based Rollups can become very simple and inherit the decentralized properties of Layer1. It is also integrated with Layer1 in terms of economic model (since gas fees are paid directly to Ethereum nodes).

Advantages
Justin points out that Based Rollups removing Sequencers have the following advantages:
Firstly, Layer2 liveness will be the same as the mainnet: because sorting is done by L1, asset liveness can be guaranteed to be the same. In comparison, Rollups with escape hatch designs in the past had lower activity levels because transactions in the escape hatch needed to wait for a period of time to ensure settlement and could be subject to review.
Based Rollups are more decentralized, inheriting the decentralization capability of L1 sorting and using the infrastructure of Layer1 searchers, builders, and block producers, making it equally decentralized.
Furthermore, by removing the Sequencer and related compromised designs, such as verification mechanisms (no need to spend a lot of technical ability to generate zero-knowledge proofs) or fraud proofs and escape hatch designs, the overall design of Rollups can be simpler, increasing protocol security.
Economically, it is very interesting because without a proprietary Sequencer, the cost of sorting becomes zero. However, Rollups can still retain autonomy. Although sorting is delegated to L1, Based Rollups can still have governance tokens, can charge basic fees, and can use the proceeds from these basic fees as they see fit.

However, the disadvantages of Based Rollups are also very clear, stemming from the design without Sequencers:
Based Rollups have no MEV income. Based Rollups direct the potential income from MEV to Layer1, with the income being at most the basic fee. The sustainability of the project remains to be evaluated unless the network gains a significant market share.
Additionally, delegating sorting to Layer1 will reduce sorting flexibility. This makes the design of certain sequencing services more difficult or even impossible. For example, pre-confirmation designs may confirm transactions for users before they are finally confirmed on the Ethereum mainnet, improving user experience. This is easy for centralized sorting but may involve waiting for transactions to be confirmed on the mainnet for Based Rollups.

Taiko is the first Layer2 designed based on the Based Rollups framework, claiming to be the first type of ZK-EVM, which is equivalent to the Ethereum Virtual Machine. It is currently considered a promoter of Based Rollups, and the recent token issuance has attracted more market attention to this concept.

Puffer Finance is an Ethereum re-staking project (LRT) that provides many ETH for external borrowing to become validators due to its re-staking business. The protocol focuses on allowing anyone to run a node on Ethereum as a Node Operator (NoOps), reducing the threshold for validators from 32 ETH to 1 to 2 ETH.

But what does this have to do with Based Rollups? By using their own running validator accounts, Puffer Finance can directly prevent validators from not sorting Based Rollups’ transaction content into blocks, thereby reducing related incentive rewards, making transaction fees in Based Rollups cheaper, and even having the opportunity to integrate and create pre-confirmation mechanisms.

Rollups have become an important foundation for Ethereum development. However, most Rollups projects are currently progressing very slowly in terms of Sequencer innovation. Although second-tier competitors like Metis have already introduced a decentralized Sequencer structure, the impact is limited. This is why the Based Rollups concept has emerged, hoping to make significant breakthroughs in the Sequencer problem.

Based Rollups’ design is fundamentally innovative. Compared to the many Layer2 projects that have emerged recently, which have made minor adjustments in terms of proof mechanisms or integrations (such as Manta Pacific) or even no changes (such as Swell Layer2), Based Rollups overturn existing foundations, directly eliminating Sequencers, aiming to disruptively innovate and create infrastructure more in line with user needs.

Based Rollups, this innovative concept, may not even require zero-knowledge proofs in the future, nor proof aggregation layers, and certainly not external data availability layers (DA). The existing ecosystem and projects may face a major transformation.

It is not surprising that there are many discussions in the Ethereum community. Instead of expecting Layer2 projects to solve the Sequencer problem well, or even giving up underlying interests, it is better to try a completely new architecture like Based Rollups.