Decentralized Sequencer Sector Research

*Forwarded original title: MT Capital Research: Decentralized Sequencer Sector Comparative Research

TL；DR

1. Decentralized sequencers, as an emerging technology, aim to optimize the transaction ordering process in blockchain networks through decentralization, thereby enhancing transaction efficiency, reducing costs, and addressing the MEV issue. The development of this technology signifies further efforts in the blockchain field towards achieving higher performance and stronger decentralization.
2. Metis’ “in-house” model and Espresso’s “outsourced module” approach illustrate the two main paths for building and maintaining decentralized sequencers. The former emphasizes the security and stability of internal management and operations, while the latter offers more flexibility and openness, promoting technological universality and reducing operational burdens.
3. The development of decentralized sequencers heralds potential advancements in blockchain technology in terms of network security, censorship resistance, transaction efficiency and costs, as well as ecosystem diversity and interoperability. Further optimization and innovation of these technologies, such as batch processing and state channels, will enhance the performance of L2 platforms, reduce user costs, and foster the formation of a more open and interconnected decentralized ecosystem.
4. Despite the challenges faced by decentralized sequencers in terms of technical implementation, network performance optimization, and governance model design, their key role in building a more efficient, secure, and open decentralized world cannot be underestimated. Future developments may focus on researching more efficient consensus mechanisms, scalable network architectures, and developing user-friendly interfaces and tools to meet the growing market demand and user expectations.

Sequencer Introduction

Sequencers, as the name implies, are responsible for sorting the originally unordered transaction data in blockchain, thereby organizing it into ordered block data for execution. Each L1 blockchain has its own sorting system, but for L2, centralized sequencers have become an increasingly serious issue.

For L2, sequencers are not mandatory. L2 can also choose to use L1’s sequencers. However, for cost and speed considerations, L2 operating its own sequencers can offer users a more affordable and convenient experience. Running their own sequencers, L2 can compress hundreds or thousands of L2 transactions into a single L1 transaction for submission to L1, significantly saving on Gas fees. Moreover, users can enjoy a fast soft confirmation experience provided by L2 sequencers without being restricted by the Ethereum transaction throughput. Therefore, for L2, operating its own sequencers is also an inevitable choice to enhance the user interaction experience.

Sequencer Status Quo

Although L2 operating its own sequencers can significantly enhance user experience, the centralization of L2 sequencers has become an undeniable issue today. Currently, the locked value in Ethereum L2 has reached 22B, with a massive influx of L2 solutions emerging. However, almost all L2 sequencers are centralized, relying on a single sequencer to determine the ordering of all transactions on L2. Centralized sequencers face numerous problems, such as theoretically having the authority to exclude user transactions, extracting MEV from transactions without limitations, facing censorship issues, and the risk of single points of failure.

Source：https://l2beat.com/scaling/summary

In addressing the complex challenge of MEV, rollups face the delicate balance between protecting users and generating profits. This challenge involves preventing harmful MEV practices such as front-running and sandwich attacks while efficiently utilizing block space for revenue. Although traditionally rollups have relied on a single operator model and adopted a first-in-first-out (FIFO) order to protect users from MEV, this approach might miss out on revenue opportunities from block space utilization and overlook the significant role of economic incentives in promoting rollup stability and growth. Moreover, ensuring adherence to the FIFO principle and maintaining transparency in block ordering poses additional operational challenges. Furthermore, utilizing the underlying block space as a source of income, while potentially profitable, also raises trust issues among users who must trust that operators will not exploit this space to their detriment through means like sandwich attacks, potentially eroding the integrity of transactions and user trust.

Shared sequencers offer an innovative solution to the MEV problem by introducing a more secure and fair transaction ordering mechanism in the blockchain network, especially for Ethereum’s layer 2 solutions like rollups, offering significant benefits. By dividing rollup block space into a top portion that protects user transactions and a bottom portion that allows builders to exploit MEV, it effectively balances the needs and interests of network participants. Using Practical Verifiable Delay Encryption (PVDE) technology, shared sequencers ensure that user transactions are invisible to malicious actors, thereby preventing harmful MEV practices like front-running and sandwich attacks. Moreover, by allowing beneficial MEV activities in the bottom block space, shared sequencers generate income for rollups while maintaining network integrity and user trust. This mechanism not only enhances the security and fairness of transactions but also supports the sustainable development of blockchain networks through innovative revenue-generation methods. In short, shared sequencers bring positive change to the blockchain ecosystem with their unique approach to handling MEV, balancing the protection of user interests with the promotion of healthy network development.

Overall, the issue with centralized sequencers stems from the excessive power and risk exposure of single-node sequencers. Decentralized sequencers, composed of multiple nodes, can effectively address the problems faced by centralized sequencers. Decentralized sequencers can ensure the robustness and effectiveness of L2 ordering while bringing additional benefits. For example, decentralized sequencers like Metis can further empower tokens while achieving profit sharing, and shared sequencers allow L2s to avoid building their own sorting networks while also providing more convenient interoperability for multiple shared sequencer L2s. In the long run, the wave of modularization and L2 will inevitably push for the decentralization of sequencers, with a vast market space still available for decentralized sequencer markets.

Source：https://joncharbonneau.substack.com/p/rollups-arent-real

Decentralized Sequencer Projects

Metis

Elena Sinelnikova, co-founder and CEO of Metis, has been dedicated to blockchain industry education and evangelism. She is also the co-founder of CryptoChicks, an educational non-profit organization that is now the world’s largest female blockchain community, with members in 56 countries. Kevin Liu, another co-founder and the product manager of Metis, is also the co-founder and CEO of ZKM, and an active researcher in token economics, DAOs, DeFi, and blockchain governance.

Metis is at the forefront of proposing and testing decentralized sequencers for Ethereum L2.

Metis has transformed the originally singular sequencer node into a pool of sequencer nodes, achieving decentralization of the sequencer through a mechanism of random rotation.

Initially, the Metis decentralized sequencer network includes an Admin role. The Admin is responsible for managing the decentralized sequencer system, including adding qualified sequencer nodes to the Sequencer List whitelist, setting individual node stake limits, block reward release rates, and more.

Following that, Metis introduced a node staking mechanism. Any node that stakes 20,000 METIS tokens can become one of the nodes in the sequencer pool. Nodes in the pool have the right to view the contents of the transaction pool, and the selected sequencer node has the right to package transactions.

Subsequently, Metis introduced a PoS-based node rotation mechanism. Metis randomly selects the block producer by considering each node’s staked amount combined with a hash value drop mechanism. The selected sequencer node can then package block transactions.

Next, the transaction batch that has been packaged requires signatures from at least two-thirds of the sequencers to be considered valid, and thus be submitted to L1. The signing keys for sequencer nodes are managed by Metis’s PoS consensus layer, which generates, shards, and distributes multisig keys when sequencer nodes join or leave the network.

Finally, to prevent malicious behavior by sequencers, Metis also introduces the role of validators to randomly sample blocks, checking if transactions within the block are in the correct order, among other things. Nodes that act maliciously will be penalized by forfeiture of their staked funds.

Source：https://www.metis.io/decentralized-sequencer

Based on the aforementioned process, Metis has been able to construct a decentralized sequencer architecture based on PoS network consensus. By staking 20,000 METIS, one can become a sequencer node, which diversifies the sequencer nodes, avoiding single points of failure, control, and malicious MEV extraction. The node rotation mechanism and multisig confirmation make the selection of sequencer nodes fairer and can to some extent prevent malicious actions by sequencer nodes. The sampling checks by validators and the penalties for forfeiture further reduce the risk of malicious behavior by nodes.

To further incentivize more nodes to participate in Metis’s decentralized sequencer network, Metis has also introduced additional incentive mechanisms. After successfully creating a block, sequencer nodes not only receive the original gas income but also earn additional METIS token emission rewards. The incentive mechanism of Metis could create a positive growth flywheel. The prosperity of transaction activities in the Metis network will lead to increased income for sequencer nodes. The increase in sequencer node income will attract more users to stake METIS, become sequencer nodes, and capture sequencer income. The reduction of METIS in circulation and the increased demand for METIS due to staking will further elevate the market price of METIS. The increase in METIS price will enhance the asset value of the staking nodes and the value of staking rewards, thereby attracting more nodes to stake, forming a flywheel loop.

Metis’s PoS decentralized sequencer network is the first attempt at implementing a decentralized sequencer in L2. The implementation of Metis’s decentralized sequencer is expected to drive other L2s to advance their plans for sequencer decentralization.

Espresso Systems

The team behind Espresso is exceptionally prestigious, with co-founders Charles Lu and Ben Fisch both holding PhDs in Computer Science from Stanford University. Team members have also worked at leading Web2 and Web3 companies such as Binance Labs, Coinbase, and Google. Previously, Espresso successfully raised $23 million in financing from top venture capital firms, including Sequoia Capital, Coinbase Ventures, Polychain, and Robot Ventures.

Espresso is positioned as middleware between L1 and L2, decoupling ordering from execution, aiming to become a decentralized shared sequencer network that provides decentralized sequencer services to various L2s. Similar to the concept of modular DA outsourcing, the service provided by Espresso is more akin to an outsourcing service for transaction data ordering. Like DA outsourcing, Espresso’s sequencing service is chain and virtual machine agnostic, meaning any type of L2 can use Espresso’s sequencing services.

Source：@EspressoSystems/EspressoSequencer"">https://hackmd.io/@EspressoSystems/EspressoSequencer

The core idea of Espresso is to provide a set of modular sequencer middleware for L2s. After users send transaction data through the client, the transaction data, along with the identifier of that L2, is sent by L2 to Espresso’s sequencer network. Espresso’s nodes (nodes of the Espresso Hotshot proof-of-stake system) will order the transactions, and after ordering, broadcast them to subscribers (L2 nodes). Subsequently, L2 executes based on the ordered transaction data that has been packaged. Meanwhile, Espresso also submits a block commitment containing transactions to the L1 sequencer contract. Finally, L2 needs to send the new state to L1, and L1’s Rollup contract will use the block commitment from Espresso to verify the state update submitted by L2 to ensure the correctness of the execution.

source：https://docs.espressosys.com/sequencer/espresso-sequencer-architecture/system-overview

In the future, Espresso also plans to reuse Ethereum’s existing validator nodes for ordering through Eigenlayer, achieving higher security.

Overall, Espresso’s decentralized sequencer solution aligns more closely with the concept of modular blockchain, utilizing its own PoS network to achieve decentralized ordering through outsourcing, forming a decentralized sequencer network middleware between L1 and L2. Espresso’s generic sorting service also enables it to become a shared sequencer network, with any L2 able to use Espresso’s sorting services. Furthermore, L2s that use Espresso as their sorting service provider can even enjoy more seamless interoperability.

Astria

Astria’s CEO, Josh Bowen, is the project’s main driving force. Bowen, who has previously worked for startups behind The Graph, Edge & Node, and Celestia Labs, brings a deep understanding of modularization and decentralization concepts. He has often shared insights on the critical role shared sequencers play in maintaining speed and decentralization in the blockchain space. Bowen argues that most application-specific Rollups may not need their own sequencers; fostering a more decentralized, modular shared sequencer network could instead benefit the construction of a more decentralized and efficient blockchain system. Josh Bowen and Astria’s philosophy have also received support from institutions like Maven 11, 1kx, Delphi Ventures, and Figment Capital, raising $5.5 million in seed funding.

Similar to Espresso, Astria aims to provide a decentralized shared sequencer network. Astria’s shared sequencer network is a middleware blockchain with its own decentralized set of sequencers, capable of accepting transaction data from multiple L2s. Likewise, Astria can handle sorting requests from any type of L2. Furthermore, L2s using Astria can also enjoy atomic-level interoperability provided by Astria.

The sorting process in Astria is illustrated in the following diagram:

• After users submit transactions, L2 submits transaction data to Astria via an interface.
• Astria’s shared sequencer reaches consensus and packages transactions into blocks through the CometBFT PoS consensus network. Astria’s shared sequencer network uses CometBFT as its consensus algorithm. During the network consensus phase, the proposer decides on the transactions for the block and creates commitments for each Rollup to the sequenced data for that Rollup. Then, other nodes in the network need to validate and reach consensus, forming a final determination.
• After the transaction data is sorted, Astria’s Conductor analyzes the sequenced block for each Rollup’s required data, validates the batch of data — including verifying whether the block has been finally confirmed, whether the extracted Rollup data is complete, correct, and properly sequenced, etc. Once validated, the Conductor transforms the sequenced data for Rollups into a transaction list, which is then passed to the Rollup’s execution engine for execution.

Source：https://docs.astria.org/docs/overview/why-decentralized-sequencers/

• L2s seeking a faster user experience can receive soft commit sequenced blocks from Astria through a reading interface, offering users quick block confirmations. L2s can also read hard commit sequenced blocks written by Astria through the DA layer.

Source：https://docs.astria.org/docs/overview/why-decentralized-sequencers/

Astria’s decentralized sequencer network shares similarities with Espresso’s solution, both aiming to provide any L2 with decoupled, decentralized sequencing services. By outsourcing sequencing services, L2s can further simplify their development process and operational costs, enjoying atomic-level composability between L2s.

Radius

Radius focuses on developing a trustless shared sequencing layer, aimed at addressing the challenges of harmful MEV extraction and censorship within the blockchain space. Radius has successfully secured $1.7 million in pre-seed funding from investment institutions such as Hashed, Superscrypt, Lambdaclass (Ergodic Fund), and Crypto.com.

Radius aims to build a trustless, censorship-resistant shared sequencer network, and its most distinguishing feature compared to Espresso and Astria is its ability to effectively reduce harmful MEV through encrypted memory pools.

The overall architecture of the Radius shared sequencer network is similar to mainstream shared sequencer networks. Users submit encrypted transaction data and proofs via Dapps to the sequencer layer. The sequencer verifies the user-provided transaction data and proofs, and packages and sorts them. Subsequently, Rollups receive sequenced blocks from the sequencer network, execute transactions in order, and submit the executed state and state proofs to the settlement layer.

Source：https://docs.theradius.xyz/developer/architecture

Interestingly, Radius introduced encrypted memory pools to prevent the sorter from extracting harmful MEVs. Transactions submitted by users are encrypted and submitted to the sequencer network in the form of encrypted data. The sorter cannot obtain the key when sorting transactions and cannot decrypt and view the specific content of each transaction. Therefore, the sorter cannot extract MEV by maliciously sorting and inserting transactions.

Source：https://www.binance.com/en/research/analysis/ethereums-rollups-are-centralized-a-look-into-decentralized-sequencers

Radius divides the block space into a top space and a bottom space. The top space is dedicated to user transactions, effectively avoiding harmful MEV through encrypted memory pools. The bottom space introduces an auction-based open market for traders, where beneficial MEV bundle transactions can be created across Rollups, such as benign arbitrage and liquidations, etc. Traders then submit their bundle transactions and bids to the sequencer, which selects the highest-bidding bundle transaction to include in the block, thereby maximizing Rollup profits and fostering a healthy MEV competition market.

Compared to Espresso and Astria, Radius has two significant advantages. Firstly, by introducing encrypted memory pools and dividing the block space into top and bottom spaces, Radius can effectively eliminate harmful MEV transactions, cultivate a healthy MEV competition market, and maximize Rollup profits. Secondly, the introduction of encrypted memory pools prevents individual sequencer nodes from acting maliciously through MEV, thus eliminating the need for additional consensus mechanisms to ensure the correctness of sequencing. This can greatly increase the final confirmation speed and scalability of the sequencer network.

SUAVE (Single Unifying Auction for Value Expression)

The SUAVE proposal was put forward by the Flashbots team, pioneers in addressing the Miner Extractable Value (MEV) issue within the Ethereum ecosystem, comprised of professionals with deep expertise across fields such as computer science, mathematics, psychology, and economics. According to LinkedIn, the team currently includes 28 members with skills ranging from Python programming, blockchain technology, machine learning, to C programming.

Flashbots’ founding team includes Philip Daian and Stephane Gosselin, with the latter departing in October 2022 due to disagreements over censorship policies with the team. Additionally, Alex Obadia, another co-founder and top strategy researcher, left Flashbots in June 2023 for personal reasons. Core members include Andrew Miller, known for his research on cracking Intel SGX codes, currently serving as the research director for Trusted Execution Environments and SUAVE. Miller plans to take a temporary leave from his assistant professor position at the University of Illinois, where his academic work focuses on electrical and computer engineering. Another core member, Hasu, serves as Flashbots’ strategy director, wielding widespread influence in the blockchain space, including roles as a strategic advisor for the liquidity staking protocol Lido and a research collaborator with Paradigm investment firm. Hasu is committed to driving industry development and education through writing, social media, and podcasts.

SUAVE is a unique decentralized builder and sequencer, distinct from other shared layers or sequencing layers in design. It aims to provide transaction sequencing services for Ethereum and other blockchains without being directly embedded into any chain’s protocol. Users can send transactions to SUAVE’s encrypted memory pool, and SUAVE’s executor network is responsible for outputting blocks or partial blocks for chains. These blocks compete with those generated by traditional centralized Ethereum builders, with Ethereum proposers selecting them.

Source:https://foresightnews.pro/article/detail/28930

SUAVE does not replace the mechanism for Rollups to choose blocks, nor does it change the chain’s fork choice rules. It focuses on providing the most profitable sequencing for any chain, typically having full state to simulate different transaction outcomes and create optimal sequencing. This design allows SUAVE to collaborate with shared sequencers or other MEV-aware builders to offer services like atomic cross-chain arbitrage, ensuring several transactions are executed or canceled atomically.

Source:https://foresightnews.pro/article/detail/28930

In the long term, Rollups might be a better option. Rollups secure their safety, censorship resistance, and liveness through L1, whereas SUAVE, a chain focused on transaction sequencing, is not intended for ordinary user interaction. Its goal is to limit users’ need to bridge funds to SUAVE, focusing instead on providing a platform for searchers/builders. SUAVE is dedicated to providing the most favorable transaction sequencing without completely replacing existing sequencing mechanisms. It can handle full-state transactions to create optimal transaction sequencing.

Source:https://foresightnews.pro/article/detail/28930

Regarding MEV handling, various mechanisms aim to reduce potential competition and negative externalities related to transaction sequencing and inclusion. For example, Arbitrum’s time dilation mechanism and Flashbots’ FBA-FCFS model attempt to reduce the incentives for latency competition by allowing users to express their preference for fast transaction inclusion through fees.

Arbitrum’s Time Dilation Mechanism

The time dilation mechanism is a security measure against a specific type of attack known as the “Time Bandit Attack,” where attackers might attempt to reorganize confirmed blocks to profit from previously unknown information (e.g., exploiting knowledge of a transaction after the fact).

Arbitrum defends against this attack through a unique mechanism that allows anyone to submit a “challenge” proving the attacker’s actions when a time bandit attack is attempted. This mechanism, based on economic incentives, ensures the attacker’s potential gains are offset, thus protecting the network’s security and fairness.

Flashbots’ FBA-FCFS Model

The FBA-FCFS (First Bid Auction — First Come, First Served) model is a transaction ordering mechanism proposed by Flashbots, aiming to address traditional transaction selection and ordering issues, especially in the context of MEV extraction.

• The First Bid Auction (FBA) part means traders can prioritize their transactions by bidding (usually in the form of extra fees paid to miners), similar to an auction where the highest bidder gets priority.
• The First Come, First Served (FCFS) part ensures that under certain conditions, transactions are processed in the order they are submitted, ensuring fairness and transparency.

The FBA-FCFS model seeks to balance fairness and efficiency by allowing bidding on transactions to optimize the use of network resources while ensuring that some users are not completely excluded due to an inability to pay.

These mechanisms each have their pros and cons, but share the common goal of improving the efficiency and fairness of transaction processing.

By collaborating with Rollups and other MEV-aware builders, SUAVE aims to provide higher economic security and efficiency for cross-chain operations, exploring new economic security models and MEV mitigation mechanisms to improve the decentralization of blockchain transaction ordering and execution.

Summary and Outlook

Projects such as Metis, Astria, Espresso, Radius, and SUAVE, though each with its own focus, collectively aim to enhance the scalability and transaction efficiency of blockchain technology while addressing the issue of Miner Extractable Value (MEV), enhancing decentralization, and improving interoperability.

Metis, with its Layer 2 solution, focuses on optimizing Ethereum’s transaction processing capabilities to reduce costs and increase efficiency, aiming to provide developers and enterprises with a more convenient platform for development. Astria and Espresso propose the concept of a decentralized sequencer network, supporting the processing of transaction data for multiple Layer 2 solutions. This not only simplifies the development and operational processes but also strengthens the composability and interoperability between systems. The Radius project, by introducing encrypted memory pools and block space partitioning, strives to create a trustless, censorship-resistant network aimed at reducing the adverse effects of MEV while enhancing transaction privacy and security. SUAVE focuses on addressing the impact of MEV on transaction fairness and transparency through a decentralized sequencer network, demonstrating a commitment to improving the fairness of the trading environment.

In exploring the development direction of decentralized sequencers, Metis and Espresso provide two distinctly different models: the “in-house” model and the “outsourced module” approach. These models reflect the community’s differing thoughts and strategies on how to build and maintain decentralized sequencers.

Metis’s “in-house” model emphasizes managing and operating its decentralized sequencer network internally to ensure the network’s security and stability. This approach allows Metis to directly control the nodes within its network, maintaining a healthy network environment through staking and incentive mechanisms. Although this model can enhance network security and reliability, it also requires Metis to assume significant operational responsibilities and resource investments, potentially limiting the network’s flexibility and scalability.

In contrast, Espresso’s “outsourced module” approach offers a more flexible and open solution. By allowing any blockchain project to access its sequencing services, Espresso promotes technological universality and diversity while reducing the operational burden on individual projects. The challenge of this model is that it may introduce additional trust issues, as projects need to rely on Espresso to process transactions fairly and securely. Moreover, any issues or attacks on Espresso’s services could impact a wide range of client projects.

Metis’s “in-house” model and Espresso’s “outsourced module” approach showcase two main development paths in the field of decentralized sequencers. Each model has its unique advantages and challenges, and the choice between them depends on the specific needs, resource conditions, and emphasis on decentralization and security of the project.

The development prospects of decentralized sequencers indicate the tremendous potential of blockchain technology to enhance network security, increase resistance to censorship, improve transaction efficiency, reduce costs, and promote ecosystem diversity and interoperability. With the continuous advancement of decentralized sequencer technology, we can foresee a more secure and efficient blockchain network where decentralized sequencing mechanisms effectively defend against single points of failure and malicious attacks, safeguarding user assets and data. Furthermore, optimizations and innovations in decentralized sequencers, such as batch processing and state channels, will further enhance the transaction processing capabilities of L2 platforms, reduce transaction costs for users, achieve high throughput and low latency in transaction confirmations, thereby enhancing the user experience without sacrificing security and decentralization.

Moreover, the widespread adoption of decentralized sequencers is expected to drive the formation of a more diverse and interoperable blockchain ecosystem. Shared sequencer networks, like Espresso and Astria, will not only serve multiple L2 platforms but also promote the flow of data and assets between different platforms, creating a more open and connected decentralized world. Additionally, innovations in incentive mechanisms and token economic models will provide reasonable incentives for participants in the decentralized sequencer network while achieving network governance and profit distribution through token economic models, attracting more participants and stimulating community vitality.

Despite the bright prospects for decentralized sequencers, they still face challenges in technical implementation, network performance optimization, and governance model design. Therefore, future development directions may focus on researching more efficient consensus mechanisms, exploring scalable network architectures, and developing user-friendly interfaces and tools to meet the growing market demands and user expectations. In summary, as a key factor in driving the development of blockchain technology and applications, the future evolution of decentralized sequencers will play a crucial role in building a more efficient, secure, and open decentralized world.

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