Based Rollups: Decentralizing Ethereum's L2 Landscape

Recent news from Mars Finance highlights DWF Ventures' observations on the growing trend of Based Rollups and their potential to solve current challenges in the Ethereum Layer 2 (L2) space.

The Problem:

• Current L2 solutions are largely centralized, leading to fragmented liquidity.
• Over 74 L2s are already live, with more expected to launch in the future.

Based Rollups as a Solution:

• Ethereum Roadmap: Ethereum aims to reduce reliance on centralized MEV (Miner Extractable Value) and Based Rollups help achieve this by minimizing dependence on centralized sequencers within L2s. They introduce distributed block building and pre-confirmation for a better user experience.
• Based Rollups Architecture: Sequencing is driven by the underlying L1, where L1 proposers replace L2 sequencers. This allows rollup blocks to be included in L1 blocks permissionlessly. Increased proposer participation enhances decentralization and reduces the risk of chain disruptions or censorship.
• Value Redistribution: L2s generate revenue through transaction fees and MEV. However, due to centralized L2 sequencers, much of this revenue goes back to their teams. With Based Rollups, L1s receive more value, and rollups benefit from shared sequencing.

Infrastructure Enabling Based Rollups:

• Shared Sequencing: Espresso Systems is building a marketplace where rollups can sell sequencing rights. This allows multiple proposers to participate in a single block, leading to higher sequencing revenue for rollups as proposers bid against a reserve price. Similar initiatives include Astria, Rádius, and NodeKit.
• Application Chain Framework: Spire is building a framework for developers to create their own Based application chains. These chains can leverage L1 liquidity and combine with other application chains, providing users with a seamless, bridge-less experience.

Use Cases for Based Rollups:

• Cross-Chain Composability: Coinbase is building "KeySpace," a Based rollup enabling smart wallets to interact across chains with a single address. Taiko Gwyneth aims for synchronous composability between L1<>L2 and L2<>L2, creating more arbitrage and MEV opportunities, driving value back to the base layer.
• Improved User Experience and Revenue: Puffer Finance's UniFi is a Based rollup offering faster transactions through pre-confirmation and providing users with additional revenue from rollup fees. Users can access liquidity on other Based application chains without fragmentation.

Conclusion:

Although the infrastructure for Based Rollups may take time to mature, significant progress has been made by key protocols. As more application chains are deployed as Based Rollups, the ecosystem is expected to grow rapidly with strong network effects.