MT Capital Research Report: Decentralized Sequencer Track Disassembly Research
authorship | Xinwei, Severin MT Capital
summary
1. As an emerging technology, decentralized sequencer aims to optimize the blockchain network's transaction sequencing process through a decentralized approach to improve transaction efficiency, reduce costs, and solve MEV problems. The development of this technology marks a further effort in the blockchain sector to pursue higher performance and greater decentralization.
2. Metis's “own store” model and Espresso's “outsourced module” approach show 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 provides more flexibility and openness, promotes technical versatility and reduces operational burden.
3. The development of decentralized sequencers heralds potential advancements in blockchain technology in cybersecurity, censorship resistance, transaction efficiency and cost, and ecosystem diversity and interoperability. Further optimizations and innovations in these technologies, such as batch processing and state channels, will improve the performance of the L2 platform, reduce user costs, and promote the formation of a more open and connected decentralized ecosystem.
4. Although decentralized sequencers face challenges such as technology implementation, network performance optimization, and governance model design, their key role in building a more efficient, secure, and open decentralized world should not be underestimated. Future developments will likely focus on studying more efficient consensus mechanisms, scalable network architectures, and developing user-friendly interfaces and tools to meet growing market demands and user expectations.
Introduction to the sequencer
As the name suggests, a sequencer sorts the originally unordered transaction data in the blockchain, thereby organizing it into ordered block data for execution. Every L1 blockchain has its own ranking system, but for L2, centralized sequencers have become an increasingly serious problem.
For L2, a sequencer is not necessary. L2 can also choose to use L1's sequencer. However, due to cost and speed considerations, L2 can bring users a cheaper and more convenient user experience by running its own sequencer. L2 runs its own sequencer, which can compress hundreds or thousands of L2 transactions into a single L1 transaction and submit them to L1, thereby greatly reducing gas fees. Also, users can enjoy the fast soft confirmation experience provided by the L2 sequencer without being constrained by Ethereum transaction throughput. Therefore, for L2, running its own sequencer is also an inevitable choice to improve the user interaction experience.
Current status of the sequencer
Although L2 can improve the user experience by running its own sequencer, the centralization of the L2 sequencer has now become an issue that cannot be ignored. Today,EthereumThe locked volume of L2 has reached 22B, and a large number of L2 are constantly emerging, but almost all L2 sequencers are centralized, and L2 relies on a single sequencer to determine the order of all transactions on L2. Centralized sequencers face many problems. For example, a single sequencer theoretically has the right not to include user transactions, a single sequencer can extract MEV from transactions without restrictions, a single sequencer also faces the problem of being resistant to censorship, and a single sequencer also faces the risk of a single point of failure.
Source:https://l2beat.com/scaling/summary
In addressing MEV's complex challenges, Rollup faces a delicate balance between protecting users and making money. This challenge involves how to prevent harmful MEV behavior such as pre-transactions and sandwich attacks, while effectively utilizing block space to achieve revenue. Although rollup traditionally protects users from MEV by relying on a single operator model and using a first-in-first-out (FIFO) order, this approach may miss out on blockchain space revenue opportunities and ignore the important role of economic dynamics in promoting the stability and growth of rollups. At the same time, ensuring compliance with FIFO principles and maintaining transparency in block sequencing poses additional operational challenges. Furthermore, using the underlying block space as a revenue source is beneficial, but it also raises trust issues for users. They must trust that operators will not use this space to harm their interests through sandwich attacks, etc., which may erode the integrity of transactions and users' trust.
The shared sequencer provides an innovative solution to the MEV problem, bringing significant benefits by introducing a safer and fairer transaction ranking mechanism in blockchain networks, particularly second-tier solutions such as rollup for Ethereum. It effectively balances the needs and interests of network participants by dividing the rollup block space into a top block space that protects user transactions and allows builders to use MEV's bottom block space. Using practical verifiable delayed encryption (PVDE) technology, shared sequencers ensure that user transactions are invisible to malicious actors, thereby preventing harmful MEV practices such as pre-transactions and sandwich attacks. Furthermore, by allowing beneficial MEV activity in the bottom block space, the shared sequencer generates revenue for the rollup while maintaining the integrity of the network and the trust of users. 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. Simply put, the shared sequencer has brought positive changes to the blockchain ecosystem through its unique treatment of MEV, achieving a balance between protecting the interests of users and promoting the healthy development of the network.
Generally speaking, the problem with centralized sequencers still comes from the fact that a single-node sequencer has too much power and risk exposure, and a decentralized sequencer composed of multiple nodes can solve the problems faced by centralized sequencers very well. Decentralized sequencers can guarantee the robustness and effectiveness of L2 sequencing while also bringing some additional benefits. For example, decentralized sequencers such as Metis can further empower tokens while achieving revenue dividends. Shared sequencers eliminate the need for L2 to build their own ranking network, and can also provide more convenient interoperability for L2 with multiple shared sequencers. In the long run, the wave of modularity and L2 will surely drive the decentralization of sequencers, and the decentralized sequencer market still has huge market space.
Source:https://joncharbonneau.substack.com/p/rollups-arent-real
Decentralized sequencer project
Metis
Elena Sinelnikova, the co-founder and CEO of Metis, has previously been dedicated to blockchain industry education and evangelism. She is the co-founder of the educational non-profit organization CryptoChicks. CryptoChicks is currently the largest female blockchain community in the world, with members in 56 countries. Kevin Liu is the co-founder and product leader of Metis, the co-founder and CEO of ZKM, and Kevin is also a token economy, DAO,DeFiand an active researcher on blockchain governance.
Metis was the first Ethereum L2 to propose and test a decentralized sequencer.
Metis changed the original single sequencer node to a sequencer pool composed of many nodes, and decentralized the sequencer through a random rotation mechanism.
First, there will be an Admin role in Metis's decentralized sequencer network. Admin's accusation is to manage the decentralized sequencer system, including adding sequencer nodes that meet the requirements to the Sequencer List whitelist, setting staking limits for individual nodes, how quickly block rewards are released, etc.
Subsequently, Metis introduced a node staking mechanism. Any node that has staked 2w METIS tokens can become one of the nodes in the sequencer pool. Nodes in the sequencer pool have the right to see the contents of the transaction pool, and the selected sequencer node has the right to package transactions.
Second, Metis introduced PoS's node rotation mechanism. Metis will randomly select block producers by combining the staking amount of each node with a random drop in the hash value. The selected sequencer node can package block transactions.
Immediately after that, the packaged transaction batch requires at least 2/3 of the sequencer's signature before the batch is considered valid and submitted to L1. The keys signed by the sequencer node are managed by Metis's PoS consensus layer. The consensus layer generates multi-signature keys and distributes them at the shard level when the sequencer node joins or leaves the network.
Finally, in order to prevent the sequencer from malfunctioning, Metis will also introduce the role of a validator to randomly sample blocks, check whether the order of transactions within the block is correct, etc. Nodes that maliciously commit evil will be punished by forfeiting the pledged funds.
Source:https://www.metis.io/decentralized-sequencer
Based on the above process, Metis was able to build a decentralized sequencer architecture based on PoS network consensus. Pledging 2w METIS can become a sequencer node, making the sequencer node more diverse and avoiding single-point failure, single-point manipulation, and malicious MEV extraction of the sequencer node. The node rotation mechanism and multi-signature confirmation make the selection of sequencer nodes fairer, and at the same time, it can also prevent sequencer nodes from doing bad things to a certain extent. Sampling checks and forfeiture penalties by validators can also further reduce the risk caused by malicious acts of nodes.
To further motivate more nodes to participate in Metis's decentralized sequencer network, Metis has also introduced additional incentives. After the sequencer node successfully generates blocks, it can not only receive gas revenue from the original sequencer, but also receive additional METIS token emission rewards. Metis's incentive mechanism is likely to generate a positive growth flywheel. The boom in Metis network trading activity will lead to an increase in revenue for sequencer nodes. Increased revenue from sequencer nodes will attract more users to stake METIS and become sequencer nodes to capture sequencer revenue. The reduction in METIS in circulation and the increase in demand for METIS due to pledges will further raise the market price of METIS. The increase in the price of METIS will also cause the asset value of the pledge nodes to rise and the staking rewards to increase, thereby making the node more attractive, attracting more node staking, and forming a closed loop of flywheels.
Metis's PoS decentralized sequencer network is L2's first attempt at implementing a decentralized sequencer. The launch of the Metis decentralized sequencer is expected to drive other L2s to advance the decentralization plans of their sequencers.
Espresso Systems
Espresso's team has a very luxurious background. The co-founders Charles Lu and Ben Fisch are PhDs in computer science from Stanford University, and the team members have also worked for Binance Labs,CoinbaseLeading Web2 and Web3 companies such as Google. Previously, Espresso was also successfully obtained fromSequoia Capital、Coinbase Ventures, Polychain,Robot Venturesand $23 million in funding from top venture capital firms.
Espresso is positioned as a middleware between L1 and L2, decoupling sequencing and execution. It aims to be a decentralized shared sequencer network to provide decentralized sequencer services for different L2s. Similar to DA outsourcing in the modular concept, the service provided by Espresso is more like an outsourcing service for sorting transaction data. Like DA outsourcing, the sorting outsourcing service provided by Espresso is also independent of the chain or virtual machine, and any type of L2 can use Espresso's sorting service.
Source:https://hackmd.io/@EspressoSystems/EspressoSequencer
Espresso's core idea is to provide L2 with a modular sequencer middleware. After the user sends transaction data through the client, the transaction data will be sent to Espresso's sequencer network along with the L2 identifier. Espresso's node (the node in the Espresso Hotshot Proof of Benefit System) will sort the transactions and broadcast them to subscribers (L2 nodes) after completing the sorting. L2 then performs execution based on the packaged sequential transaction data. At the same time, Espresso will also submit block promises containing transactions to the L1 sequencer contract. Finally, L2 needs to send a new state to L1, and L1's Rollup contract will use block promises from Espresso to verify L2 submitted state updates to ensure proper execution.
Source:https://docs.espressosys.com/sequencer/espresso-sequencer-architecture/system-overview
In the future, Espresso also plans to reuse Ethereum's existing verification nodes through Eigenlayer to participate in the ranking to achieve higher security.
Overall, Espresso's decentralized sequencer solution is more in line with the concept of a modular blockchain. Through the form of sorting outsourcing, it uses its own PoS network to achieve decentralized sequencing, forming a decentralized sequencer network middleware between L1 and L2. Espresso's universal sorting service also allows it to be a shared sequencer network, and any L2 can use Espresso's sequencer service. Further, L2 who co-use Espresso as a sequencer service provider can even enjoy more seamless interoperability.
Astria
Josh Bowen, CEO of Astria, was the biggest driver of the project. Josh Bowen worked for Edge & Node, the startups behind The Graph, and Celestia Labs. His past work experience gave him a deeper understanding of concepts such as modularity and decentralization. He has shared his key insights on how shared sequencers can keep the blockchain space fast and decentralized on several occasions. Bowen emphasized that most application-specific Rollups may not require their own sequencer; cultivating a more decentralized and modular shared sequencer network would instead help build a more decentralized and efficient blockchain system. Josh Bowen and Astria's idea was also supported by institutions such as Maven 11, 1kx, Delphi Ventures, and Figment Capital, which raised $5.5 million in seed funding.
Similar to Espresso, Astria also aims to provide a decentralized shared sequencer network. Astria's shared sequencer network is a middleware blockchain with its own set of decentralized sequencers that can accept transaction data from multiple L2s. Similarly, Astria can handle any type of L2 sorting request. Further, if you also use Astria's L2, you can also enjoy the atomic-level interoperability that Astria provides.
Astria's sorting process is shown in the figure below.
● After the user submits the transaction, L2 submits the transaction data to Astria through the interface.
● Astria's shared sequencer will agree on transaction sequencing and package them into blocks through the ComeBFT PoS consensus network. Astria's shared sequencer network uses CometBFT as its consensus algorithm. In the network consensus phase, the proponent decides on the block's transactions and creates a commitment to the ordered data for that Rollup for each Rollup. Subsequently, other nodes in the network need to verify it, agree on it, and form a final decision.
● After the transaction data is sorted, Astria's Conductor will analyze the data required for each ordered block and verify the batch data, including verifying whether the block has been finally confirmed, whether the extracted Rollup data is complete, correct, and correctly sorted, etc. Once the verification is complete, the Conductor will convert Rollup's ordered data into a list of transactions and pass it to Rollup's execution engine for execution.
Ssource:https://docs.astria.org/docs/overview/why-decentralized-sequencers/
● L2, which pursues a faster user experience, can accept soft commit sequential blocks from Astria through the reading interface to provide users with quick block confirmation. L2 can also read ordered blocks of hard commits written by Astria through the DA layer.
Ssource:https://docs.astria.org/docs/overview/why-decentralized-sequencers/
Astria's decentralized sequencer network is very similar to Espresso's solution, and both are dedicated to providing decoupled decentralized sequencing services for any L2. L2 can further simplify L2 development processes and operating costs through outsourced sequencing services, and enjoy atomic-level composability between L2s.
Radius
Radius focuses on developing a trustless shared sequencing layer aimed at solving the challenges of harmful MEV extraction and censorship systems in the blockchain field. 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 also aims to build a trustless, censorship-resistant shared sequencer network, and compared to Espresso and Astria, the biggest characteristic of Radius is that it can effectively reduce harmful MEV through an encrypted memory pool.
The overall architecture of Radius shared sequencer networks is similar to mainstream shared sequencer networks. Users submit encrypted transaction data and proof to the sequencer layer via Dapps. The sequencer validates the transaction data and proofs provided by the user, and packages them and sorts them. Rollup then accepts sequential blocks from the sequencer network, executes transactions in sequence, and submits the executed status and status certificates to the settlement layer.
Source:https://docs.theradius.xyz/developer/architecture
Interestingly, Radius introduced an encrypted memory pool to prevent the sequencer from extracting harmful MEVs. Transactions submitted by users are encrypted and submitted to the sequencer network in the form of encrypted data. When the sequencer sorts transactions, it can't obtain keys, and it can't decrypt and view the details of each transaction. Therefore, the sequencer cannot extract MEV by maliciously sorting and inserting transactions.
Radius divides block space into top space and bottom space. The top space is dedicated to user transactions, and harmful MEV is effectively avoided by encrypting the memory pool. The bottom space introduces traders to an open auction-based market. In trading, healthy MEV bundles with cross rollups can be created, such as healthy arbitrage, liquidation, etc. The trader then submits the bundled transaction and bid to the sequencer, and the sequencer selects the bundled transaction with the highest bid and includes it in the block to maximize Rollup profits and cultivate a healthy MEV competitive market.
Compared to Espresso and Astria, Radius has two significant advantages. First, by introducing an encrypted memory pool and dividing the block space into top space and bottom space, Radius can effectively eliminate harmful MEV transactions, cultivate a healthy MEV competition market, and maximize Rollup's profits. Second, the introduction of an encrypted memory pool makes it impossible for a single sequencer node to pass through MEV. Therefore, there is no need to introduce an additional consensus mechanism to guarantee the accuracy of the ranking, which can greatly improve the final confirmation speed and expandability of the sequencer network.
SUAVE (Single Unifying Auction for Value Expression)
The SUAVE solution was proposed by the Flashbots team, a pioneering team dedicated to solving MEV problems in the Ethereum ecosystem, composed of a group of professionals with deep backgrounds in computer science, mathematics, psychology, and economics. According to LinkedIn, the team currently includes 28 employees, and their expertise covers a wide range of fields from Python programming, blockchain technology, machine learning to the C language.
Flashbots' founding team included Philip Daian and Stephane Gosselin, who left in October 2022 due to differences with the team over censorship. Additionally, Alex Obadia, another co-founder and top strategy researcher, left Flashbots in June 2023 for personal reasons. Core members include Andrew Miller, who is known for his research on cracking Intel's SGX code and currently serves as the research director for trusted execution environments and SUAVE. Miller plans to take a temporary break from his position as an assistant professor at the University of Illinois, where his work in academia focuses on electrical and computer engineering. Another core member, Hasu, is the head of strategy at Flashbots. He has extensive influence in the blockchain field, including as a strategic advisor to liquidity staking protocol Lido and a research collaborator at Paradigm Investments. Hasu works to advance the development and education of the industry through writing, social media, and podcasts.
SUAVE is a unique decentralized builder and sequencer that is clearly different from the design of other shared or sequencing layers. It aims to provide transaction sequencing services for Ethereum and other blockchains, but it is not directly embedded in any chain's protocol. Users can send transactions to SUAVE's encrypted memory pool, and SUAVE's network of executors is responsible for outputting blocks or portions of blocks for the chain. These blocks will compete with blocks generated by traditional centralized Ethereum builders, and chosen by Ethereum proponents.
Source:https://foresightnews.pro/article/detail/28930
SUAVE does not replace Rollup's mechanism for selecting blocks, nor does it change the chain's fork selection rules. It focuses on the ranking that provides the best profit for any chain, and is usually in perfect condition to simulate the results of different transactions and create the best ranking. This design allows SUAVE to collaborate with shared sequencers or other MEV-aware builders to provide services such as atomic cross-chain arbitrage to ensure that several transactions are executed atomically or cancelled simultaneously.
Source:https://foresightnews.pro/article/detail/28930
Rollup might be a better choice in the long run. Rollup guarantees its security, censorship resistance, and activity through L1, while SUAVE, as a chain focused on transaction ranking, is not suitable for ordinary users. Its goal is to limit users' need to bridge funds to SUAVE, but rather to focus on providing an operating platform for searchers/builders. SUAVE focuses on providing the most favorable ranking for transactions, rather than completely replacing existing sorting mechanisms. It can process transactions in perfect state to create the best order of transactions.
Source:https://foresightnews.pro/article/detail/28930
Regarding the treatment of MEV, there are various mechanisms to reduce potential competition and negative externalities associated with transaction sequencing and inclusion. For example, Arbitrum's time-boosting mechanism and the FBA-FCFS model proposed by Flashbots both seek to reduce the motivation to delay competition by allowing users to express their preference for quick inclusion of transactions through fees.
Arbitrum's time improvement mechanism
The time boost mechanism is a security measure used to prevent a specific type of attack called a “Time Bandit Attack” (Time Bandit Attack). In this type of attack, attackers may try to reorganize confirmed blocks to profit from certain previously unknown information (for example, using knowledge about a transaction later).
Arbitrum defends against this type of attack through a unique mechanism, which allows anyone to submit a “challenge” to prove the attackers' actions when they discover someone is trying to carry out a time bandit attack. This mechanism is based on an economic incentive to ensure that attackers' potential benefits are offset, thereby protecting the security and impartiality of the network.
FBA-FCFS model for Flashbots
The FBA-FCFS (First Bid Auction - First Come, First Proposal) model is a transaction ranking mechanism proposed by Flashbots. The purpose of this model is to solve traditional transaction selection and sequencing problems, particularly in MEV extraction environments.
● The First Bid Auction (FBA) part means traders can prioritize their transactions by bidding (usually an additional fee paid to miners). This is similar to an auction, where the highest bidder gets priority.
● First Come, First Delivered (FCFS) means that under certain conditions, transactions will be processed in the order they were submitted to ensure fairness and transparency.
The FBA-FCFS model attempts to balance fairness and efficiency, optimizing the use of network resources by allowing bidding on transactions while ensuring that certain users are not completely excluded due to insufficient payment capacity.
Each of these mechanisms has advantages and disadvantages, but the common goal is to improve the efficiency and fairness of transaction processing.
Through collaboration with Rollup and other MEV-aware builders, SUAVE aims to provide greater economic security and efficiency for cross-chain operations, while exploring new economic security models and MEV mitigation mechanisms to improve the decentralization of blockchain transaction sequencing and execution.
Summary and outlook
Although the projects Metis, Astria, Espresso, Radius, and SUAVE each have their own focus, they all focus on improving the scalability and transaction efficiency of the blockchain, while also solving MEV problems and enhancing the decentralization and interoperability of the system.
Through its Layer 2 solution, Metis focuses on optimizing Ethereum's transaction processing capabilities to reduce costs and improve efficiency, and aims to provide a more convenient development platform for developers and enterprises. Astria and Espresso proposed the concept of a decentralized shared sequencer network to support transaction data processing for multiple Layer 2 solutions, which not only simplified development and operation processes, but also enhanced composability and interoperability between systems. By introducing encrypted memory pools and block space partitioning, the Radius project aims to create a trustless, censorship-resistant network that aims to reduce the harmful effects of MEV while improving the privacy and security of transactions. SUAVE focuses on addressing the impact of MEV on transaction fairness and transparency through decentralized sequencer networks, demonstrating its commitment to improving the fairness of the trading environment.
When exploring the development direction of decentralized sequencers, Metis and Espresso provided two very different models, namely the “self-operated store” model and the “outsourced module” approach. Each of these two models reflects the different thinking and strategies of the community on how to build and maintain decentralized sequencers.
The “self-operated store” model adopted by Metis emphasizes the internal management and operation of its decentralized sequencer network to ensure the security and stability of the network. This approach allows Metis to directly control the nodes within its network and maintain a healthy network environment through staking and incentive mechanisms. Although this model can improve the security and reliability of the network, it also requires Metis to assume greater operational responsibility and resource investment, which may limit the flexibility and scalability of the network to a certain extent.
In contrast, Espresso's “outsourced module” approach provides a more flexible and open solution. By allowing any blockchain project to connect to its sequencing service, Espresso promotes the versatility and diversity of technology, while also reducing the operational burden of individual projects. The challenge with this model is that it may introduce additional trust issues because project parties need to rely on Espresso to handle transactions in a fair and secure manner. Additionally, any issue or attack targeting the Espresso service could impact a wide range of customer projects.
Metis's “own store” model and Espresso's “outsource module” approach demonstrate two main development paths within the decentralized sequencer field. Each model has unique benefits and challenges, and choosing one depends on the specific needs of the project, resource conditions, and emphasis on decentralization and security.
The future of decentralized sequencers indicates the huge potential of blockchain technology to improve cybersecurity, enhance censorship resistance, improve transaction efficiency, reduce costs, and promote ecosystem diversity and interoperability. With the continuous advancement of decentralized sequencer technology, we can anticipate a more secure and efficient blockchain network. Among them, the decentralized ranking mechanism can effectively prevent single point of failure and malicious attacks, and protect the security of user assets and data. Furthermore, the optimization and innovation of decentralized sequencers, such as batch processing and status channels, will further improve the transaction processing capacity of the L2 platform, reduce user transaction costs, and achieve high throughput and low latency transaction confirmation, thereby improving the user experience without sacrificing security and decentralization.
Meanwhile, the popularity of decentralized sequencers is expected to drive the formation of a more diverse and interoperable blockchain ecosystem. Shared sequencer networks, such as Espresso and Astria, will not only provide services to multiple L2 platforms, but also facilitate the flow of data and assets between different platforms, creating a more open and connected decentralized world. Furthermore, innovation in incentive mechanisms and token economy models will provide reasonable incentives for participants in decentralized sequencer networks, and at the same time achieve network governance and revenue distribution through the token economy model, attract more participants and stimulate community vitality.
Despite the bright future of decentralized sequencers, they still face challenges in technology implementation, network performance optimization, and governance model design. Therefore, the future direction may focus on studying more efficient consensus mechanisms, exploring scalable network architectures, and developing user-friendly interfaces and tools to meet the growth of market demand and user expectations. In short, decentralized sequencers are one of the key factors driving the development of blockchain technology and applications, and their future evolution will play a critical role in building a more efficient, secure, and open decentralized world.
