Based Rollups: Puffer Finance Launches New Type of Rollups Solution

Recently, a liquidity re-staking protocol active in the EigenLayer ecosystem launched a new solution called Based Rollups, attempting to introduce Ethereum mainnet validators to provide a safer and more efficient decentralized solution for Rollups, particularly in terms of the decentralization of sequencers.

As a classic LST protocol, it can provide new technical solutions by combining its own characteristics, which is a good narrative extension. The decentralization of the sorter is a core issue of concern for the community, and this is almost the weakest point of the Rollups system, which can directly affect user experience. Based Rollups attempt to outsource sorting to Layer 1 to achieve decentralization, which not only reduces the risk of the current Rollups sorters being overly centralized but also significantly lowers transaction costs and enhances system activity.

Developers can easily deploy and manage their own Rollups chains based on the Based Rollups architecture, just like deploying smart contracts, while enjoying the security and decentralization features of Ethereum.

Current Issues with Rollups

Currently, ZK or OP Rollups rely on centralized sequencers to determine the order of transactions. This centralization brings risks, including sequencer failures and reduced user trust, as well as the derivative MEV issues. To mitigate these risks, many Rollups offer an "escape hatch" mechanism that allows users to exit Rollups during sequencer failures, but this increases latency and Gas fees, and may be exploited by malicious sequencers to extract MEV. We urgently need Rollups with decentralized sequencers.

Introduction of Based Rollups

When the transaction order is determined by L1, the Rollups are referred to as Based Rollups, proposed by researchers from the Ethereum Foundation in March 2023. Base Rollups achieve ordering decentralization by utilizing L1 proposers to determine the transaction order. This approach not only inherits the liveness and decentralization of L1 but also eliminates the need for escape hatches, thereby enhancing the security and efficiency of Rollups.

How Based Rollups Work

In Base Rollups, L1 proposers can collaborate with L1 searchers and L1 builders to include Rollups blocks in the next L1 block without permission. The order of the included L2 blocks and the final ordering of transactions are determined by the L1 proposer. However, in general, L1 proposers do not build L2 blocks themselves; instead, this is done by L2 builders. This means that there is no increase in the workload of L1 proposers.

Some Rollups projects are an example of Based Rollups. The virtual machine of Based Rollups and the Rollups execution agent act as the execution layer executing transactions off-chain, while the order of transactions is determined by the Ethereum consensus layer starting from the consensus layer, and the transaction data is also published to Ethereum, allowing for the transaction status to be ultimately verified on Ethereum.

Advantages of Based Rollups

1. Inherit L1 censorship resistance and enhance transaction activity: Since Based Rollups are operated by Ethereum L1 proposers and validator nodes, they inherit Ethereum's censorship resistance, thus there is no need for escape hatches. This ensures active transactions and avoids the transaction delays and fairness issues brought by escape hatches.

2. Reduce Transaction Costs: Transactions based on escape pods usually incur additional Gas expenses, reducing the activity of traditional Rollups. In contrast, Based Rollups do not require additional Gas fees for transactions, nor do they need to validate the signatures of centralized sorters, and do not require escape pods or external PoS consensus, further reducing costs.

3. Inheriting L1 Decentralization, the System is Simpler and More Secure: Based Rollups only execute the transaction layer off-chain, while the consensus layer for ordering transactions, the data visibility layer, and the verification layer are all on L1. This reuses the seeker-builder-proposer architecture of L1, making the Based Rollups system very simple, without the need for sequencer signature verification, escape hatches, or external PoS consensus. L1 seekers and block builders are incentivized to include Rollups blocks in their L1 bundles and L1 blocks to extract Rollups MEV, further enhancing the security of L1.

4. Flexible Token Governance: Although sorting is delegated to L1, Based Rollups can still have governance tokens to collect basic fees. Of course, tokenless implementation is also possible, as its correctness and fairness are guaranteed by Ethereum.

Challenges Faced by Based Rollups

MEV income has been forced to decrease

MEV is a significant portion of the revenue from traditional Rollups, but most Based Rollups' MEV flows to L1 proposers, sacrificing the MEV income of Based Rollups while still retaining the option to earn revenue from L2 congestion fees. Based Rollups hoping to capture their own MEV may implement some bribery mechanisms, such as including an auction mechanism in the L1 contract that forces batch submitters to pay some ETH to the contract.

Sorting flexibility is limited, unable to do pre-confirmation.

Although Based Rollups have advantages in many aspects, they also face some challenges, especially related to soft confirmations. Soft confirmation refers to the user's ability to reliably know that their transactions will successfully reach Ethereum Layer 1 (L1). Current Rollups provide pre-confirmations, allowing users to know that their transactions will definitely be submitted to L1. However, Based Rollups delegate sorting to L1, which reduces sorting flexibility, making it impossible to achieve pre-confirmations and first come first serve (FCFS) sorting.

Some researchers proposed using restaking to address the pre-confirmation issue in the summer of 2023. In the design using restaking, a portion of L1 proposers submit (through restaking) to include Based Rollups blocks in the L1 blocks they will propose in the future. Since L1 proposers know in advance at least 32 blocks, it is possible to specify who is designated as the proposer for which block.

Improved Based Rollups Solution

A certain liquidity re-staking protocol aims to integrate pre-confirmation with Base Rollups through its architecture, providing fast (100 milliseconds) confirmation times while retaining all the advantages of Base Rollups.

The pre-confirmation mechanism ensures that transactions are submitted to L1.

Pre-confirmation ensures that the decentralized sequencer can effectively submit transactions to L1. Ethereum validators queue up to propose blocks. If the pre-confirmers fail to fulfill their commitments, they will face penalties such as margin cuts to ensure higher reliability. This mechanism gives users more confidence that their transactions will indeed be included in the Ethereum L1 state.

quick confirmation in 100ms

For applications like GameFi, soft confirmation is crucial to ensure a fast response time (e.g., around 100 milliseconds). However, the sorters of Based Rollups follow a block generation time of 12 seconds due to decentralization, resulting in a minimum confirmation time of 12 seconds, which makes soft confirmation unable to respond quickly.

The improved solution integrates pre-confirmation with Based Rollups, enabling Based Rollups to provide a user experience comparable to centralized sequencers, with a confirmation time of 100 milliseconds and guaranteed liveness. This integration allows Based Rollups to retain all their original advantages, ultimately addressing the issue of Ethereum's poor liquidity fragmentation and promoting a more unified and efficient Rollup ecosystem.

Architecture of the Improvement Plan

This architecture enables it to leverage validator nodes, quickly scaling from a single centralized sequencer to tens of thousands of decentralized sequencers. It aims to seamlessly integrate pre-confirmation into its Based Rollup.

• Users submit Rollup transactions, which are then processed by validators. These validators provide pre-confirmation to ensure that users know their transactions will be included in the Ethereum L1 state.
• Validators will re-stake based on additional reduction conditions to ensure reliability, receive Rollup transactions from users, and issue pre-confirmations. These validators are prepared to include Rollup transactions in L1 blocks.
• The pre-confirmation penalty mechanism imposes additional reduction conditions on validators to curb behaviors that violate pre-confirmation commitments, preventing validators from failing to submit certain Rollup transactions to L1.
• Validators propose blocks to Ethereum L1, which include the ordered pre-confirmed Rollups.
• The sorter contract accepts Rollup transactions.
• The treasury collects congestion fees and contention fees generated from Rollup transactions, which can increase the earnings of holders and return to users through native rewards.

a universal Gas token that can reduce market risk

The universal Gas token in this ecosystem generates rewards and is managed by a decentralized autonomous organization (DAO) to avoid market risks, such as lending liquidations caused by Ethereum price fluctuations, while the prevention mechanism helps to mitigate these risks.

No Gas trading scenario

In Web2, users are accustomed to free internet services subsidized by advertisements. In Web3, however, users need to pay for services, which may hinder user adoption.

Improved Based Rollup users can earn income by locking assets in the Rollup native bridge, generating native yields, which enables support for some application scenarios similar to transactions without Gas fees, having significant implications for both web2 and web3.

dApp Chain Based on Improved Solutions

If the transaction fees for a dApp on the Rollups chain become very high, developers may choose to leave the Rollups chain to create their own dedicated chain, allowing them to directly benefit from user transaction fees. The improvement plan provides developers with the Based dApp chain as a solution.

Developers can start a Based dApp chain as easily as deploying a smart contract, inheriting Ethereum's security and decentralization features. Developers can earn transaction fees from the Rollups chain of the dApp, no longer needing to operate centralized sorters themselves, and can achieve cross-chain transactions and interactions.

Transactions on the Based dApp chain can be confirmed quickly within 100 milliseconds, while pre-confirmation ensures that the transaction is submitted to L1.

Summary

Through collaboration with the Ethereum Foundation, this improved Based Rollups solution is providing a more secure and efficient solution for Rollups. This decentralized sorting approach not only reduces the risks of current centralized sorters but also significantly lowers transaction costs and enhances system activity.

With the integration of the pre-confirmation mechanism and a rapid confirmation time of 100 milliseconds, Base Rollups will become an ideal choice for various applications, including GameFi, ensuring user experience while guaranteeing transaction finality. Additionally, based on this solution, developers can easily deploy and manage their own Rollups chains on the Based dApp chain without worrying about the operational issues of centralized orderers, while enjoying the security and decentralization features of Ethereum.