Published: January 27, 2025 at 3:10 am
Updated on January 27, 2025 at 3:10 am
Ethereum is gearing up for a major overhaul with the introduction of both based and native rollups. These proposed rollups aim to bolster security, mitigate fragmentation, and enhance interoperability across the network. It’s worth noting that well-known Ethereum layer-2 networks such as Arbitrum, Optimism, and Base are already on board with these changes. This shift could pave the way for a more integrated and efficient blockchain environment.
The concept of based rollups, put forth by Ethereum core developer Justin Drake, seeks to shift transaction sequencing back to Ethereum’s foundational layer. This move is intended to decentralize the block-building process, which has been largely dominated by a single sequencer, by sharing it among all Ethereum validators. By utilizing layer-1 validators for transaction sequencing, based rollups could potentially align incentives between layer-2 networks and layer-1 validators. This alignment could lead to increased demand for Ether (ETH) and boost staking yields, which would be a welcome development for the ecosystem.
Higher staking yields might be on the horizon, but it comes with the caveat of maintaining those yields without resorting to zero issuance inflation. This could ultimately benefit the Ethereum ecosystem by ensuring that validators receive appropriate rewards for their contributions, strengthening the network’s security and stability.
Native rollups focus on enhancing the execution of transactions on the base layer, improving the network’s composability. By utilizing the EXECUTE precompile, they expose the native layer-1 Ethereum Virtual Machine (EVM) execution engine to the application layer. This means the execution rules of the rollup would be in line with EVM specifications, fostering seamless interaction between layer-1 and layer-2 applications.
The beauty of native rollups lies in their simplicity. Unlike other rollup solutions that rely on intricate proof systems, they use layer-1 validators to verify EVM state transitions for batches of user transactions. This not only enables synchronous composability but also allows for faster transaction processing, bypassing the limitations of Ethereum’s 12-second block time. Additionally, the lack of complex infrastructure like proving networks and security councils simplifies the overall architecture, leading to more reliable transaction processing.
The arrival of based rollups is poised to disrupt the revenue models and fee structures of existing Ethereum layer-2 networks. These networks have traditionally reaped significant rewards from high-speed, centralized sequencers. For example, Arbitrum has amassed $210 million in revenue from its centralized sequencer, while Base has pulled in $96.2 million.
Based rollups could change this landscape by employing layer-1 validators for transaction sequencing, potentially lowering the costs associated with layer-2 transactions and redistributing revenue. Such a shift could increase profitability for layer-1 validators and perhaps yield higher returns for ETH stakers. However, layer-2 operators may need to adjust to new revenue models that rely less on centralized sequencers and more on decentralized infrastructure.
The Dencun upgrade, which reduced fees for layer-2 transactions, has already altered Ethereum’s revenue structure. Based rollups could further this change by diminishing the costs for block space and transaction processing. While this could initially decrease Ethereum’s fee-derived protocol revenue, the long-term impact may be positive if based rollups increase overall Ethereum Virtual Machine (EVM) usage.
Should based rollups spark higher demand for gas, they could either stabilize or even boost Ethereum’s revenue streams over time. This would be a critical development for the network’s sustainability, ensuring that Ethereum can continue to support a growing number of decentralized applications and users without sacrificing security or performance.
In the long run, based rollups could enhance interoperability and composability between various layer-2 protocols, facilitating smoother transitions across different data availability (DA) layers. This could drive greater adoption of blockchain-based applications, increasing demand for block space and potentially raising overall revenues for Ethereum and its layer-2 networks.
Several Ethereum layer-2 executives are advocating for the implementation of FABRIC, an infrastructure that would support based rollups. FABRIC standards could significantly enhance Ethereum’s interoperability by enabling seamless asset transfers and interactions through bridging solutions. This would improve efficiency, security, and connectivity, contributing to the development of global standards for cross-chain communication.
The adoption of FABRIC standards, along with the integration of based and native rollups, could fuel significant growth within the Ethereum ecosystem. By improving interoperability and composability, these advancements could attract more developers and users, fostering innovation and expanding the range of decentralized applications available on Ethereum.
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