Written by Chanyang Ju (@woojucy), Researcher at Radius, with special thanks to Tariz (@Hyunxukee), Co-Founder at Radius, for feedback. We also thank the speakers at Sequencing Day for sharing insights on the protocols they’re building.

Disclaimer: This report is for informational purposes only and should not be considered investment advice.

1. Introduction

As blockchain technology rapidly advances, Layer 1 and Layer 2 solutions are evolving to meet the demands of users and projects by providing platforms that cater to their needs. When compared to other Layer 1 solutions, the Ethereum network offers powerful network effects due to its vast user and developer base, along with superior security and decentralization. To continue playing a central role in the blockchain economy, Ethereum must maintain its network decentralization and security while addressing scalability and sustainability issues. These challenges are being addressed through Ethereum's strategic roadmap centered around rollup technology, which plays a crucial role in the future vision of Ethereum. The rollup-centric roadmap goes beyond mere technical advancements to provide a strategic approach for increasing user engagement and expanding the ecosystem. The Ethereum community is pursuing the goal of continually improving user experience and network performance, maintaining a decentralized ecosystem, and solidifying its position as a mainstream blockchain technology. This vision is not just theoretical but is being realized through concrete implementation. Devcon, hosted by the Ethereum Foundation, is one of the largest annual events where Ethereum developers, researchers, and community members worldwide gather. This event serves as a platform to discuss the latest technologies, research, and the vision and direction of the Ethereum ecosystem, engaging all individuals interested in Ethereum and decentralized technologies.

At the Sequencing Day event, held as part of Devcon 2024 and hosted by Radius, Puffer, and Espresso, presentations from speakers highlighted various missions to advance the Ethereum ecosystem. This article will provide insights gained by the Radius team at the Devcon and Sequencing Day event, based on the contributions of these speakers who shared diverse approaches and strategies for expanding the Ethereum ecosystem.

2. Background

2.1 Definitions

• Proposer-Builder Separation (PBS)

  This mechanism in Ethereum separates the roles of proposing and building blocks. It aims to foster competition and prevent centralization by delegating the task of block construction to specialized entities known as block builders, while the proposer remains responsible for submitting the block to the network. This separation aims to reduce the economic and technical burdens on validators and enhance security and decentralization in the block creation process. However, to effectively achieve security and decentralization, several technical challenges need to be overcome.

• Cross-Chain composability

  Cross-Chain Composability refers to the ability of applications and protocols across different blockchain networks to interact freely and seamlessly. This concept supports the integration of services by allowing distributed applications to utilize assets, data, and logic hosted on various chains within the blockchain ecosystem. Cross-Chain Composability reduces technological barriers and connects the resources of multiple blockchains, thereby creating platforms that offer richer and more diverse functionalities to users. It enables users to continue transactions or processes started on one blockchain on another, achieving seamless interoperability between blockchains.

• Shared Sequencing

  Shared Sequencing refers to a structure where multiple different rollups share and utilize a single sequencing mechanism. This approach maximizes efficiency and minimizes overhead by allowing multiple rollup instances to use the same sequencing logic for transaction processing. Shared Sequencing enables more efficient use of resources compared to each rollup having its own independent sequencing, and it enhances network cohesion and interoperability. This structure is particularly advantageous when various rollups need to interact with each other, enhancing the scalability and flexibility of the overall system.

• Based Sequencing

  Based Sequencing is a term used when the sequencing of a rollup is driven by the base Layer 1. This refers to a structure that utilizes the block building pipeline of a base layer like Ethereum to construct Layer 2 blocks. In this process, the L2 is designed to be based on the sequencing logic of L1, ensuring that the data and transactions of the L2 block are directly included in the L1 block. This design enables L2 to inherit the liveness and decentralization of L1, facilitating a seamless integration between L1 and L2. This technology allows users to have a more consistent experience within the Ethereum ecosystem.

• Preconfirmations

  Preconfirmations refer to types of preliminary or provisional approval that a transaction receives before being finalized in a blockchain. This can enhance the efficiency of the blockchain network and improve user experience. Preconfirmations can be classified into two main types:

  • Inclusion Preconfirmations:

    These types of preconfirmations provide users with an advance notification that their transaction will be included in a block. That is, before the transaction is actually recorded in the main block of the blockchain, users can know in advance that it will be included. This increases the certainty of transaction processing and allows users to be confident that their transaction will be successfully processed.

  • Execution Preconfirmations:

    Execution preconfirmations not only confirm that a transaction will be included in a block but also ensure its execution results. This involves giving users a heads-up about any state changes or computational outcomes that may occur when the transaction is executed, allowing them to anticipate the final outcome of the transaction in advance. Thus, it provides additional assurance to users and enables faster decision-making before the transaction is fully processed.

  These preconfirmations approache can help users manage their expectations regarding the responsiveness and transaction processing times of blockchain systems.

• Application

  An application is a software program designed to enable users to perform specific tasks. In the context of blockchain, an application interacts with smart contracts or leverages blockchain functionalities to provide specific services to users. These applications, also known as DApps (Decentralized Applications), are used in various fields including financial services, gaming, and social networking.

• AppChain

  An AppChain is an independent blockchain optimized for the specific requirements of an application. It is typically designed to support a single application or a closely related group of applications, featuring customized governance and its own network protocols. AppChains possess unique security mechanisms, transaction processing methods, and data management strategies to maximize the efficiency and performance of the supported application.

• Application-Specific Sequencing

  Application-Specific Sequencing refers to a sequencing approach that is tailored for specific applications or functionalities. This term is used when the transaction sequencing in a rollup is designed to be optimized for certain types of applications. For example, a rollup system that implements sequencing logic specifically for handling only certain types of token transfers or DEX swaps. Unlike general-purpose sequencing, this method allows for more efficient or optimized processing for specific types of operations, thereby enhancing the performance and reliability of the associated applications.

• Block Space Marketplace

  A conceptual or actual marketplace where the rights to produce and fill blocks (block space) are bought and sold. This marketplace involves various participants, including proposers, traders, and builders, who interact to optimize the economic and technical efficiency of blockchain operations.

3. User-Centric Design for Ethereum

Ethereum is dedicated to enhancing user experience and expanding economic opportunities for its ecosystem participants by focusing on security, decentralization, and scalability. To this end, the platform continuously introduces innovations aimed at improving transaction processing speed, lowering fees, and simplifying access through intuitive interfaces. Technological advancements like danksharding improve efficiency and transaction throughput, while efforts to ensure censorship resistance create a free and equitable trading environment. These initiatives contribute to attracting a broader user base and fostering a more inclusive ecosystem. We view these advancements, including discussions from events like DevCon and Sequencing Day, as part of Ethereum's broader mission to elevate user experience. We classify these developments into categories and assess their impact on users, demonstrating how they contribute to creating a cost-effective and efficient trading environment. This article explores Ethereum’s initiatives to enhance user experience from our perspective, with a focus on rollups as a key component of the roadmap to decentralization and scalability. We analyze the strategies and research currently underway, providing insights into how these innovations not only improve user experience but also expand economic opportunities within the Ethereum ecosystem.

3.1 Strengthening Censorship Resistance

One of the major risks faced by Ethereum is the increase in transaction censorship and user value extraction due to the centralization of the Proof-of-Stake (PoS) mechanism. User value extraction refers to the phenomenon where the benefits that should go to general users are monopolized by a few participants through transaction fees, high gas costs, and suboptimal transaction processing methods. In such scenarios, a small number of participants are more likely to monopolize the economic benefits and opportunities that should be returned to Ethereum users.

Currently, MEV is managed under the assumption that proposers lack the expertise to fully exploit MEV opportunities. To address this, Ethereum has adopted the Proposer-Builder Separation (PBS), which allows validators to delegate the task of block construction to specialized entities known as block builders through an auction process. The result is the current structure of block construction in Ethereum.

Two entities. generate approximately 90% of all Ethereum blocks. If these entities collude to censor specific transactions submitted to Ethereum, the affected users may experience significant transaction delays. As a result, while the separation of powers contributes to decentralization among validators and reduces the technical and economic burdens on them, it introduces a new risk of centralization at the level of block builders. Block builders, as external specialized entities, could monopolize block construction due to their high technical requirements and capital capabilities. This could lead to negative consequences for users, such as high fees, transaction delays, and unequal access to block space. Additionally, since the proposer holds the final decision-making authority as a single entity, there is a risk of collusion between proposers and builders. These issues threaten the core value of censorship resistance in blockchains and undermine fairness and transparency.

• MEV is Intrinsic.

  This perspective assumes that MEV inherently exists in any decentralized blockchain system and will inevitably be extracted in some form. Instead of eliminating MEV, this approach seeks to leverage it by selling the rights to access MEV opportunities. In this model, the right to monopolize block space or block building within Ethereum is traded externally, ensuring competition and transparency in the marketplace itself. For instance, auction-based mechanisms like Execution Auction enable the sale of block execution rights, while lottery-based approaches such as Execution Ticket distribute execution opportunities through randomized allocation. These mechanisms aim to create a competitive and transparent market for MEV extraction.

• MEV is Extrinsic.

  This perspective views centralization issues in Ethereum as fundamental problems arising from design limitations and seeks to address them through structural changes. It aims to reduce centralization in the block-building process by involving multiple participants and promoting competition. Examples include Braid, which introduces multiple proposers to the process; FOCIL (Fork-Choice-Enforced Inclusion Lists), which enhances censorship resistance by enforcing fork-choice rules; and POD, which employs leaderless signature verification through validator sets to strengthen censorship resistance for specific applications. These approaches focus on designing mechanisms to distribute block-building responsibilities and mitigate the risks associated with centralization.

These two perspectives offer distinct methodologies to tackle the challenges of centralization and censorship in the block-building process. While they differ in their approaches, it is crucial to recognize that they may overlap or complement each other in practice, providing a more comprehensive strategy to uphold the core values of decentralization, fairness, and censorship resistance in Ethereum.

3.1.1 Intrinsic View

The presence of MEV (Maximal Extractable Value) strongly incentivizes outsourcing the construction of Execution Payloads to an external market of Builders. This occurs because the roles of the Proposer and Builder are separated, allowing builders to optimize MEV opportunities and generate higher profits. As a result, Validators are incentivized to delegate block building to builders who can guarantee higher MEV profits, rather than attempting to optimize execution payloads themselves. To address this challenge, researchers at the Ethereum Foundation are exploring various approaches, including Execution Auctions and Execution Tickets.

• Execution Auction

  This method involves bidding for the rights to propose a block. Participants can bid to acquire the execution proposal rights for a specific future slot. The proposer with the highest bid secures the right to propose a block in that slot. Subsequently, the validators (attesters) of the beacon block verify the highest bid and vote accordingly. This creates a market structure that separates the roles of attesters and execution block proposers.

• Execution Ticket

  Execution Tickets operate by selling block proposal rights in the form of lottery tickets. After selling a fixed number (N) of tickets, one ticket is randomly selected for each block, and its owner gains the right to propose the block. The selected ticket is then removed from circulation, and new tickets are issued for future rounds. At any given time, there are always N tickets in circulation, giving each ticket holder a 1/N chance of proposing a block.

Execution Auctions provide an opportunity for proposers to offer execution payloads before their turn arrives, offering long-term pre-confirmations. In this system, if a single entity bids across multiple blocks in an auction, it leads to multi-block MEV issues as the auction allows for such extraction opportunities over several blocks. The reason this is possible in the auction model is because auctions can span multiple blocks, allowing an entity to continuously win bids and gain advantages across consecutive blocks. A more serious concern is that this structure could exacerbate censorship issues, as multi-block MEV allows for the potential manipulation and exclusion of transactions over extended periods. As an alternative, the Execution Ticket method has been proposed. This method redeems rights at an unspecified future time and, while it helps mix if a single entity acquires a series of consecutive tickets, it faces limitations as the ticket prices may not accurately reflect their true value.

These mechanisms represent different methods for determining how the rights to propose and build blocks are allocated within the blockchain network. Both approaches aim to detangle MEV rewards from the block proposal process, reducing centralizing pressures on the validator set. This structure treats MEV opportunities as a tradable commodity, allowing the creation of a market where these opportunities can be fairly auctioned or distributed. Additionally, it introduces a set of rules governing this market, ensuring fair and transparent allocation of opportunities across participants.

3.1.2 Extrinsic View

Inclusion Lists and FOCIL (Fork-Choice-enforced Inclusion Lists) are mechanisms designed to enhance censorship resistance in the Ethereum network. Both are currently proposed as EIP-EIP-7547 and EIP-7805, with Inclusion Lists being considered for inclusion in Fusaka, the next Ethereum upgrade following the 2025 Pectra upgrade.

• Inclusion Lists

  Inclusion Lists specify a list of transactions that execution proposers must include. By ensuring that proposers include a predetermined number of transactions provided by the beacon proposer, this mechanism helps mitigate the negative effects of centralization and censorship by a single execution proposer controlling consecutive slots. The key process involves:

  1. At time t: A randomly selected staker creates an Inclusion List containing valid transactions.

  2. At time t+1: The block producer generates a block that must include all transactions from the Inclusion List while having the freedom to reorder or add extra transactions.

  This approach ensures that even if block producers are centralized, they cannot fully censor transactions.

• FOCIL (Fork Choice-enforced Inclusion Lists)

  FOCIL builds on the Inclusion List model by introducing a randomly selected validator committee for each slot. These validators create local Inclusion Lists based on their mempools and broadcast them to the network. The final block proposer aggregates these local Inclusion Lists to form a combined list, which they must include in their block payload. While proposers can rearrange or add new transactions, they must adhere to the aggregated Inclusion List. The main steps are:

  1. Validators generate and release local Inclusion Lists.

  2. The block proposer aggregates these local Inclusion Lists and broadcasts the combined list.

  3. The next slot's proposer uses the aggregated list to generate the block.

  4. Validators verify the block's compliance with the aggregated list and determine its validity.

  FOCIL ensures robust and stable censorship resistance and fairness within the Ethereum network.

• Braid

• At Sequencing Day, Max Resnick (@MaxResnick1) presented the Braid architecture, which assigns multiple proposers to a single block. Each proposer works in parallel across chains, maintaining consistency through synchronous consensus mechanisms. Each chain has its own proposer, and all proposers select subsets of transactions to include simultaneously. The Ethereum execution layer collects transactions from all sub-chains, deduplicates, orders, and executes them according to predefined rules. This reduces the risk of a single entity manipulating the transaction record.

Several unresolved issues remain in the BRAID structure, including the exclusive authority of the final block proposer to make decisions after observing the outcomes of other proposers, the impact of exclusive order flow auctions on the structure, and the management and setting of gas limits across parallel chains. However, BRAID demonstrates meaningful potential as an alternative to existing models like FOCIL, offering a fresh approach to addressing these challenges. Each of the described techniques aims to achieve decentralization and fairness within the network, but they each involve their own trade-offs. Identifying the optimal solution remains an open question. For example, execution tickets have been proposed to prevent monopoly issues that may arise in execution auctions dominated by a single actor. However, since there is no enforced mechanism to limit the number of tickets a single entity can hold, there remains a possibility of ticket concentration among a few actors or even a single entity. To mitigate this issue, Inclusion Lists have been introduced. Furthermore, FOCIL can potentially complement execution auctions or execution tickets, functioning in an interdependent manner to address these challenges effectively.

While FOCIL and BRAID primarily focus on preventing censorship in block production using multi-proposer structures, the next approach, POD), takes a different direction. POD aims to eliminate the risks of censorship and reordering while focusing on implementing an efficient, decentralized auction logic.

• POD (Partially Ordered Data Set)

• Shresth(@shresth3103) presented about POD that employs a timestamp-based transaction processing mechanism to facilitate fast and efficient auctions. This decentralized system eliminates centralized relays and processes bids through validator committees interacting with block proposers in real time. The main process involves:

  1. Validators add timestamps and signatures to transactions and issue attestations.

  2. Block proposers subscribe to the POD network, receiving bid information via streaming.

  3. Validators set an auction closing timestamp, after which no new transactions are included.

  4. The block proposer processes bids locally, creates a block, and submits it to the Ethereum network.

  POD ensures low-latency, fair, and efficient auctions while holding validators accountable for any censorship-related issues. Methods like POD may be better suited for restructuring systems to meet specific objectives. However, it is important to note that the direction of censorship resistance targeted by POD differs from that of general blockchain censorship resistance. While its current focus is on auction-based applications, it could still serve as a valuable approach in suitable application scenarios.

Censorship resistance is also a crucial factor for rollups. Rollups are a key technology designed to address Ethereum's scalability challenges, enabling the network to overcome Layer 1 transaction throughput limitations and accommodate more users and applications. However, for rollups to reliably fulfill this role, censorship resistance must be guaranteed. Rollups operate by processing transactions off the Layer 1 blockchain, such as Ethereum, aggregating them into batches, and then submitting them to the main chain. If censorship resistance is compromised during this process, certain actors or groups may block or manipulate the ordering of transactions. Such scenarios could undermine the decentralization and fairness of rollups, erode user trust in the network, and ultimately have a negative impact on the growth and expansion of the Ethereum ecosystem.

In conclusion, censorship resistance is an essential factor for the stable operation of rollups and the sustainable growth of the Ethereum network. Achieving this requires ongoing research and technical improvements within the Ethereum ecosystem. While various technical approaches and designs are being explored, each solution comes with its own strengths and weaknesses, depending on the context. Therefore, technical decisions must always carefully consider the trade-offs involved and go through a deliberate process to identify the optimal solution for each situation.

3.2 Reducing Operational Costs

Ethereum leverages its smart contract functionality to perform complex tasks, particularly through Layer 2 solutions, which enable affordable data availability and cost-efficient use of block space, thereby broadening the applicability of the Ethereum network. Since the announcement of the Rollup-Centric Ethereum Roadmap in 2019, rollup technology has made significant advancements in fraud prevention and validity proofs. These technological advancements allow for the widespread application of the Ethereum network and provide valuable tools that generate greater value for block space consumers. Traditional Layer 2 solutions require all transaction data to be stored on Layer 1, and the use of CALLDATA in this process, due to its cost and space limitations, causes scalability issues. Indeed, it is estimated that approximately 90% of the cost of L2 transactions arises from data storage needs according to the existing CALLDATA structure as noted here. As a solution, Danksharding has been proposed as a strategy to address Ethereum's scalability issues, aiming to reduce users' L2 transaction costs and increase transactions per second (TPS) to over 100,000.

Proto-Danksharding has been proposed as an intermediary step in this process, introduced through EIP-4844. This proposal introduces the concept of 'data blobs,' a method for economically storing large data sets required for L2 operations but not needing permanent storage on the L1 blockchain. This new mechanism allows for the temporary storage of data while maintaining the necessary data availability and validation. These changes aim to significantly reduce gas costs associated with data storage and decrease overall transaction fees. The introduction of blobs has significantly improved Ethereum's efficiency, enabling more transactions to be processed at lower costs and thereby enhancing the overall scalability of the Ethereum network. According to the analysis in Impact of EIP-4844 on Ethereum’s Ecosystem, the introduction of Proto-Danksharding has had a notable cost-reduction effect on the operational costs of rollups. This analysis demonstrates that data blobs can significantly reduce the costs incurred while efficiently storing transaction data for rollups. This initial stage is crucial in solving scalability issues, and as Ethereum progresses toward full Danksharding, it is expected to experience faster and more cost-efficient transaction processing. Proto-Danksharding allows a rollup transaction to attach a single blob to a block, while Danksharding will expand this to 64 blobs. Danksharding will provide a vast amount of space for optimistic rollups to dump compressed transaction data. While there are still several tasks left to complete Full-Danksharding, primarily focused on changes to the consensus layer, no additional work is required from execution client teams, users, or rollup developers.

These technological advancements will contribute significantly to reducing the economic burden on the network while maintaining security mechanisms like fraud prevention and validity proofs in the Ethereum network.

3.3 Expanding Revenue Opportunities

MEV is a significant source of revenue generated within the blockchain ecosystem, predominantly benefiting users who manage to capture this value. However, under the current market structure, MEV is primarily concentrated in the hands of L1 Proposers and external Builders who operate outside the protocol. This concentration results in a disproportionate distribution of value, where the wealth created by users is not equitably shared among the ecosystem's key contributors but is instead monopolized by a small group of intermediaries. This imbalance not only affects economic sustainability but also impacts the overall user experience negatively by creating a less inclusive and equitable ecosystem. Addressing this issue involves a critical redesign of the MEV revenue distribution structure to enhance the economic sustainability of the ecosystem. The key to resolving this challenge lies in expanding revenue opportunities for contributors across protocols and developing mechanisms that ensure a fair distribution of MEV. By implementing such measures, the ecosystem can move towards a more balanced and equitable model, where all stakeholders, including L1 Proposers, L2 Sequencers, and Dapp operators, benefit from the value they help generate. A fair and transparent distribution of MEV can significantly improve the user experience by fostering a sense of fairness and trust in the ecosystem. Users are more likely to engage with and invest in a platform where they feel their contributions are recognized and rewarded appropriately. This session will explore various proposals for effectively distributing MEV revenue among key players, discussing ways to reinforce the ecosystem's long-term sustainability and enhance user satisfaction by making the system more user-centric and equitable.

3.3.1 Monetizing Ethereum Blockspace

This is closely related to the concept of PBS (Proposer-Builder Separation), as capturing MEV involves several complex issues. Moreover, it’s not just about extracting MEV, but about extracting it "well," which is tied to the direct revenue that can be obtained from the block-building process. This is the backdrop for the emergence of PBS, where the imbalance in the profits between block proposers leads to centralization, prompting the separation of the block building process from the block proposal process. This naturally led to the formation of a builder market, where MEV can be optimized and block building roles are carried out. Proposers will propose the block from the builder that offers the highest bid. However, since the interests of these two separated roles conflict, an intermediary role is needed to mediate between them. To address this, services and projects have emerged to coordinate the process of buying and selling block space, enabling efficient transactions.

The common goal of these projects is to design the L1 proposer-participating block space market more efficiently, creating an environment where participants can secure appropriate profits, ultimately supporting the sustainable growth of the Ethereum ecosystem. Now, let's take a look at how these various approaches and projects are addressing the problems of block space trading.

• MEV-Boost

  MEV-Boost is a middleware software designed to handle MEV generated during the block creation process on the Ethereum network in a fair and efficient manner. This tool is an implementation of the PBS model, mediating interactions between the proposer and the builder. The primary goal of MEV-Boost is to prevent MEV monopolies by a few participants, maintaining the decentralization and efficiency of the network, and ensuring that all validators fairly share MEV revenue. The high-level functioning process is as follows:

  1. Initial setup of proposers and builders: The block proposer runs MEV-Boost to establish communication with builders. The builder prepares MEV opportunities and reward information related to the block they will generate.

  2. Builder submits block header and reward information to MEV-Boost: The builder sends the block header and expected MEV reward information to the proposer through MEV-Boost. This information includes block structure, transaction order, and reward amounts.

  3. MEV-Boost collects builder proposals: MEV-Boost receives block headers and reward proposals from multiple builders and compares them. The proposer can identify the block with the highest reward through MEV-Boost.

  4. Proposer selects the optimal block: The proposer selects the block with the highest MEV reward from the builder, and the selected builder’s block header and reward information are included in the final block.

     (At this stage, MEV-Boost ensures that validators cannot steal MEV from the builders and claim all the MEV rewards for themselves.)

  5. Proposer submits the block to the network: The proposer submits the selected block to the Ethereum network for validation by validators. The network verifies the block's validity and reaches consensus.

  6. Distribution of MEV rewards: After the block is submitted and agreed upon by the network, the MEV reward promised by the builder is paid to the proposer.

Recently, more than 90% of Ethereum blocks have been confirmed through MEV-Boost. Through MEV-Boost, validators sell the right to build blocks to the builder offering the highest bid in the auction. Builders aggregate transactions from both public mempool and private order flow, construct the most profitable block, and then bid in the public auction for the right to build the block. While MEV-Boost has increased validator profits, several challenges still remain. The main issues with MEV-Boost are that builders have a strong incentive to extract maximum value, which can lead to excessive costs for end users. Additionally, proposers lack the authority to enforce transaction inclusion, which may reduce censorship resistance, and trust issues between searchers and builders could make it difficult for new builders to enter the market. These challenges could hinder the effective operation of MEV-Boost, and improvements are needed to create a more fair and transparent blockchain ecosystem.

• EthGas

• EthGas views block space not just as a technical resource but as a financial asset. To structure transactions between Validators and Traders, it introduces a Pre-confirmation model designed to facilitate block space agreements across up to 64 slots. However, methods for assessing and predicting the future value of block space are still under research, and standardized methodologies are currently lacking. As an alternative, EthGas adopts a market-based mechanism focused on real-time dynamic pricing for pre-confirmation. At this stage, prices are determined based on the supply and demand between block builders and traders, with MEV (Maximal Extractable Value) serving as a key input variable. This approach is considered a reasonable interim solution until sufficient price data accumulates to enable the adoption of more robust pricing models. Furthermore, to minimize resource wastage due to order cancellations, transaction failures, and new MEV opportunities during the pre-confirmation process, EthGas introduces a secondary market. This market repurposes unused block space and incorporates new order flows and MEV opportunities to enhance transaction efficiency. In the long term, EthGas is also exploring the possibility of expanding block space into fixed-rate financial products to ensure market stability and predictability.

  Kevin (@lepsoe), the founder of EthGas, presented this innovative approach at Sequencing Day, illustrating how it serves as an example of a block space marketplace that coordinates collaboration between Proposers and Traders, aiming to enhance the profitability of both parties and optimize the block space market.

These two approaches can be seen as examples of block space marketplaces that facilitate collaboration between Proposers and block buyers, aiming to enhance the profitability of both parties through the block space trading market.

3.3.2 Revenue Solutions for L2

Radius aims to internalize MEV opportunities, creating an environment where rollups can reduce external dependencies and build sustainable revenue models. To achieve this, Radius optimizes MEV capture processes and designs an efficient coordination mechanism that allows rollups and participants interested in purchasing blockspace to fairly share economic benefits. AJ (@ZeroKnight_eth), the CEO of Radius, presented this strategic vision at Sequencing Day, outlining how they address specific challenges through their approach.

1. Problem: Lack of Effective MEV Capture Mechanisms for Rollups

Currently, rollups lack effective mechanisms to capture and utilize MEV opportunities independently. As a result, revenue often concentrates in the hands of centralized external actors, and resources within the ecosystem are inefficiently allocated. These structural limitations act as significant barriers to establishing a sustainable economic structure for rollups.

2. Solution: A Block Trading Service for MEV Internalization

Lighthouse is a block trading service designed to activate L2 blockspace transactions, maximize the efficiency of the rollup ecosystem, and strengthen cooperation among participants. Lighthouse empowers rollups to effectively internalize MEV, helping them build independent and sustainable revenue models.

Lighthouse segments blockspace to optimize MEV utilization:

• ToB (Top-of-the-Block): This segment is designed to maximize MEV opportunities. Participants interested in purchasing blockspace can execute various MEV strategies, including CEX-DEX arbitrage, cross-rollup atomic arbitrage, and liquidations.

• BoB (Bottom-of-the-Block): This segment is reserved for protecting user transactions, safeguarding them from censorship and predatory MEV strategies.

3. Expected Outcomes

• Maximizing Economic Efficiency Through Real-Time Auctions

  Lighthouse introduces a real-time auction mechanism, creating a structure where participants interested in purchasing blockspace and rollups can maximize their economic benefits:

  • Maximizing Participant Profits: Participants can bid for rights to ToB space through Lighthouse auctions, enabling them to strategically capture and execute MEV opportunities.

  • Direct Rollup Monetization: Rollups can directly receive revenue generated from MEV through Lighthouse.

  This structure ensures that participants can quickly secure execution outcomes and maximize profits through optimized MEV strategies.

• Flexible Integration with Rollup Governance

  Lighthouse is designed to operate without interfering with rollup governance structures or block production cycles. Its flexible auction cycles allow it to adapt to diverse rollup environments seamlessly. This ensures that rollups can integrate Lighthouse without compromising their autonomy and operational rhythms.

• Building a Sustainable Ecosystem

  Lighthouse activates the blockspace marketplace, strengthens cooperation between rollups and participants interested in purchasing blockspace, and protects user transactions. Through this approach:

  • Rollups can reduce external dependencies and establish independent revenue models.

  • Participants can strategically execute MEV opportunities and optimize their profits.

  • Users benefit from protected transactions in a transparent and fair blockspace environment.

Lighthouse aligns the economic incentives between rollups, participants interested in purchasing blockspace, and users, ensuring transparency and fairness within the blockspace marketplace. Through this, it fosters economic alignment, trust, and long-term sustainability within the Ethereum ecosystem.

3.3.3. Driving DApp Profitability

Many researchers have tried to address MEV through protocol-level changes, but these efforts have yet to provide a satisfactory solution. Assuming that decentralized applications (dApps) create value through their unique user bases, network effects, or specific problem-solving capabilities, several solutions have been developed from the idea of granting individual apps the authority to control the sequencing of transactions to more effectively capture and internalize MEV value specific to each app.

• App-Specific Sequencing (ASS)

• ASS is gaining attention as a new methodology for managing and distributing MEV. It allows a dApp to control the inclusion and order of state-affecting transactions without the overhead and potential loss of asset configurability associated with maintaining its own appchain. This approach helps dApps mitigate negative external effects and internalize value within their own ecosystems. Unlike traditional protocol-centric structures, ASS provides a user-centric framework that enables applications to take the lead in harnessing MEV. Furthermore, research by Astria’s researcher Lily (@lobstermindset) and her proposed EIP-7727 articulate the feasibility of ASS, presenting new technical tools for its implementation. Lily introduces a new type of transaction processing that allows applications to control transaction sequencing more precisely, suggesting that ASS could maintain profitability for applications and reduce reliance on block builders. However, ASS faces significant challenges such as lack of composability and potential conflicts between applications, which require further technical research. The results of such research might consider EIP-7727 as proposed by Lily. However, further research and in-depth review are needed for ASS, and there are also critical views regarding it, which will be addressed in Session 4.

• Aarc

• In a multi-chain environment, decentralized applications (dApps) face structural challenges of managing liquidity dispersed across various chains. For instance, each dApp managing its liquidity independently leads to redundancy, and specific chains experiencing liquidity depletion or reduced transaction volumes can create economic inefficiencies. Traditional solver systems also rely on centralized methods or lack effective cooperation between dApps. To address these issues, Anshul (@anshulforyou), CTO of Aarc has proposed a Shared Solver system that allows multiple dApps in a multi-chain environment to collaboratively manage liquidity. Its operation is as follows:

  1. Liquidity Pool Creation: Various dApps deposit their funds into a shared solver's liquidity pool. For example, each dApp contributes $100K to form a large-scale liquidity pool totaling $1M. Once formed, the Coordination Layer checks the pool's status and performs initial rebalancing to maintain balance.

  2. User Request Reception: Users send transaction requests (e.g., USDC transfers, complex asset trades) on specific chains. These requests are received by the Spoke Router Contract, which analyzes the content and provides necessary information for deciding the processing method.

  3. Transaction Processing through Router Contract: The shared router contract (permissioned contract) appropriately allocates liquidity based on the requests. It checks transaction constraints (e.g., each dApp’s liquidity limits) and approves the transactions.

  4. Cross-Chain Transactions Execution: If users request transactions involving assets from multiple chains, the Coordination Layer and router contract collaborate to process the transactions. For example, a user might conduct a complex trade using USDC on Polygon and ETH on Arbitrum.

  5. Support from Relay System: A centralized or decentralized Relay System transmits cross-chain transaction requests and ensures stable transaction execution, even in the event of network congestion or errors, enhancing availability and reliability.

  6. Transaction Completion and Liquidity Update: After transactions are completed, the Coordination Layer updates the liquidity pool and, if necessary, performs rebalancing. The updated status is synchronized across all participating dApps, maintaining transparency and efficiency.

This shared solver system reduces economic inefficiencies within the blockchain ecosystem and promotes collaboration among various dApps through integrated liquidity management. However, it has some drawbacks. For example, if a specific dApp focuses on certain tokens (e.g., USDT) compared to a generalized solver, users can only conduct transactions with a limited range of tokens, and the capability to handle multiple chains and a variety of tokens simultaneously may be restricted. Additionally, the structure of the shared solver shifts towards the revenue model of the dApp itself, which can limit profitability when support for a broader range of assets and chains is needed. This mechanism enables the development of user-friendly solutions integrated within various dApps, activating new use cases and facilitating flexible asset movement across blockchains without the need for users to bridge funds or move them to specific chains. Moreover, it provides greater economic benefits and efficiencies for both users and dApp developers.

3.4 Facilitating Monolithic User Experience: Cross-Chain Interoperability

The Ethereum ecosystem is focusing on monolithic user experience to develop a cohesive and efficient user experience through research and innovation. The advancement of rollup-based Layer 2 technologies has given rise to many L2 and L3 projects, but a critical limitation of most rollups is their operation of independent sequencers. This mode of operation significantly limits interactions between rollups and appchains, leading to slow and costly bridging issues. This undermines synchronous composability and results in the dispersion of liquidity. Rollups process transactions independently through isolated sequencers and post these transactions asynchronously to Ethereum L1. While this method effectively maintains the sovereignty and performance of individual rollups, it complicates interoperability between different Layer-2 solutions. Shared sequencing allows users to experience the benefits of a single Ethereum chain while preserving each rollup's unique advantages such as sovereignty, low cost, and low latency. Through a shared sequencer, a group of rollups shares a sequencer, which is responsible for sequencing the next block for all connected rollups and proposing the block. Thus, the shared sequencer can atomically include transactions from multiple rollups, reflecting arbitrary user intents. In this session, we will explore the technical approaches of major projects that are developing methods to enhance interoperability between rollups.

• Espresso Systems

• Espresso enhances the composability of the blockchain ecosystem by recognizing shared sequencing as an auction mechanism to strengthen inter-network interoperability, introducing a marketplace for this purpose. Within the marketplace, shared sequencing and the HotShot consensus algorithm provide low-latency block commitments. Ellie (@ellierdavidson) talked about a trustless synchronized interoperability standard called CIRC (Coordinated Inter-Rollup Communication) at Sequencing Day. The operation of this mechanism at a high level is as follows:

  1. Transactions are generated by users within each rollup, and the chains exchange messages through their own implemented contracts for handling message exchanges.

  2. The shared sequencer aggregates transactions from multiple rollups into a single superblock from a public memory pool or private order flow. The shared sequencer then simulates execution that can generate some cross-chain messages.

  3. This superblock is passed to the confirmation layer, which can be instantiated as a high-throughput, low-latency BFT protocol.

  4. Rollups monitor the confirmation layer to fetch each transaction, update their state, and compute snark proofs.

  5. Rollup state update proofs are aggregated into a single proof, after which Ethereum's settlement layer contract verifies the proofs and finalizes the state updates between rollups.

  CIRC provides an integrated interface that allows various types of rollups to interact with each other, enabling Ethereum Layer 2 solutions using different rollup technologies to exchange messages and efficiently synchronize states.

• OP Labs

• OP Labs is a project designed to realize composability in the blockchain ecosystem, strengthening interoperability across networks to enhance user experience. Centered on its modular framework, the OP Stack, OP Labs develops critical technologies such as sequencing rules, settlement mechanisms, and cross-chain messaging protocols. These efforts enable smooth data transfer and asset exchange across chains, supported by shared security and scalability within a Superchain framework.

  The Superchain is a horizontally scalable cluster of chains functioning as a networked block space through the OP Stack. It integrates multiple OP chains via a shared Sequencer, enabling atomic cross-chain composability across chains. At Sequencing Day, Mark (@tyneslol) emphasized the key technologies and mechanisms supporting interoperability include:

  1. CrossL2 Inbox: A multicast log-based messaging system designed to securely share logs across chains.

  2. L2-to-L2 Cross-Domain Messenger: Simplifies inter-chain calls and data exchanges, offering domain binding and replay prevention.

  3. Shared Lockbox: A single smart contract on L1 that ensures asset fungibility and liquidity across L2s.

  4. ERC-7802 Standard: Streamlines cross-chain asset transfers with mint-and-burn interfaces.

  These mechanisms minimize cross-chain latency, facilitate reliable data exchanges, and provide token standards for cross-chain operations. The chain abstraction enables multiple chains to function seamlessly as one. Additionally, protocols compliant with the ERC-7802 Standard can perform cross-chain operations without modifying token contracts. This design simplifies and enhances chain integration and interoperability, making cross-chain processes more efficient and cohesive.

Interoperability issues represent a core challenge for message exchange and data consistency among Layer 2 scaling solutions. Currently, OP Labs, in collaboration with the Uniswap team, has proposed the cross-chain token standard ERC-7802. Additionally, Espresso presented a proposal on standardizing interaction through CIRC (Cross-Interchain Rollup Communication) at Sequencing Day. The establishment of standardized protocols simplifies information exchange and interaction between blockchain platforms, reflecting advancements in technological maturity. However, since both projects are centered around ecosystems built on shared sequencers, collaboration among multiple rollups is essential. Further research and development are needed to address these challenges and provide additional solutions in this domain.

3.5 Ensuring Instant User Experience: Preconfirmations

Preconfirmations, in the context of blockchain transactions, are pivotal elements that significantly enhance the user experience by bridging the gap typically seen between Web2 applications and decentralized apps. This process involves a commitment to the inclusion or execution of a transaction by an authority such as validators or block builders, who have the power to propose and construct blocks. This aspect of blockchain technology is crucial as it allows users to receive immediate feedback on their transactions, akin to the responsiveness expected from traditional web applications. A project named Primev has been at the forefront of exploring and institutionalizing this concept. They have been working on generalizing preconfirmation to a form that is widely accepted within the blockchain community. One of the key innovations being developed by Primev is an MEV-boost mechanism designed for bidding processes that leverage preconfirmation. This mechanism aims to facilitate trustworthy transactions between providers of preconfirmation services and bidders, thereby enhancing the reliability and efficiency of executing transactions.

• Primev

  The Primev project facilitates the buying and selling of transaction execution preconfirmations through interactions between Bidders and Providers via a service called mev-commit. This network defines Bidders and Providers in generalized roles, enabling the coordination of transaction commitments in an efficient and reliable manner. The roles of Bidders and Providers can vary depending on the context. For example, while a Rollup Sequencer typically curates and orders transactions for L2 rollups as a Provider, it may also need to act as a Bidder in specific situations where cooperation with L1 block builders is required.

  Primev operates through the following process:

  1. Bidders submit their bids from an encrypted mempool to the mev-commit network.

  2. The bids are conveyed to the Providers, who evaluate them and decide whether to issue a commitment.

  3. Committed transactions are recorded on the mev-commit chain and are disclosed at the time of execution.

  4. If the commitment is met, the Provider receives the bid amount, ensuring a trustworthy transaction.

Preconfirmations can significantly improve the user experience by reducing transaction latency, allowing users to receive immediate feedback, and providing assurance before transaction finalization, thus building trust in application usage.

3.5.1 Based Sequencing

In March 2023, Justin Drake proposed the concept of Based Rollup. Based Rollup adopts a based sequencing approach, allowing users to enjoy the security and reliability of L1 while experiencing the diverse features and services of L2. However, a potential issue is that based rollups inherit constraints like Ethereum's 12second block time, which can be a disadvantage in user experience. Such slow transaction verification speeds can complicate interoperability between dApps and negatively impact UX. To address these limitations in based rollups, the concept of preconfirmation was introduced in the terms of the based sequencing. This technology provides users with an economic commitment before their transactions are included in an L1 block, alleviating the inconveniences caused by transaction delays. The sequencer of the based rollup, who is an L1 proposer, can include the next rollup block as part of the next L1 block without permission, thus can issue such preconfirmations. Now, let's examine the practical design methodologies for preconfirmations in based sequencing.

Preconfirmations significantly improve user experience by reducing transaction latency, allowing users to receive immediate feedback, and providing assurance before the finalization of transactions, thus building trust in application usage. However, the preconfirmation process begins when a user sends a preconfirmation request along with a tip for a specific transaction, making a robust 'preconfirmation tip' mechanism essential for its effective application. This tip must provide a direct incentive for proposers to prioritize the user's transaction for inclusion in the block. Further discussions on this topic will continue in Session 4, while this session will explore the strategies adopted by projects within the faction that have chosen Based Sequencing.

• Taiko Gwyneth

• Taiko began evolving into a based rollup in the second half of 2023 as named Gwyneth and is designing the following sequencing design to allow a decentralized L1 proposer running taiko-geth to maintain synchronization with the L2 mempool:

  1. Transactions submitted by users to L2 are included in the mempool.

  2. L2 searchers find profitable transactions within the mempool to form bundles of L2 transactions.

  3. The L2 block proposer, who is an L1 searcher, then classifies these L2 transaction batches as an L2 block, which is included in the L1 transaction bundles.

  4. A validator then verifies these blocks for inclusion on the Ethereum main chain.

  Within this sequential process, Taiko Gwyneth introduces a preconfirmation mechanism to allow users to receive fast transaction processing results. Here, the proposer can post preconfirmation information to other network participants before submitting the block. However, the decentralization of the block proposing process can be problematic; if multiple proposers include the same transactions and submit blocks simultaneously, many blocks containing duplicated transactions may roll back, causing proposers to lose the fees from the block proposing process. To address this issue, Cecilia (@ceciliaz030) of Gwyneth Taiko has proposed a leader election mechanism that restricts only one proposer to be elected as a leader at a given time to finalize the block, thus preventing block collisions. Additionally, at Sequencing Day, Cecilia shared insights on Gwyneth’s "Based Interoperability and Generalizations," presenting a positive outlook on Composability beyond Synchronous L1, focusing on L2 interactions.

• Puffer Unifi

• Puffer Unifi is a based rollup launched by Puffer Finance. The transaction sequencing for UniFi is outsourced to Ethereum L1, and Puffer Unifi’s preconfirmation mechanism is implemented through EigenLayer’s restaking validators. Here is the user transaction processing procedure in Puffer Unifi:

  1. Transaction Receipt: Transactions submitted by users are first processed by Puffer validators who support 'native restaking' on the Ethereum network.

  2. Preconfirmation Commitment Provision: Validators provide a preconfirmation commitment within about 100 milliseconds, quickly informing users that their transaction has been received and will be included in a future block.

     (To ensure compliance with the preconfirmation commitment, additional penalty conditions are imposed through the Puffer UniFi AVS mechanism.)

  3. Transaction Packaging: After providing preconfirmation, Puffer validators package these transactions with others and submit them as a block to Ethereum L1.

  4. Block Submission and Transaction Status Verification: Finally, the Puffer Sequencer Contract, part of the Puffer UniFi smart contract, accepts the batch transactions within the submitted block, ensuring that the transaction status is verified and irreversible.

  Applications built on Puffer UniFi can enhance the user experience in the final transaction confirmation process without incurring significant development costs, by utilizing the L1 sequencing and preconfirmation mechanisms provided by UniFi, without needing to construct complex bridge mechanisms.

In addition to the projects mentioned above, there are notable projects that are building Based Rollups. For example, Spire and RISE participated as speakers during Sequencing Day. Matthew, the co-founder of Spire (@Spire_Labs), emphasized the strength of Base Sequencing, which can inherit the network effects of Ethereum's already established infrastructure in L2. Sam (@sam_battenally), the co-founder of RISE, focused on the technical advantages of Based Rollups, optimization strategies for reducing operational costs, and the scalability of decentralized ecosystems. Through this, he presented on the direction of Ethereum’s ecosystem development. In the context of liquidity fragmentation within the Rollup ecosystem, Based Rollups are widely regarded as a potential effective solution. Given the continued positive progress of several major protocols, the implementation and integration of Based Rollups are expected to increase liquidity across the entire Rollup ecosystem. These advancements are seen as crucial steps in overcoming technical limitations and enhancing interoperability among different blockchain networks.

3.5.2 Decentralization of Preconfirmation

Ethereum considers decentralization as one of its core values and aims to further strengthen it through the proposer-builder separation (PBS) model. However, if the Preconfirmation process relies on a small number of systems or builders, centralization issues may inadvertently arise. This could limit the validator's choice and pose a threat to the network's security and fairness. To address this, Gateway and Commit-Boost have been introduced to support critical data processing and logic execution in the Preconfirmation process, ensuring the independence of validators and the decentralization of the network. The Gateway is proposed as a component that allows L1 proposers to delegate the Preconfirmation process, while maintaining L1 stability and increasing access to various L2 functions and services. Additionally, Commit-Boost standardizes the Preconfirmation commitment communication between validators and proposers, simplifying the protocol's interactions.

• Gateway

• Introduced to simplify the user experience and better coordinate preconfirmation requests. Through the Gateway, proposers can delegate preconfirmation rights, and the Gateway handles more complex tasks such as communicating with users and maintaining the uptime of full nodes. Projects building preconfirmation gateway solutions include Gattaca, Titan, and Ultra Sound. Especially, at Sequencing Day, Gattaca's Kubi (@kubimensah) and Lorenzo emphasized a gateway-centric market structure that enables decentralized block creation through pre-confirmations and enhances the oversight capabilities of proposers. They also showcased a demo of the gateway's open-source version, which is currently under development.

• Commit-Boost

• Drew (@DrewVdW) presented that Commit-Boost aims to standardize communication between validators and proposers, improve the efficiency of the Preconfirmation process, and ensure validator independence. At the same time, it interacts with the Gateway to enable L1 proposers to delegate the Preconfirmation logic, providing access to L2 functions and services. Commit-Boost is designed based on a modular structure, offering standardized interfaces for communication between validators and various protocols.

The main operations of these two components are as follows:

1. Validator runs Commit-Boost

   • Validators run Commit-Boost as a sidecar to prepare for signing requests.

   • Commit-Boost operates based on the validator's configuration file and securely manages data related to signing keys.

2. Proposer creates Preconfirmation request

   1. The proposer, designated by the network's consensus mechanism, proposes a block.

   2. Before providing the block to the builder, the proposer requests Preconfirmation data from Commit-Boost.

3. Gateway → Commit-Boost

   1. The proposer's Preconfirmation request is forwarded to Commit-Boost via the Gateway.

   2. The Gateway validates the data and passes the request to Commit-Boost for appropriate handling.

4. Commit-Boost generates signature

   1. Commit-Boost uses the SignerAPI to sign the requested data with the validator's signing key.

   2. This signature ensures the integrity of the Preconfirmation data and verifies the requested conditions.

5. Gateway → Commit-Boost

   1. Commit-Boost returns the generated signature to the Gateway, which then forwards it to the proposer or builder.

   2. The signed data is used by the builder to create the block or by the proposer to construct the block.

6. Block submission and consensus

   1. The proposer includes the signature data received from Commit-Boost in the block and submits it to the network.

   2. Other validators in the network verify the block's validity and adopt it through the consensus process.

7. Monitoring and status management

   1. Commit-Boost records request processing status and signature results in monitoring tools like Prometheus and Grafana.

   2. Validators can use this to check the system's status in real-time and optimize performance.

Commit-Boost is a tool designed to standardize the Preconfirmation process between proposers and builders and efficiently provide validator signatures. It fundamentally strengthens data mediation and security by collaborating with the Gateway, which can provide a fast user experience through Preconfirmation while supporting the decentralization and efficiency of the Ethereum network. Through these solutions, L1 proposers can delegate Preconfirmation processing of transactions in advance, effectively bridging the gap between L2's fast transaction requirements and L1's security and reliability. This minimizes user experience (UX) issues related to L1’s slow block times and reduces the complexity of inter-dApp interactions when transaction confirmation speeds are slow. As a result, the Gateway, combined with Based Sequencing, enhances Ethereum's network scalability and performance, offering developers and users a better blockchain experience.

4. Open Problems

4.1 Rollup-centric Ethereum: Balancing Mutual Benefits

Electric Capital researcher Ren (@0xren_cf) has discussed how extractive L2s are to Ethereum through a detailed data analysis. The discussion focused on three main points: the fee structure of rollups, the impact of rollups on the Ethereum network, and the interplay between rollups and Ethereum.

1. Fee Structure of Rollups and Their Contribution to the Ethereum Network

   • Rollups process transactions on the Ethereum blockchain, providing higher throughput and lower gas costs, which are crucial for solving Ethereum’s scalability issues.

   • However, some critics argue that most of the revenue generated by rollups is retained by the rollup operators, without sufficient economic contribution to the Ethereum network itself. This concern has grown especially after the introduction of EIP-4844, which significantly increased the profit margins of rollups.

2. Impact of Rollups on Ethereum Activity and ETH Holders

   • The activation of rollups has increased the usage of the Ethereum network, which theoretically could boost the value and demand for ETH. However, there is a possibility that the importance of ETH could diminish if rollups primarily use their own tokens and less ETH.

   • Additionally, while rollups reduce L1 settlement costs, this could inversely weaken the role of ETH as a gas token. Nevertheless, ETH remains crucial due to other roles like security assurance.

3. Game Theoretical Dynamics Between Rollups and Ethereum

   • From a game theoretical perspective, each actor in the relationship between rollups and Ethereum seeks to maximize their economic benefits. In this scenario, rollups aim to maximize profits at minimal costs, while Ethereum seeks to secure resources needed for the network’s safety and development.

   • This dynamic can lead to criticisms that rollups are not providing sufficient value to Ethereum and are monopolizing profits, which calls for efficient resource allocation and pricing mechanisms between rollups and Ethereum.

In conclusion, Ren's presentation articulated that it is difficult to definitively conclude that rollups are exploitative towards the Ethereum network. It emphasized that a balance between the economic benefits of rollups and their contribution to the Ethereum network is necessary, and this balance can be achieved through continuous technological progress and policy adjustments. Moreover, the interaction between rollups and Ethereum needs to be carefully coordinated to ensure the overall health and development of the network, reinforcing the importance of this critical discussion.

4.2 Preconfirmation Tip Incentive Alignment

Preconfirmations in blockchain technology represent a significant advancement aimed at enhancing user convenience by improving transaction speeds and efficiency, traits particularly valued in applications where time is critical. This capability allows for advantages previously unattainable on the Ethereum network, where speed limitations have often been a bottleneck. Preconfirmations provide a form of assurance that transactions will be processed in the upcoming blocks, thereby reducing the uncertainty and latency typically associated with blockchain transactions. However, the implementation and widespread adoption of preconfirmations are not without challenges, particularly in terms of economic incentives. The concept of preconfirmations necessitates a delicate balance of incentives for block builders and proposers. Without proper incentives, developers and miners may find little reason to adopt this advanced feature. If preconfirmations are provided for free, they could lead to a reduction in the block rewards that proposers and block builders receive, potentially causing financial losses. This financial model could deter the very parties needed to implement and maintain this system, as the lack of direct compensation for including these preconfirmed transactions might not justify the effort and resources required. To counteract this, users are often required to pay tips for preconfirmations. These tips serve as an incentive for block builders to include these transactions in their blocks promptly. However, these tips have properties similar to MEV (Miner Extractable Value) bundle bribes and can vary significantly based on the current state of the network and transaction demand, adding a layer of complexity to the profitability and sustainability of offering preconfirmation services.

Nethermind's Conor (@ConorMcMenamin9) and Kuru's Rohan (@0xtrojan_) are prominent researchers who have been studying preconfirmation pricing models to address these economic challenges. Their research aims to devise a model that balances the need for speedy transactions with the financial realities faced by those who facilitate these transactions. At Sequencing Day, they presented their findings, which explore how to optimize the tipping system to ensure that all parties are fairly compensated for their contributions to the blockchain ecosystem, thus maintaining the viability and attractiveness of preconfirmations. This ongoing research is crucial as it seeks to resolve the profitability issues for preconfirmation providers, ensuring that this innovative technology can be sustainably integrated into the Ethereum network.

• Kuru (Rohan)

• This research focuses on transaction modeling and deriving pricing functions and strategies for preconfirmation providers, particularly exploring dominant strategy modeling for how preconfirmation providers can operate.

  1. Scope of Research:

     • Focus: Centered on DeFi applications, particularly on-chain order books where market makers are willing to pay additional costs for reduced latency. However, issues like the fair exchange problem and block gas limits are excluded from this study and are left for future research.

  2. Model Assumptions:

     • Definition of MEV: Defined as opportunities based on the Relative Ordering of Transactions, distinct from Just-In-Time (JIT) MEV.

     • Poisson Distribution: MEV opportunities follow a Poisson distribution based on a known arrival rate (lambda), modeling the number of events occurring within a specified timeframe.

     • Fee Model: Proposers monetize priority fees linearly, while preconfirmation providers set an additional fee F, offering preconfirmations only if the fee exceeds F.

  3. Key Elements of the Model:

     • Pre-Con Strategy: Sets a specific waiting time W before deciding whether to offer a preconfirmation. If W equals the block time, it captures the total MEV without offering preconfirmation.

     • Probability Calculations: Calculates the probability of MEV opportunities occurring based on the arrival rate and waiting time.

     • Repeated Game: Preconfirmations occur repeatedly during the block time T in intervals of W, with W=T considered a single game scenario.

  4. MEV Opportunities and Revenue:

     • Expected MEV Value: MEV opportunities decrease exponentially, and the total MEV value during the block time is derived.

     • Pre-Con Fee Revenue: The frequency of preconfirmation depends on the fee F and W, with a higher F inducing more frequent preconfirmation offerings.

  5. Conclusion and Further Research:

     • Presence and Impact of Pre-Con Fee: The presence and size of Pre-Con Fees significantly alter profitability and strategies. To maximize profits, strategies must be adjusted based on preconfirmation transaction demand and pricing.

     • Further Research Needed: Additional studies are necessary on block gas limits, fair exchange issues, slippage, and potential improvements through Merkle roots.

• Nethermind (Conor)

• This research delves into the economic practicality and the essential nature of pre-confirmation protocols. It explores and elaborates on well-known types of preconfirmation protocols and outlines revenue models for each, providing clear evidence of their economic effectiveness.

  1. Scope of Research: Analyzes the trade-offs of various preconfirmation protocol types and the technology that implements them.

  2. Protocol Classification:

     Preconfirmation protocols are primarily classified into two major types: Independent Sub-Slot Auctions (ISSAs) and Dependent Sub-Slot Auctions (DSSAs). These types differ in how preconfirmations are managed and how the roles and benefits are distributed among participants.

     • Independent Sub-Slot Auctions (ISSAs):

       • Proposers independently conduct auctions for each sub-slot.

       • Proposers, lacking the resources to conduct auctions themselves, rely on relayers to facilitate the auctions.

       • Builders chosen through auctions construct the blocks for their respective sub-slots.

     • Dependent Sub-Slot Auctions (DSSAs):

       • Proposers conduct auctions per sub-slot, but winners gain auction rights for subsequent sub-slots.

       • Winning builders gain both the economic benefits from the sub-blocks they construct and the rights to auction subsequent sub-slots, enhancing their economic gains.

  3. Comparison with MEV-Boost:

     MEV-Boost optimizes block proposers' revenue through auctions. In contrast, preconfirmation protocols ensure more definitive economic rewards by securing commitments from block proposers to include transactions beforehand.

     • ISSAs

       Pros:

       • Provides a clear mechanism for distributing transaction inclusion rights for each sub-slot.

       • Supports proposers in independently managing sub-slot auctions.

       Cons:

       • If the additional tips provided during preconfirmation are insufficient, proposers' profits may decrease compared to MEV-Boost.

       • Frequent auctions for each sub-slot can lead to increased transaction costs and reduced system efficiency.

     • DSSAs

       Pros:

       • Grants auction rights for subsequent slots to the current slot's auction winners, strategically maximizing the value of the entire block.

       • Offers builders the opportunity to gain additional rewards not only from sub-block creation but also from managing future auctions.

       Cons:

       • Carries a risk of centralization. If the same builder consistently wins auctions, they may dominate multiple sub-slots, reducing competition.

       • When a specific builder monopolizes auction rights, it creates barriers for smaller participants, hindering competition and decentralization.

  4. Conclusion:

     • Preconfirmation protocols can result in approximately a 74% decrease in proposer revenue compared to MEV-Boost if sufficient preconfirmation tips are not provided. However, this study highlights the ability to estimate the minimum threshold of preconfirmation tips required to offset the revenue loss. If tips exceed this threshold, proposers may achieve higher revenues than with traditional block-building methods.

     • However, implementing these protocols involves additional complexities and risks of centralization, necessitating systematic analysis and evaluation.

The research results specifically present strategic approaches and revenue models that preconfirmation providers can utilize, contributing to an enhanced understanding of the overall MEV ecosystem. Indeed, they provide sufficient justification for the revenue structure and feasibility of the preconfirmation protocol. Further detailed findings on this topic can be found in the study available at Estimating the Revenue from Independent Sub-Slot Auction Preconfirmations.

4.3 Application vs AppChain

Marshall (@mvyletel_jr), a researcher from 1kx, presented on the trade-offs between app-specific sequencing and app chains, suggesting that App-Specific Sequencing (ASS) might not be the ideal long-term solution. To understand this discussion further, it's necessary first to examine the main differences between Applications and AppChains.

The main issues with AppChains include high initial costs, difficulties in securing liquidity, and a lack of composability. In contrast, ASS offers an alternative that can mitigate these issues of AppChains. ASS is designed to internalize the MEV generated within applications, significantly improving economic profitability. It also allows for customized sequencing mechanisms tailored to specific application needs, optimizing user experience and reducing negative external effects. Moreover, compared to AppChains, ASS involves relatively lower initial infrastructure costs and utilizes existing chains, reducing the burden of operating an independent chain. However, ASS also has its limitations in the long term. In terms of composability, if it fails to include external transactions in bundles, it may limit interoperability between applications, causing issues in protocol cooperation and asset mobility. Additionally, the possibility of bundled transactions being censored or missed in the PBS pipeline can negatively impact user experience. ASS also entails dependencies on infrastructure providers and, in the long run, may transition to alternatives like AppChains or Application-Specific Rollups due to basic protocol pressures and ecosystem construction demands.

In conclusion, ASS offers high customization and MEV profitability, and it has the potential to overcome the limitations of the traditional Application model. However, if it fails to resolve issues related to composability and ecosystem construction, its long-term sustainability may be limited. While the future of applications cannot be definitively stated, the contributions of ongoing research and experimentation hold substantial potential for continuously deriving and improving better mechanisms. Thus, a thorough exploration and analysis of such research are required, along with an open-minded approach to embracing new ideas and approaches.

5. Conclusion

This document has explored various research topics that exemplify the Ethereum community's commitment to enhancing user experience and broadening economic opportunities. Here’s a high-level summary:

• Decentralization Efforts: Our discussions highlighted Ethereum's dedication to increasing network decentralization. Initiatives like the redistribution of MEV and the introduction of PBS are enhancing transaction fairness and transparency. The natural integration of Gateway in based sequencing also shows a shift towards decentralizing proposer authority, significantly boosting user trust in the network's operational integrity.

• Technical Innovation for Economic Opportunity Expansion: Centered on rollups, Ethereum's strategy to tackle scalability challenges extends beyond network enhancements to stimulate economic growth. Technologies such as Danksharding are reducing transaction costs on L2, fostering the development of diverse services and applications within the ecosystem. Additionally, technical frameworks like the blockspace market and ASS are designed to redistribute MEV to contributors, thereby enriching the network’s overall value and cultivating an attractive environment for users and developers.

• Improving User Experience through Interoperability and Network Efficiency: Ethereum's L2 solutions demonstrate remarkable adaptability to application-specific needs, reflecting deep consideration of how the ecosystem can integrate and interact seamlessly with other blockchain systems. Ongoing standardization efforts related to based sequencing and shared sequencing combined with L1 proposers, ensure that users enjoy a unified and delay-free transaction experience, significantly improving overall user satisfaction.

In summation, Sequencing Day, hosted by Radius, Puffer, and Espresso, provided an invaluable perspective on strategies and innovations aimed at refining the Ethereum ecosystem. Our analysis revealed how these approaches are pivotal to achieving scalability and increasing user adoption. However, despite the progress in technological advancements and the introduction of novel mechanisms, several challenges remain. The revenue structures of rollups, the economic and practical implications of preconfirmation, and the long-term viability of sequencing for specific applications necessitate further investigation and dialogue. Addressing these issues requires a concerted effort within the community to develop solutions and integrate new functionalities, thus reinforcing Ethereum's position as a robust and diverse global digital infrastructure.

In conclusion, the Ethereum ecosystem's ongoing evolution is a multifaceted endeavor focusing on technological innovation, strategic development, and community engagement. Through these concerted efforts, Ethereum continually aims to enhance the user experience, demonstrating its pivotal role in shaping the future digital landscape. The community's commitment to addressing complex challenges and pushing the boundaries of innovation is crucial for Ethereum to transform into a more transparent, fair, and scalable platform.

Reference and Further Reading