1/15 Our latest report: “Make Ethereum Whole Again: Sequencing the Future with Based Rollups and Preconfirmations”, delves into based rollups and preconfirmations. What are they? How do they work together? And what problems are they solving? 🧵

1/15 Our latest report: “Make Ethereum Whole Again: Sequencing the Future with Based Rollups and Preconfirmations”, delves into based rollups and preconfirmations. What are they? How do they work together? And what problems are they solving? 🧵

https://paragraph.xyz/@lemniscap/make-ethereum-whole-again

Lemniscap is an investment firm specialising in investments in emerging cryptoassets and blockchain startups.

2/15 Ethereum's rollup-centric roadmap has accelerated transactions, reduced costs, and enabled new low-latency dapps. Yet, it has also led to fragmentation and centralization issues at L2, and doubts about value accrual at L1.

3/15 The problem is that L2s create liquidity silos, complicating asset transfers and limiting composability. This fragmentation dilutes network effects, creating a negative-sum game where newer and smaller L2s struggle against larger ones.

4/15 On top of that, the traditional single-sequencer rollup poses risks of rent extraction and censorship. Shared sequencer layers decentralize this process and offer a unified transaction ordering mechanism across multiple rollups, but a new layer means new trust assumptions.

5/15 Based rollups offer an alternative solution - the key distinction being, who is sequencing? Instead of a centralized sequencer or shared layer, based rollups re-use Ethereum builders to pick up pending transactions in L2 mempools and order them.

6/15 As these builders sequence both the L1 and L2 blocks, there is no need to rely on the L2 single sequencer to manage transaction sequencing. Instead, the design leverages Ethereum’s existing validators, providing a reliable and credibly neutral transport layer.

7/15 But while based rollups offer various advantages in terms of decentralization, security, and economic alignment, they simply cannot provide fast transaction confirmations like centralized sequencers due to Ethereum's block time constraints.

8/15 Enter Based Preconfirmations
@justindrake proposed based preconfs in Nov 2023 to solve this constrant. This approach involves Ethereum L1 proposers offering credible promises of future tx execution for tips, and these promises can be made very fast.

9/15 The benefits for Ethereum's UX are manifold: stronger assurances than soft confirmations, fast commitments (~20 ms in @taikoxyz test env), gasless txs (in @puffer-finance's design), social alignment, x-chain atomic inclusion, and the promise of synchronous composability.

10/15 Ethereum is having its "Fedwire moment." Just as Fedwire enabled seamless transactions across regional banks, shared sequencers and now based preconfirmations could unify rollups, facilitating efficient and decentralized asset transfers across the Ethereum universe.

11/15 Based preconfs are also important wrt L1-L2 economics. EIP-4844 blobs have slashed L2 costs by substantially reducing base layer DA costs, but also cut Ethereum's revenue and burn rates. Post-EIP-4844, margins going to L2s are at ATHs and Ethereum revenue is down ~70%.

12/15 "Going based" could balance L1-L2 economics by improving composability and "growing the pie" for all L2s, introducing preconf tips at L1, and making MEV extraction more efficient. Overall, fostering a more integrated Ethereum ecosystem.

13/15 Users and developers ultimately seek a single-chain experience, and based preconfs present a promising solution. However, there are notable implementation complexities to be aware of. E.g., we discuss tradeoffs with existing approaches like shared sequencing and appchains.

14/15 If you're building solutions in these spaces, we'd love to hear from you! Feel free to contact our team directly @roderik @shaishav0x @nicolasantoni @sjors-lemniscap @grisha @blocks or reach out to us by email.

15/15 We would like to personally thank these gigabrains for their invaluable feedback on our report:

@justindrake at @ethereum 
Jason Vranek & Amir Forouzani at @puffer-finance 
@0xjunger at @taikoxyz 
Murat Akdeniz at @primev 
Harry Gao at Luban
Kaito Yanai & mteam at @spire 
Francesco Mosterts at @chainbound 
Josh Bowen at Astria
Raghav Agarwal at LongHash Ventures