Based Rollups and Distributed Validator Technology (DVT)
This article provides an in-depth analysis of Based Rollups and Distributed Validator Technology (DVT), emphasizing their advantages, challenges, and their potential synergy to enhance blockchain security and scalability.
Introduction
Scalability remains one of Ethereum’s biggest challenges. However, research and development of innovative solutions are helping to improve the efficiency, security, and decentralization of this network, all critical factors for its mass adoption.
Two key innovations currently gaining attention from the Ethereum community are Based Rollups and Distributed Validator Technology (DVT). This article explores both technologies, their functions and advantages, and how they could be integrated to offer robust and efficient solutions.
Based Rollups: Superpowers from L1 Sequencing
Transaction sequencing in Ethereum is fundamental to ensure that transactions are recorded on the blockchain in the correct order.
However, the creation, selection, and ordering of transactions following the implementation of The Merge has allowed validators to generate a multimillion-dollar market where transaction fees make up a significant part of their income. Additionally, validator revenues are expected to increase with new elements having a significant impact, such as expanded block space (blobs) introduced by the latest upgrade, EIP-4844.
Here, manipulative practices such as MEV have emerged, posing significant challenges to the integrity of transactions. Essentially, the network’s integrity and security are being compromised as actors with more power and capital efficiency join to make the lion’s share of revenues, threatening the network’s decentralized spirit. This problem has also extended to L2 scalability solutions like rollups, a key component in Ethereum’s roadmap to address its scalability issues.
What are rollups?
To explain further, rollups encompass a scalability technique that groups multiple transactions into a single operation, moving part of the processing off the main chain (L1) to reduce costs and increase speed. The two main types of rollups currently in the industry are Optimistic Rollups and Zero-Knowledge Rollups (ZK-Rollups).
Rollups, by their nature and architecture, face a fundamental threat: centralization in transaction sequencing. In this context, a proposal has emerged to improve communication and security between the rollup layer and the base layer (L1), known as Based Rollups.
Based Rollups represent a type of layer 2 solutions that, instead of relying on additional layer 2 (L2) consensus mechanisms, use layer 1 (L1) sequencing to order transactions. Unlike traditional rollups, which rely on their own sequencer, Based Rollups integrate the capacity and security of L1 (in this case, Ethereum) directly into their transaction sequencing and verification.
This not only simplifies their design but also enhances their efficiency and security, eliminating the need for additional consensus mechanisms by leveraging the security, decentralization, and liveness attributes of L1.
As such, Based Rollups are one of the simplest ways to decentralize the sequencer in layer 2 solutions to scale Ethereum.
The idea was first introduced generally by Vitalik Buterin in 2021 in an article titled “An Incomplete Guide to Rollups” and later explicitly defined by Justin Drake in March 2023 in a post on the EthResearch forum, “Based Rollups-Superpowers from L1 Sequencing.”
Key Aspects of a Rollup
To understand the design of a Based Rollup and its current importance in the ecosystem, it’s worth mentioning some key aspects of the functioning and architecture of a traditional rollup:
- There are two types of rollups: Zero-Knowledge rollups (ZK-rollups) and optimistic rollups. They differ by the types of proofs they use: ZK-rollups use Zero-Knowledge Proofs, and optimistic rollups use fraud proofs.
- They use internal proofs to validate transactions, which are then synthesized and recorded on L1. While ZK-rollups post a ZK proof to the Settlement Layer for each block, optimistic rollups post fraud proof only if there is a dispute.
- A rollup’s smart contract on L1 verifies the posted proofs.
- Rollups perform transaction execution off-chain, packing transactions in blocks. L1 acts more as a secure data layer and less as an active component in the execution and sequencing of transactions.
- Each rollup has a bridge (or bridges) to transfer data between chains (including deposits and withdrawals). Deposits and withdrawals allow users to seamlessly transfer their assets between L1 (Ethereum) and L2 (a rollup) and back.
- Transaction sequencing is managed by an independent sequencer within the rollup. It depends on the execution and internal consensus of the rollup layer instead of L1, making the sequencer a single point of failure and introducing centralization and censorship risks.
- The need to coordinate less with L1 can result in lower costs for some operations but can also increase latency if there is inefficiency in the rollup layer itself.
How a Based Rollup functions
In general terms, in Based Rollups, transactions are grouped (or “rolled up”) and processed on a secondary layer before being sent to L1 for verification and storage.
Since the Based Rollup publishes proofs on Ethereum, its settlement is on Layer 1 (L1), allowing access to the verified state of the Layer 2 chain on Ethereum.
In addition, it does not have a separate consensus, instead relying on the L1-sequenced approach, where Ethereum validators determine the order of transactions. L1-sequenced or based sequencing integrates rollup transactions directly within Ethereum’s layer 1 blocks, leveraging the existing L1 validators for transaction ordering.
This approach avoids the complexity of additional mechanisms such as sequencer signature checks or external consensus models, greatly simplifying transaction processing and inheriting the robust framework of its L1 counterpart.
It is precisely this fundamental point that is the key difference between a based rollup and a traditional rollup. As Justin highlighted “L1-sequenced” refers to the fact that the next L1 proposer may, in collaboration with L1 searchers and builders, permissionlessly include the next rollup block as part of the next L1 block.
One should note that by default L1 validators do not build L2 blocks on their own. That is, L1-sequenced rollups do not increase the load on L1 validators.
The essential transaction data, such as proof of validity, are stored and verified on L1, while detailed data can reside off the L1 chain.
From an economic perspective, based rollups offer an efficient scalability solution, eliminating the gas overhead associated with traditional rollup models and avoiding the need for token-based operations.
Architecture of Based Rollups
Similar to a traditional rollup, the architecture of a based rollup can be divided into four main layers:
- Settlement Layer: This layer provides finality on the chain, with Ethereum acting as the settlement layer where proofs are published on L1. However, this is optional in some cases (i.e., “sovereign rollups”).
- Data Availability Layer: Ethereum serves as the data availability layer, ensuring that everyone can access the necessary data to reconstruct the rollup state.
- Consensus Layer: Also called the “sequencing layer,” it differs from traditional rollups that delegate the ordering of transactions in a block to a network of sequencers or a single sequencer. In based rollups, there is no separate consensus; instead, they use the L1 validator base to determine transaction order.
- Execution Layer: This layer executes transactions off-chain, retrieving published transaction data and constructing the rollup state.
In summary, based rollups are responsible for execution but offload the work of consensus, data availability, and settlement to Ethereum.
Advantages of Based Rollups
- Increased Security and Decentralization: By leveraging L1 infrastructure, based rollups inherit its robustness and decentralization, eliminating the need for separate sequencers and economically aligning with Ethereum to enhance security.
It is important to highlight two fundamental aspects here. Firstly, based rollups reuse the L1 proposer-builder infrastructure, incentivizing L1 proposers to include rollup blocks in L1.
Secondly, the MEV (Miner Extractable Value) generated naturally flows to the L1 base, economically aligning with L1 infrastructure and contributing to the value improvement of the native token, in Ethereum’s case: ETH.
By opting for based sequencing, the rollup may lose up to 10% of total fees as potential profit but gains credible neutrality. However, as Drake noted in his post, “it’s important to highlight that based rollups retain the option to generate revenue from L2 congestion fees (e.g., L2 base fees in the style of EIP-1559) despite sacrificing MEV revenue.”
- Operational Efficiency: They can process a large number of transactions at lower costs compared to L1, since based sequencing incurs no gas costs and simplifies development expenses. Using the L1 proposer as the L2 sequencer eliminates a supply chain layer that could lead to cheaper transactions.
- Liveness: Based rollups inherit 100% of Ethereum’s liveness. This is the only type of rollup that inherits 100% of Ethereum’s liveness: they are not tied to toxic MEV from sequencer censorship, rollup failures due to sequencer downtime, or waiting times before guaranteed settlement.
- Sovereignty: Despite delegating sequencing to L1, they can retain the option to have a governance token or charge fees and use the revenue from such base fees as they see fit.
Intersection and Synergies between Based Rollups and DVT
So far, we have seen how based rollups work and the advantages of their application, especially in these times where the rollup-centric roadmap was proposed as a model to follow in Ethereum in the coming years.
During the journey of based rollups, it is not far-fetched to consider a technical integration with distributed validator technology (DVT) driven by protocols like SafeStake to offer even more secure and efficient systems.
If you are still unclear about the benefits and functioning of distributed validators (DVT), you can find more details in this post:
Defending Ethereum’s Decentralization: DVT-Powered Staking | by Daniejjimenez | SafeStake | Medium
Designed to enhance the security and decentralization of Ethereum, DVT can provide an extra level of security by distributing the responsibility of sequencing and validating transactions among multiple validators, instead of relying on a single entity for block verification.
Remember that in DVT-based protocols, validation functions are spread among multiple nodes or entities, reducing dependence on a single point of failure. Since based rollups use the L1 validator base in the consensus layer (L1-sequenced), reducing centralization in the validator base via DVT can be a viable option for distributing functions during based sequencing.
Moreover, incorporating DVT into the consensus layer of based rollups would provide a distributed approach for off-L1 verification and sequencing, further enhancing the security and resilience of layer 2 solutions. Distributed validators would collaborate to validate rollup transactions, ensuring the integrity of off-chain data while preserving L1’s decentralization guarantees.
Combined Benefits
- Improved Security: The combination of both technologies increases security by distributing both validation and transaction sequencing. DVT-based validation helps mitigate the risks of transaction censorship or network failures.
Under a ‘3 of 4’ threshold signature scheme, like the one used by SafeStake, a validator only needs three out of four operators to attest on behalf of a validator, ensuring no entity can ever gain control or recreate the private key.
SafeStake’s tech stack ensures no operator or malicious actor can recreate the private key of the validator responsible for based sequencing. Additionally, the high availability of nodes in DVT protocols allows for the operation of a permissionless network by independent, decentralized operators with diverse geographical locations and hardware/software configurations to achieve maximum resilience.
- Performance Optimization: Based rollups with DVT allow for processing a higher number of transactions at reduced costs and minimal latency due to the distributed nature of validators. This combination paves the way for innovation towards infinite scalability on Ethereum.
- Capital Efficiency: In addition to reducing development costs, DVT protocols like SafeStake offer a low threshold for participation and a low-impact SDK for implementation. Individual and home stakers with equipment capable of supporting 15–20 validators can upgrade their machine with the ‘DV Staker’ package to participate in the SafeStake network as a plug-and-play operator.
- Regulatory Pressure Avoidance: By nature, non-custodial DVT protocols like SafeStake help mitigate the effects of regulatory pressure and censorship, as seen with OFAC & Flashbots in Q1–2023. Based rollups with DVT can not only mitigate censorship but also avoid the regulatory burden of token-based sequencing by having the option not to issue internal tokens for their operation.
- Economic Alignment with L1: Like based rollups, DVT-based protocols economically align with the base layer (L1). For instance, the use of features like Validator Extracted Value (VEV) proposed by SafeStake ensures that MEV revenues accumulate directly into the validator owner’s account and nowhere else, smoothing MEV revenue distribution across the network. (SafeStake’s Validator Extracted Value (VEV) Explained )
Final Thoughts
Despite the promising potential of the linkage between based rollups and DVT, the integration could present technical challenges, with interoperability issues in the initial stages. Additionally, implementing and maintaining these combined technologies requires advanced skills and considerable resources, given their early-stage nature, making it challenging to drive mass adoption of new protocols that combine the best of both technologies.
Nonetheless, as previously mentioned, with an Ethereum roadmap focused on rollups aimed at enhancing network scalability without compromising decentralization and encouraging the use of minor stakers in low-threshold DVT protocols like SafeStake, the future synergy between both emerging narratives in the ecosystem looks promising.
Rollups are gaining more traction and quickly becoming attractive alternatives for transactions on the Ethereum network. According to L2Beat, their market size is currently around $43 billion as of writing this post.
In this sub-ecosystem, sequencers play a vital role as the air traffic controllers for the L2 ecosystem, an analogy well-established by Sandy Peng of Scroll. Due to their setup, the sequencers responsible for verifying, ordering, and compressing transactions in a rollup are managed by centralized entities, thus representing single points of failure, potential vectors for transaction censorship, or possibly a bottleneck for on-chain activity if regulatory pressure is relentless.
Therefore, the heavy reliance on centralized sequencers in major rollups is reason enough to seek more decentralized solutions in a world where trust is supposed to be minimized, aligning with the principles of distributed validator technology (DVT).
In conclusion, these technologies have great potential to transform the blockchain ecosystem and promote large-scale adoption, as the drawbacks mentioned by Justin Drake in his post about Based Rollups are overcome with more research. The advantages of a more robust, resilient, and decentralized system could prevail in a highly scalable, future-ready Ethereum.
About SafeStake
SafeStake is a pioneering technology company focused on revolutionizing Ethereum staking. With its cutting-edge, decentralized Distributed Validator Technology (DVT), SafeStake provides an ultra-secure, fault-tolerant environment for Ethereum validators, maximizing staking rewards and minimizing penalties. SafeStake is committed to driving the growth, innovation, and decentralization of the Ethereum network while ensuring the security and prosperity of its participants.
