Original Title: "Ethereum's Rollups are Centralized: A Look Into Decentralized Sequencers"

Original Source: Binance Research

1. Key Points

Transaction ordering has become an increasingly serious issue in the second layer ("L2") space. The main purpose of L2 rollup is to provide a secure place for cheap transactions. L2 rollup provides users with an execution layer, and then submits their transaction data to the higher-level first layer ("L1"), such as Ethereum's Arbitrum, Optimism, zkSync, etc.

The sorter is an entity that has the authority to sort these transactions into groups. The sorter receives unordered transactions from users, processes them into groups off-chain, and then generates a batch of compressed ordered transactions. These transactions can then be placed into a block and sent to the parent L1.

Rollups actually do not require a sequencer; this is just a design choice aimed at providing users with a better experience at lower cost and faster transaction confirmation speeds. For example, just like most rollups use the Ethereum base layer to achieve data availability, they can also use the base layer for sorting. However, Ethereum's base layer may be relatively inefficient and expensive. This means that so far, every major L2 rollup project has found it more convenient, cheaper, and user-friendly to run a centralized sequencer.

Due to the fact that the sorter controls the order of transactions, it has the authority to review user transactions (although complete review is unlikely as users can submit transactions directly to L1). The sorter can also extract the maximum extractable value ("MEV"), which may cause economic losses to the user group. In addition, validity may also be a major issue, that is, if the only centralized sorter crashes, users will not be able to use the sorter, and the entire rollup will be affected.

The solution to the problem is a shared, decentralized sorter. The shared sorter essentially provides decentralized services for rollup. In addition to solving issues such as review, MEV extraction, and validity, the shared sorter also introduces cross-rollup functionality, opening up various new possibilities. Espresso, Astria, and Radius are developing innovative shared sorting solutions, each with unique features in their respective architectures. Espresso is attempting to use EigenLayer to guide its network, while Astria maintains close contact with the modular data availability network Celestia. Radius brings its unique encrypted mempool to the conversation.

2. Introduction

With the continuous popularity of the Ethereum L2 circular ecosystem, one aspect that is often overlooked is the sorter. The sorter is responsible for transaction sorting, and using the sorter through rollup can provide better user experience, lower fees, and faster transaction confirmation. However, the problem is that so far, all major Ethereum L2 companies have found that running their own centralized sorter is the most convenient, user-friendly, and cost-effective. Considering the power that the sorter has in transaction review, MEV extraction, and creating single points of failure (i.e. validity issues), this may be seen as an undesirable outcome and not in line with the spirit of cryptocurrency.

Although most cryptocurrency companies have already solved the decentralization problem of their respective sorters and have included it as part of their roadmap, there is still no real consensus on how to achieve decentralization. We should also note that Arbitrum and Optimism have both launched their own solutions since the second half of 2021, and it can be said that they have not made substantial progress in decentralized sorters.

In this report, we will carefully examine the role of sorters and the current state of the Ethereum rollup space. Then, we delve into projects that are researching solutions, namely decentralized shared sorting networks. We will provide a detailed introduction to these projects and their unique solutions. We also contemplate what this may mean for the future development of the Ethereum L2 rollup space.

3. What is a sorter?

Speaking of which, blockchain is a distributed data ledger consisting of transaction data sorted by blocks with timestamps. Initially, these transaction data were unordered and unorganized. After sorting, they can be organized into blocks and executed to create a new state of the blockchain. For first-layer ("L1") blockchains like Ethereum, this transaction sorting occurs within the Ethereum base layer itself.

In the most popular scalability solution for Ethereum, Layer-2 ("L2") rollup, transaction ordering has become an increasingly serious problem. Remember, the main purpose of rollups is to provide users with a secure and inexpensive place to trade. Simply put, L2 rollup provides users with an execution layer, and then submits their transaction data to the higher-level L1, such as Ethereum's Arbitrum, Optimism, zkSync, etc. The batch of transactions submitted to L1 usually contains hundreds or thousands of compressed L2 transactions, thus reducing the cost of sending data to L1.

In the L2 rollup world, a sorter is an entity that has the authority to sort transactions into groups. The sorter receives unordered transactions from users, processes them off-chain into groups, and then generates a batch of compressed ordered transactions. These transactions can then be placed into blocks and sent to the parent L1. Batched transactions can also be used on the data availability ("DA") layer (usually Ethereum, used for most rollups currently). It also provides users with a soft commitment, meaning that after receiving a user's transaction, the sorter will provide an almost immediate receipt as a "soft confirmation" (1). A "hard confirmation" is received after the transaction has been sent to the L1 layer.

Figure 1: What is the application scope of a sorter?

Why do Rollups use sorters and why is it a problem?

At its core, a sorter has a very clear goal: to improve user experience. Using a sorter for L2 transactions is similar to using a "fast lane", which means lower fees and faster transaction confirmations. In fact, a sorter can compress hundreds or even thousands (2) of L2 transactions into a single L1 transaction, saving gas fees. Additionally, the soft confirmations provided by the sorter mean that rollup transactions can provide users with fast block confirmations. This combination helps improve the user experience of using L2 loops.

It is important to remember that rollup does not require a sorter; it is simply a design choice made for better user experience. For example, just like most rollups use Ethereum L1 to improve data availability, they can also use it for sorting. Ethereum Foundation's Justin Drake recently referred to these as "rollup-based" (3). However, Ethereum's base layer is likely to be relatively inefficient and expensive, especially considering the large volume of L2 transactions. Essentially, the transaction throughput of rollup will be limited by the data sorting rate of Ethereum L1. Users will also experience the same transaction confirmation delays as trading on Ethereum. This means that so far, every major L2 scaling project has found it more convenient, cheaper, and easier for users to run a centralized sorter. Although L2 users can submit transactions directly to L1 to bypass the sorter, they must pay transaction gas fees to L1 and transactions may take longer to complete. This largely goes against the original intention of using L2 rollup to execute transactions.

Figure 2: The sorter can help aggregate multiple transactions into a single L1 transaction, reducing the cost of transactions on L2 by several times compared to transactions on Ethereum L1.

Given that the sorter controls the order of transactions in a trade, theoretically it has the right to exclude user transactions from it (however, if users are able and willing to pay gas fees, they can also submit transactions directly to L1). The sorter can also extract MEV (more on this later) from the transaction group, which may cause economic losses to the user group. If there is only one sorter, as is the case with all major rollup transactions currently, the risk of centralization will be greater. In this case, validity may become an issue, that is, if the only sorter fails, the entire rollup will be affected. A multi-sorter setup can reduce this risk.

Through this setting, the sorter can be regarded as a semi-trusted party of the user. Although the sorter cannot prevent the user from using L2, it can delay the user's transaction, causing the user to pay additional gas fees and obtain value from the user's transaction.

MEV relevance

MEV is particularly important here. MEV refers to the value obtained from block production, beyond the first-order mining (or staking) block rewards and gas fees. It is extracted by manipulating transactions within the block, that is, by including, excluding, and changing the order of transactions. For example, common forms of extracting MEV include frontrunning and sandwich attacks.

Given the role that sorters play in L2 rollups, they can access all user transactions off-chain. Additionally, since these sorters are often run by the project itself or affiliated teams, such as the Optimism Foundation for the OP Mainnet (4) and the Arbitrum Foundation for Arbitrum One and Nova (5), many users are concerned that they will not be able to see potential MEV extraction. Even without these concerns, the centralization and decentralization of these protocols will also affect users as the projects run their own centralized sorters. The credibility and decentralization of these protocols will certainly be questioned.

Sorting Machine Market Status

At the time of writing this article, all major Ethereum L2 versions rely on centralized sequencers. As more and more Ethereum transactions move to L2 solutions, although Ethereum's validator set itself is decentralized, it seems that a large number of transactions (i.e. those on L2) will be affected by the centralized power in the form of a unique sequencer.

Figure 3: All top Ethereum L2 rollups use proprietary centralized sorters.

As expected, most of these companies have already solved the decentralization problem of their respective sorters and have included it as part of their roadmap. Although this is a positive signal that decentralization is part of the L2 vision, we should note that Arbitrum and Optimism have already launched their own solutions since the end of 2021, indicating that they have not made substantial progress in decentralized sorters.

Figure 4: All top-level rollups handle the sorter decentralization issue in their files.

Most top companies seem to be focusing their resources on improving their core products and features rather than focusing on decentralization. This is not entirely a criticism, as it is understandable that focusing on decentralization before having a competitive product may not be in the best interest of any company in a highly competitive environment. However, as network companies mature, this perspective is changing and discussions are rapidly shifting towards decentralizing sorters and increasing trustworthiness.

Other Questions

It is worth emphasizing that there is some discussion about the level of risk associated with relying on a centralized sorter.

As mentioned above, since the sorter controls the order of transactions, they can exclude user transactions and extract MEV. However, the sorter cannot completely exclude users from rollup transactions. Users can bypass the sorter and submit transactions directly to L1 (as long as they are willing to pay the additional gas cost). Although improper sorters may cause transaction delays and additional costs for users, they cannot be completely audited in the end. Before this, no large L2 company has focused on decentralizing its sorter, which is likely one of the reasons. Nevertheless, sorting transactions to extract MEV remains a problem, especially for private mempools like OP Mainnet ( 6).

Perhaps, the bigger issue lies in real-time performance. Given that the main rollup programs are running on a single centralized sequencer, if these sequencers encounter problems, the entire rollup program will be adversely affected. Although users can still complete transactions by directly accessing L1, this is not a particularly sustainable method and is unlikely to work for most transactions. Remember, the whole point of using L2 rollup is to save transaction costs. Given that one of the fundamental principles behind cryptocurrencies is to prevent reliance on a single centralized provider (just like in traditional finance), centralized sequencers are clearly an important problem that needs to be addressed, and shared sequencers will be one of the key unlocks for the L2 rollup market.

4. Solution: Decentralized Shared Sorter

Overview

The new solution to solve the above problems is decentralized shared sorter. Although the solutions for different projects may vary, the basic idea of replacing the centralized sequencer is the same. Here, "shared" means that multiple different rollups can use the same network, which means that transactions from multiple rollups will be aggregated in a memory pool before sorting (which helps reduce the possibility of MEV extraction and review). "Decentralized" here refers to the concept of leader rotation, which means that it is not always a single actor who sorts all transactions, but a leader is selected from a group of decentralized actors. This helps prevent review and provides validity guarantees.

This is very similar to the way various L1s operate with leader rotation mechanisms. In fact, building a decentralized sorting layer is similar to building a decentralized L1, which requires building a set of validators. As we will see later in this section, different projects have taken different approaches to meet this requirement.

The Shared Sorter aims to alleviate MEV extraction issues, provide censorship resistance, and improve the effectiveness guarantee of rollups, i.e. solving the problems faced by centralized sorters (as mentioned above). In addition, there are two points worth noting:

Decentralization as a Service: The shared sorter solution aims to provide decentralized sorter services for any number of rollups. Then, all of these rollups will benefit from the censorship resistance and real-time capabilities that a decentralized network can provide without having to build the network themselves. Given that this could be a very expensive and time-consuming process, this is a major selling point for the shared sorter network. Please note that currently no company has decentralized its sorter, and most of them have enough funds ( 7)( 8)( 9) to do so, which means that this is not a completely insignificant issue. If companies like Astria or Espresso can provide out-of-the-box decentralized sorter services, rollup companies can continue to focus on differentiation and performance optimization to better serve different users.

Cross-rollup composability: As these shared sorter solutions are designed to handle transaction sorting across multiple rollups, they can provide unique interoperability guarantees that are currently unavailable. For example, users should be able to specify that transactions on Rollup 1 can only be included in a block if different transactions on Rollup 2 are also included in the same block. By enabling this conditional transaction inclusion, shared sorters can unlock new possibilities, including atomic cross-rollup arbitrage.

Many projects are researching shared sorting solutions. We will focus on several and their strategies in the following text.

Espresso

Espresso Systems is a company dedicated to building tools that bring Web3 into the mainstream, with a particular focus on L2 rollup and the Ethereum ecosystem. Prior to developing the shared sorter, they were committed to improving blockchain privacy and developed the CAPE ( 10) application. They have also contributed to open source developer tools through initiatives such as the Jellyfish ( 11) cryptography library and Hyperplonk ( 12).

In November 2022, Espresso began sharing their work on the Espresso Sequencer.

Overview

Espresso Sorter is a decentralized shared sorting network designed to decentralize rollups, while providing secure, high-throughput, low-latency transaction orders and data availability.

Its design purpose is to handle the decentralized sorting and data availability of rollup, serving as a middleware network between rollup and the underlying L1.

The design of Espresso Sequencer is independent of the virtual machine ("VM"), which means that it can be used for non-Ethereum virtual machines, as well as zero-knowledge ("zk") virtual machines and optimistic virtual machines.

How does it work?

The core of the sorter is the consensus protocol HotShot. HotShot is based on the HotStuff ( 13) consensus protocol and combines the latest developments from multiple different fields ( 14) (pacemakers, verifiable information dissemination ("VID"), etc.).

HotShot is an open and permissionless system that decentralizes the power of the sorting network, providing high throughput and fast finality while ensuring security and effectiveness. HotShot uses a Proof of Stake (PoS) security model, and one of the key requirements set forth by the Espresso team is to achieve strong performance without affecting the size of the validator set. Specifically, HotShot should be able to scale to include all Ethereum validators (currently over 700,000 (15)) participating.

Espresso Systems is attempting to achieve Ethereum-level security for its sorter by utilizing the existing validator set on Ethereum. There are two key reasons for this setup:

Security: The cost of launching a decentralized PoS consensus protocol is extremely high and requires a lot of energy. Even so, it may be a huge challenge to obtain enough network participants. By using validators similar to Ethereum, the sorter can achieve a level of security, efficiency, and decentralization that is difficult to achieve on its own. The Espresso sorter can benefit from sharing the security of the encrypted economy of the second largest decentralized cryptocurrency, which is recognized as second only to Bitcoin.

Consensus Incentives: Conceptually, it is reasonable to have Ethereum L1 validators participate in running the protocol of Ethereum L2 rollup. In practice, in the centralized sequencer setting, almost all fees and MEV generated by rollup may be obtained by the sequencer. If these values are not (or rarely) shared with L1 validators, there is reason to be concerned about the security of rollup. For example, L1 validators may be bribed to fork rollup, thereby gaining more profit than managing rollup contracts honestly. Decentralizing the sequencer and working with L1 validators to ensure its security is a good way to reduce such concerns.

Espresso will seek to establish this partnership with EigenLayer by resetting contracts. Through EigenLayer repricing, users can stake their Ethereum and Ethereum liquidity staking tokens ("LST") across multiple protocols, extending economic security beyond Ethereum itself. They do so to earn fees as a reward, but they also agree to additional slashing conditions. Re-staking is a subsidized way to enter the system, as stakers do not need to deploy additional capital, only using their previously staked Ethereum. This lowers the capital cost of securing other protocols, meaning Espresso Sequencer can gain Ethereum's stakeholder base and decentralized validator set without launching its own validator set.

Tiramisu Data Availability ( 16)

As previously emphasized, most rollups rely on L1 blockchains (such as Ethereum) to provide data. However, this is not ideal because block space on L1 blockchains like Ethereum is scarce and very expensive, which can result in high transaction fees for users - an undesirable outcome. Espresso Systems uses its efficient Tiramisu data availability solution to address this issue.

Just like the classic Italian dessert, the Tiramisu solution has three innovative layers. Together, they ensure that data is provided to the parties that need it - in our case, to the various rollups ordering transactions.

The base layer of Tiramisu is called Savoiardi. This is an anti-bribery layer (similar to the danksharding proposal of Ethereum), providing the highest level of security. However, due to this feature, it is the least user-friendly layer among the three layers. To solve this problem, Espresso added two layers in its solution.

Mascarpone is the middle layer, which ensures efficient data recovery by electing a small data management committee.

Cocoa is appropriately named the "top-level sprinkler" of the entire system. By providing a content delivery network for Tiramisu, Cocoa helps Tiramisu deliver "Web2-level performance". This facilitates efficient data recovery and greatly speeds up data propagation. Given that this layer is essentially centralized ( 17), it is entirely optional and Tiramisu can run perfectly without it. It helps to speed up data availability and can be easily changed or removed.

We should note that Espresso Systems considered flexibility and modularity when designing its protocol. Devices using its sorter, such as rollup, can use any other data availability solution if they do not want to use Tiramisu.

Figure 5: Three levels of Tiramisu data availability solution

Famous Partners ( 18)

Since July, the Espresso Systems team has been continuously announcing partnership relationships. EigenLayer was the first company to announce such a partnership, and given its importance in the Espresso Sequencer architecture, it is worth closely monitoring its development. EigenLayer itself launched the first phase of its mainnet on June 14th.

Along with the announcement of the Doppio testnet, Espresso also announced a partnership with Polygon zkEVM. This partnership represents the first end-to-end integration of Espresso's sorter with the full-featured zk-rollup (a fork of Polygon zkEVM). The test network allows users to submit transactions to the fork, which are then routed and sorted by nodes running the HotShot protocol of Espresso.

Espresso supports the integration of Injective's sequencer into Cascade, which has enabled the IBC (19) Cosmos SDK chain. Cascade is the first cross-chain Solana SVM rollup in the IBC ecosystem, allowing for the deployment of Solana contracts on Injective and the wider IBC ecosystem for the first time. The integration with Cascade's testnet is expected to be completed by the end of 2023, with the mainnet expected to be completed in 2024.

AltLayer has also joined the Espresso Systems ecosystem. AltLayer is a rollup-as-a-service platform that allows developers to launch highly scalable startups that support multiple virtual machines. Through the collaboration, developers will be able to decide whether to use AltLayer's solution and/or Espresso Sequencer to launch their startups. The two teams will also collaborate on developing other integrated products to see how their designs complement each other.

Espresso Systems is working with Caldera to deploy an optimistic rollup based on the OP Stack, which uses Espresso Sequencer and Tiramisu. Caldera enables developers to deploy customized rollups for their applications. After deploying this extension, future L2s built on Caldera will be able to easily choose Espresso Sequencer and Tiramisu as their extension components.

The third layer ("L3") service company Spire announced its integration with Espresso Sequencer and Tiramisu. Spire's infrastructure allows developers to easily deploy their own L3 application chains on top of zkEVM L2. Spire will work with the Espresso team to integrate their solution into the Spire L3 framework. The test network is expected to be built in 2024.

Latest Update

November 28, 2022: Americano is the first test network for Espresso Sequencer and HotShot. The initial post contains more technical details; however, it should be noted that this is an internal test network and not open to the public.

Figure 6: Project roadmap released with Americano testnet and initial announcement.

July 20, 2023: Doppio is the second major milestone and testnet for HotShot and Espresso Sequencer. Meanwhile, Espresso Systems has released the whitepaper for the entire project. Doppio brings many efficiency improvements to HotShot, including verifiable information decentralization ("VID"), a new view synchronization sub-protocol, and signature aggregation of legal person certificates (20). Doppio also implements the first two layers of Tiramisu, with the third and final layer expected in future testnets. Espresso Systems has also released the first end-to-end integration of its sorter with full-featured zk-rollup, particularly the fork of Polygon zkEVM.

August 4th, 2023: Doppio test network officially opens to the public. The documentation on how users can submit transactions to zkEVM forks has also been released. They have also published performance benchmarks ( 21) and expected next steps. Specifically, they announced that they will begin incorporating some rollup and rollup-as-a-service companies into their sequencer. They also announced that they will contribute to the OP Stack through the concept verification work of the Optimism leader election (following the recently accepted RFP (22)).

Astria

Astria is building a shared sorter network and is one of the leading companies to eliminate centralized sorters. At the same time, they are developing Astria EVM, which will be the first rollup supported by their shared sorter network. The project will obtain fast and anti-censorship transaction ordering from its network and will utilize Celestia to achieve data availability. Celestia is a modular blockchain network and DA layer that Astria is very familiar with. Founder Josh Bowen has worked at Celestia, and the project and its ecosystem are mentioned multiple times in Astria's introductory blog.

Overview

Astria's shared sorter network allows multiple different rollups to share a single, permissionless, decentralized sorter network. With this network, Astria provides a plug-and-play solution that gives rollups censorship resistance, fast block confirmations, and atomic cross-rollup composability.

How does it work?

Astria's shared sorter network is itself a middleware blockchain that uses CometBFT ( 23) (a fork of Tendermint Core) to achieve consensus on a set of ordered transactions. The network is designed to accept transactions from multiple rollups, sort them into a block, and write them to the DA layer.

Rollup can immediately retrieve sorted blocks from Astria after creating a block, providing users with fast block confirmation through "soft commitment". Alternatively, rollup can retrieve ordered blocks from the DA layer for "hard commitment", as transaction orders are considered final once written to the DA layer. This provides users with the strictest finality, which can be very useful in high-value transactions and other scenarios.

Figure 7: Astria's shared sorter network

Astria EVM

As mentioned above, Astria EVM will be the first cryptocurrency driven by the Astria shared sorter network.

Currently, most rollup projects execute transactions and sorting on their own, and use Ethereum as the data model conversion layer. Astria EVM will focus on execution, while using Astira's shared sorter for sorting, and using Celestia for DA.

Figure 8: Three key layers focused on the L2 process. We can see how rollup tends to utilize its proprietary sorter and Ethereum's DA function (we also show Ethereum L1 itself as a comparison).

Astria's EVM aims to serve as a liquidity and bridge hub to help launch Celestia's rollup ecosystem. This also means that the Astria team has a live test case to understand the best integration of rollup with their shared sequencer network.

愿景 (Vision)

Astria's future vision includes thousands of decentralized sovereign rollups. In their vision, each rollup is tailored to unique use cases and applications.

Their shared sorter network played a key role in their vision, helping to simplify the rollup development process. Their solution means that rollup developers can focus on innovative use cases while easily integrating with decentralized networks, providing them with fast, censorship-resistant transaction sorting and cross-rollup composability.

Astria Development Cluster

On August 16th, Astria released its development cluster (24), which includes all the different components needed to launch rollup on Astria's shared sequencer network. The goal of this cluster is to make development, testing, and integration with Astria network as simple as possible.

The components include:

Astria Sorter: A block generation node used for transaction sorting. The development cluster relies on a single node. In the main network, a decentralized group of nodes will be used.

Data availability layer: Local Celestia network, providing hard termination.

Rollup: Geth (25) rollup node, used for executing tasks and storing state.

Composer: Retrieve pending transactions from Rollup's mempool and submit them to Astria's CometBFT mempool.

Conductor: After receiving a single program block, filter these program blocks for each rollup. Then, these filtered blocks will be passed to the rollup for execution.

Repeater: sends sequentially arranged data blocks to the Celestia wire and data availability layer.

Recently, Astria announced that it will deploy rollup technology on its development cluster. We will pay attention to which companies decide to deploy rollup technology.

Figure 9: Different components of the Astria development cluster.

Latest Update

In April 2023, Astria announced that it had received a seed round investment of $5.5 million (26).

As mentioned above, in August 2023, the team announced their development cluster.

Astria team is also developing a Devnet to initiate related work. It is expected to be completed in the next few weeks.

Their code is open source, and further documentation can be obtained on their official GitHub page.

Radius

Radius is building a trustless shared ordering layer that uses encryption technology to decentralize the sorter, prevent censorship, and minimize harmful MEV. Their solution is blockchain-agnostic and can be used for various types of rollups.

How does it work?

Radius uses encrypted memory pools to achieve its goals. Essentially, the content of each user transaction is encrypted after submission. When the sorter sorts the transaction group, it cannot see the content of each transaction, thereby preventing the sorter from extracting MEV or conducting audits.

Figure 10: Radius transaction process

This ultimately means that Radius' solution only requires one sorter to solve MEV and censorship issues. Since the transaction content is encrypted, even a single sorter cannot act maliciously. This means that there is no need to introduce a consensus mechanism, which may be advantageous in terms of speed and scalability. This is also the difference between Radius' solution and Astria and Espresso solutions, both of which rely on consensus mechanisms to sort transactions.

Although the encrypted mempool on a single sorter solves two key problems of centralized sorters: MEV and censorship, it still has a single point of failure. To ensure real-time performance, Radius adopts a decentralized sorter network where multiple sorters run simultaneously. One of these sorters is selected to run as the sorting layer. There are various suggestions (27) on how to choose a single sorter, including secret election mechanisms and sorter group sharding.

Practical Verifiable Delay Encryption (PVDE)

Radius uses the zk-based encryption scheme PVDE ( 28) to create encrypted memory pools.

Temporary encryption of user transactions is based on time-locked puzzles. Then, the sorter sorts the encrypted transactions. The sorter needs to obtain the decryption key by unlocking the lock puzzle when necessary. This requires time and computing resources, and prevents the sorter from decrypting transactions too early (i.e. before transaction sorting).

In order to prevent attacks, users generate ZK proofs to prove the validity of their transactions and decryption keys. The sorter can verify these proofs before sorting, effectively preventing meaningless decryption (i.e. attacks) and resource waste.

MEV Market

Radius has also proposed an optimized block space design. They are trying to create an auction-based market ( 29) where traders submit bundled cross-rollup MEV transactions. The transaction with the highest bid will be sorted into a block by the sorter, helping to maximize cross-zone arbitrage profits in the rollup, while creating a more efficient rollup market.

The latest update

In June 2023, Radius announced the completion of a $1.7 million seed round financing.

Roadmap:

Other

Although we have introduced some of the larger and most well-known projects in the shared sorting field, there are other projects that are also developing similar or closely related solutions.

NodeKit: The NodeKit team is building NodeKit SEQ, a decentralized shared sorter built into a customized L1 blockchain.

They are still building the NodeKit Chain, which is an EVM-based rollup.

Their Twitter page also shows that their solution will be launched on the Avalanche subnet (30).

AltLayer: AltLayer is a "rollup-as-a-service" platform that allows developers to launch highly scalable L2 rollups with support for multiple virtual machines.

Although "rollup as a service" company is a separate field and not within the scope of our report, AltLayer's decentralized sorter network (31) is worth mentioning.

AltLayer's shared sorter network is called the Beacon Layer, which is a permissionless middleware blockchain. The nodes in the blockchain are called validators (similar to any PoS network).

When users want to create a rollup on Altlayer's platform, they can specify the number of sorters required to run the rollup, the minimum staking amount required for each sorter, and the token set that can be used to value the staked assets. AltLayer recommends that each rollup project have at least five different sorters.

Once validators join the beacon chain and provide the minimum collateral, they can act as sorters in different rollups. The beacon chain selects validators to be sorters for various rollup projects based on their collateral and some randomness. Like any PoS blockchain, there is a risk of collateral reduction if there is improper behavior.

This process means that developers can relatively quickly deploy an encrypted rollup using AltLayer's infrastructure, and then use the beacon layer to ensure that it is decentralized. If you agree with the idea of rollup-centric future, services like AltLayer are definitely worth paying close attention to.

5. Outlook

Existing L2 rollups seem to have to make a choice. On the one hand, they can maintain the status quo and continue to use a single centralized sorter. On the other hand, they can begin to integrate with third-party shared sorting networks or develop their own internal solutions.

1. Continue to use the unique centralized sorter as usual:

a. This is the simplest action plan and may also be the most financially prudent plan. The monetization of the sorter is the key revenue source for all major expansions (32), and undoubtedly an important component of the business model. In fact, the newly established L2 promotion company Base recently confirmed its intention to monetize the sorter during Coinbase's second quarter earnings call (33).

b. Maintaining a centralized sorter can lead to issues such as censorship, MEV extraction, and single point of failure risks, and it goes against the fundamental spirit of cryptocurrency. Imagine a scenario where a key member of a major crypto organization mysteriously disappears or gets into serious trouble. If they were running a centralized sorter, this could potentially affect their crypto rollup, daily operations, and user experience. If this were to happen, many other participants in the industry would likely start seriously committing to decentralized sorters according to their roadmap. This is a simple example that illustrates why decentralizing sorters may be more important than it initially appears.

2. Integration with third-party shared sorting networks:

a. With the continuous development of shared sorting networks such as Espresso and Astria, and the launch of the main network, this will become a major choice for existing networks. In fact, considering the integration of Espresso and Polygon zkEVM fork, some major network companies seem to be actively exploring this solution.

b. Outsourcing sorting work to experts is a wise choice for many companies compared to the risks of centralized sorter management or the energy and cost required to develop internal solutions.

c. One of the most important factors to consider here is the interoperability of the sample library. This may be one of the most obvious advantages of L2 running on a shared sorter compared to those running in their own proprietary "silos". As emphasized earlier in this report, running on a shared sorter and the interoperability it brings can unleash a variety of new possibilities, including cross-rollup arbitrage and conditional trading inclusion.

3. Develop internal proprietary solutions:

a. As this may be the most time-consuming and expensive option among the three, it will be interesting to see which companies decide to go this route.

b. So far, a key issue with large cryptocurrencies that we have seen is the accumulation of token value. Most top Ethereum L2 companies have used ETH as the token for gas fees, which prevents their own native tokens from accumulating value. One possible solution is for rollup companies to develop internal sorting solutions, where token holders act as guarantors. For example, users can pledge their native rollup tokens as collateral, become sorters, and charge fees for their services.

c. The disadvantage of this method is that it affects interoperability. Compared to systems that run their own proprietary sorting solutions, rollup systems running on a shared sorter have better interoperability.

d. Optimism announced its "Law of Chains," which is a set of guiding principles for chains in the OP Stack superchain ecosystem. Its essence is to establish a framework for these chains to work in a more unified way. This is likely to extend to shared sorting solutions for OP Stack-based chains, which may be a solution to the interoperability issues discussed earlier (at least for OP Stack chains).

With the continuous emergence of secondary cryptocurrencies in the world of cryptocurrency, their scale and transaction volume are also constantly increasing, and issues surrounding centralization and interoperability will continue to ferment. This topic has been highly concerned in the past year, and we expect it to continue to expand as major cryptocurrency issuing companies approach their one-year and two-year anniversaries, and more cryptocurrency issuing companies are launched.

We believe that at least some companies will choose to integrate with third-party sorting networks such as Espresso and Astria, but we also see other companies choosing to develop their own internal solutions. Some larger companies, especially those that have already launched native tokens, are likely to see value in developing their own solutions, which can maximize profits and increase token utility. Whatever happens, this is a very important aspect that we need to pay close attention to, and we will be closely monitoring it with great interest.

6. Conclusion

Users hope for and prefer faster transaction confirmations and lower fees. While centralized rollups have been the primary L2 solution for major companies thus far, ideally, both companies and users should be able to choose the best decentralized version of this technology. This is where key players like Espresso Systems, Astria, and Radius come into play in the L2 story.

The two key driving factors here are decentralization and interoperability with rollups. Decentralization is crucial for many reasons. It is the philosophical foundation of cryptocurrency, and that is just one of them. On a more practical level, centralized sorters represent a single point of failure that can affect the effectiveness of encrypted rollups and pose a threat to the recovery capabilities of encrypted rollups. This is not to mention the possibility of extracting a large amount of MEV, some of which may be hidden from users and extracted in private mempools. The possibility of review (even temporary) and delayed transactions is also a problem that must be kept in mind, especially when considering the strong growth desires of the industry. Interoperability of encrypted rollups is equally important, especially when people hold a rollup-centric view of the future of the cryptocurrency industry. If there are more and more encrypted rollups on the market, whether for specific applications or other applications, these encrypted rollups should be able to communicate with each other and collaborate seamlessly. Otherwise, how can we achieve a Web2-type user experience?

The future will definitely bring challenges. Some large companies may prefer to create their own proprietary solutions instead of using shared sorting networks. One solution to this problem is for shared sorting networks to address value accumulation and income distribution through economic mechanisms, as if many companies share a sorter, strong network effects will eventually be achieved.

This topic will continue to become more intense in the coming months. We believe that there will be many new participants entering the market, whether in the rollup field or in the shared sorter field. It will be very interesting to observe the choices of different projects. We look forward to closely following this trend.

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