Making Ethereum Feel Like Ethereum Again: Foundation Rollup Explained

Ethereum’s rollup-centric layer 2 roadmap has successfully tamed base layer congestion and exorbitant gas fees, but at the cost of creating a fragmented ecosystem.

Designed to scale the network, L2s have become small islands, each with its own rules, systems, and barriers.

Liquidity is siled, users must navigate bridges between L2s, and developers must choose whether to build on Base, Arbitrum, or Starknet.

However, over the past few years, the community has started talking more and more about base rollups as a potential answer to the problem. Reportedly, the foundation rollup could bring back interoperability and composability and revive DeFi Summer’s “Money Legos” concept in L2 (meaning DeFi protocols that can interact seamlessly with each other). Simply put, if they achieve everything they promise, the foundation rollup will make the Ethereum ecosystem feel like Ethereum again.

The essential problem that based rollups are trying to solve is the use of separate sequencers in L2. A sequencer is an engine that orders transactions on the blockchain.

“When I first learned about the L2 extension roadmap from Vitalik (Buterin)’s blog post, it was a bit difficult to accept because of the trade-offs that come with it,” blockchain engineer Teddy Knox told the magazine.

“Unlike L1, which has a large committee of nodes validating Ethereum, L2 in its original form has a centralized sequencer with special authority over sequencing L2 blocks.”

A centralized sequencer fragments Ethereum’s L2.

Centralized sequencers run very fast and can make operators a lot of money, but they also contribute to isolating the various L2s. Transactions processed by one of the sequencers in the L2 cannot be easily matched to interact with another L2, and this lack of interoperability has been a major factor in the Ethereum roadmap FUD this year. (Interoperability between L2s can still be achieved through other methods without a shared sequencer, but this is “asynchronous”, meaning it is not real-time.)

Rollup Base (not to be confused with Coinbase’s L2 Base), proposed by Ethereum researcher Justin Drake, promises a solution to this fragmentation problem.

Unlike traditional rollups, base rollups push transaction order back to Ethereum L1. This was the case before L2 was supported.

“The underlying sequencing approach not only leverages Ethereum’s security, but also contributes to revenue and ecosystem cohesion, ensuring tight alignment with the Ethereum mainnet and promoting cheaper and faster transactions,” said Daniel Wang, co-founder of Taiko Labs. “It directly supports the sustainability of the network,” he said. , we have our first base rollup in production.

Taiko returns approximately five times more revenue to Ethereum than other rollups that use centralized sequencers.

Configurability and Base Rollup

This looks very promising, but like everything else, it has many problems.

For users to benefit from base rollups, other L2s must also adopt them. For Taiko, I’m using Nethermind’s roll-up Surge chain. This chain is specifically designed to allow users to connect back and forth with Taiko without going through Ethereum.

However, despite being based on the same technology, the two rollups will still not be synchronously composable, Wang told Cointelegraph at Devcon.

“Proving two changes simultaneously requires near real-time feasibility proof,” he said. “I think we’re not there yet. As a project, we can’t afford to wait for that to happen before we launch.”

Advantages and Disadvantages centralized sequencer

When operated by a single entity or small group, the sequencer can order transactions without the delays associated with distributed consensus or Ethereum’s 12-second block time.

For many L2 networks, sacrificing decentralization to provide throughput that Ethereum L1 could not match brought its own risks, but was worth it.

“If the sequencer goes down, it can impact performance or it can successfully censor transactions without any other functionality,” Knox explains.

Using a centralized sequencer brings back many of the problems that decentralization and blockchain initially tried to solve, such as censorship and single points of failure, and maximum extractable value (MEV) utilization becomes a huge problem.

But while these kinds of concerns keep Ethereum idealists up at night, switching between L2s is the biggest problem for regular users.

Duncan Townsend, a smart contract engineer at 0x, says the current process of linking funds from one Ethereum L2 to another is “not a good experience.”

“The cross-chain user experience in DeFi is not good unless you use a chain abstraction protocol,” he explains. “If you have a foundation, you have composition. It doesn’t really matter which chain the token is on. “You can get it through the chain you need, as cheaply as you need it.”

If rollups share this underlying sequencing framework, tokens and assets should be able to interact directly with each other without relying on separate bridging mechanisms, enabling native interoperability between rollups.

Challenges of adopting rollup-based

Foundation Rollup leverages Ethereum’s network of validators to order transactions across multiple L2s, bringing back decentralized transaction ordering and creating a more unified and efficient ecosystem. Developers can develop DApps that work on any participating L2.

However, getting existing L2s to agree to give up sequencer revenue is not straightforward.

“There’s a big hurdle to overcome in moving to based sequencing, which is that all of these L2 sequencers are making a ton of money,” Townsend says.

ZKsync, a ZK rollup, had accumulated nearly 40,500 ETH ($125.5 million) in sequencer fees as of November 20, according to Dune Analytics data. Optimistic rollup competitor Base gained 20,904 ETH ($64.7 million) and Arbitrum gained 62,001 ETH. ($192 million), while Optimism earned $6,916. ETH ($21.5 million).

Do they really want to give up that return for idealism?

Base rollup is suitable for Ethereum.

Wang is certainly idealistic, but he says that base rollups help protect Ethereum’s base layer because L2 activity reduces L1 activity, which in turn reduces the revenue of validators.

“The base rollup will provide L1 validators with additional fees, tips, and MEV opportunities, thereby incentivizing more validators to secure the Ethereum chain. This will ultimately make all base roll-ups safer,” says Taiko’s Wang.

Taiko is the top fee payer on the Ethereum chain during rollups, according to Growthepie data. In the 30 days ending November 21, Taiko paid $1.29 million in gas fees, nearly five times more than second-place Arbitrum One.

This could help increase the profitability of validators and encourage staking, reducing circulating ETH supply and driving prices higher in the long term.

The Future of Ethereum: Base Rollup or Fragmentation?

Base rollups present a possible solution to unify the Ethereum ecosystem, but returning to the mainchain for sequencing may also re-emerge old problems.

The main trade-off with underlying rollups is that they are limited by Ethereum’s current 12-second block time, Wang said. Arbitrum works in less than a second.

“We are working with our partners on pre-confirmation (of transactions) that no longer relies on short L1 block times to provide the best trading experience for our users. Users can see their transactions included in blocks in near real-time,” says Wang.

While the Ethereum network is doomed to remain fragmented with no proposals to improve interoperability such as underlying rollups, DeFi challengers like Solana continue to evolve as a single unified layer-1, providing a more seamless experience for users. We provide.

“Essentially, it’s ‘How big can you make individual chains and individual rollups in terms of transaction throughput, and how quickly can you stabilize liquidity when it needs to move from A to B?’ It can arrive really quickly and users don’t have to wait,” says Knox.

Townsend says foundational rollups are “definitely” a solution for unifying the ecosystem, but it’s still a new concept and no active ecosystem exists yet.

“There are obstacles to convincing L2 sequencers to give up part of their revenue stream and participate in the interoperability ecosystem,” Townsend said.

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Yoon Yohan

Yohan Yoon is a multimedia journalist covering blockchain since 2017. He has contributed as an editor to Forkast, a cryptocurrency media outlet, and has covered Asian technology stories as an assistant reporter for Bloomberg BNA and Forbes. He spends his free time cooking and experimenting with new recipes.