The Ethereum Layer-2 (L2) ecosystem for scaling solutions has exploded in recent years. However, concerns about the increasing centralization of rollup technology are increasing. Fortunately, there are some possible solutions that can alleviate this industry problem.
The Ethereum layer 2 ecosystem has doubled in terms of total value over the past year – and that’s in the middle of a bear market.
Ethereum L2 Centralization Issues
On October 11, DeFi researcher “Andy” posted a long post about rollup centralization. He said,
“Decentralization has been put on the back burner in exchange for immediate feedback loops, accessibility and user acquisition.”
According to L2beat, there are at least 15 very active layer-2 rollup networks with a lot of activity. Rollups scale Ethereum by batch processing off-chain transactions and then posting transaction data to the layer 1 chain.
Sequencers play a crucial role in the rollup process by ordering transactions, making them cheaper and faster. However, centralized sequencers raise concerns about censorship, single points of failure, MEV extraction, and interoperability.
Learn more about Ethereum’s EIP-4844 scaling upgrade
Theoretically, sequencer operators could choose which transactions to include or exclude from blocks, the researcher noted.
Moreover, they can become a single point of bankruptcy. This happened in June when Arbitrum stopped processing transactions because the sequencer suffered a bug in the batch processor.
Furthermore, sandwich attacks, or MEV front running, are becoming real possibilities thanks to the centralized control of the transaction order.
DeFi decentralization advocate Chris Blec has posted repeatedly about layer 2 centralization issues. In late August, he released a podcast discussing the risks of T2 centralization.
Ethereum co-founder Vitalik Buterin also raised concerns about layer 2 “backdoors” and centralization in August.
Decentralization solutions
Two approaches are emerging to decentralize sequencers: shared sequencers that serve multiple rollups and direct decentralized sequencers that are specific to each rollup.
Shared sequencers promote interoperability but are limited by layer 1 throughput.
Shared sequencers. Source: X/@ayyyandy
Furthermore, direct sequencers enable customization but can isolate rollups, and there are tradeoffs between confidencelessness and functionality.
The good news is that solutions exist today for both shared and direct decentralized sequencing. These include Espresso, AltLayer, Celestia, EigenLayer, Caldera, Cartesi, Eclipse and Dymension.
Earlier this month, OP Labs launched Optimism’s first bug-resistant system on testnet. This is a big step towards decentralization with a multi-proof dispute system that can accommodate ZK evidence and reduce dependence on a single sequencer.
In conclusion, the researcher said:
“The path forward may not be easy, but the continued innovations in this space are a testament to the potential of Ethereum scaling and the potential at stake!”
