What’s your first impression of “Decentralized Sequencer”?

Is it the implementation of decentralized technology concepts and architecture? The avoidance of single-point network risk? Or perhaps a revolutionary new ecological model reshaping “L2 Economics”?

At its core, a sequencer is not merely a technical issue, but a deeply intertwined problem of interest distribution: In the L2 economic system, who should be responsible for dividing the cake, who should it be planned for, and how should it be divided?

It’s like a baton, directly determining what kind of developers and DApps are attracted to the application layer and indirectly influencing the development direction and underlying color of the entire L2 ecosystem. So, in plain terms, the decentralization of the L2 sequencer has always been a means, not an end.

Interestingly, on May 6, Morph launched the Morph Holesky testnet, which can preview all the features of the main network, including the first officially landed L2 decentralized sequencer network in the entire network. How will this new mechanism, which delegates L2 income disposal rights, mobilize different developers, DApps, and technical resource advantages for its debut, and will it be able to achieve the breakthrough from “0 to 1” and large-scale adoption in the L2 ecosystem?

The “secret war” behind decentralized sequencers

The sequencer, as the name implies, is responsible for controlling the packaging order of transactions submitted to L1 on L2, and is an important component in the L2 architecture.

From an economic perspective, it can be roughly calculated that L2 net income = sequencer net income = total user expenditure on L2 transactions - total L2 expenditure on L1 - sequencer operating costs. This implies that the sequencer directly determines the distribution of profits from the L2 profit cake - whoever controls the sequencer, controls the financial sources of L2.

At present, a host of L2 projects operate sequencers in a centralized manner, i.e., the project party controls the pricing power and income of the sequencer, which is also their main profit model, and without exception, they all make a hefty profit:

Dune data shows that Optimism’s average daily profit in the past 30 days has been as high as US$46,600, which means its monthly income exceeds US$1.3 million. Base even achieved a profit of more than US$20 million in March, and its ability to attract money is astonishing.

However, this approach also has a significant risk. If a few centralized nodes go offline, it will cause the L2 network to be down for a long time. In addition, these centralized sequencers may arbitrarily sort transactions to maximize their arbitrage opportunities, thereby capturing MEV value, delaying user transactions, or even censoring and rejecting user transactions.

Therefore, the advantages of decentralized sequencers are self-evident - they can eliminate single point failure effects, ensure the decentralized characteristics of the network, maintain network security and stability, and also share the major income of the L2 network sequencer with all network builders.

Previously, whether it was Metis, Espresso, Astria, or Morph, they all stressed the importance of decentralized sequencers and included them as part of their development roadmap. However, so far, only Morph has made substantial progress in implementing truly decentralized sequencers at the beginning of the month.

Specifically, the ‘self-operated store’ model of Metis, Espresso, and Astria, and the ‘outsourcing’ model (i.e., shared sequencer) show the two main paths of building and maintaining decentralized sequencers. The former emphasizes the security and stability of internal management and operation, while the latter provides more flexibility and openness, promotes technological universality, and reduces operational burden.

Metis: Representative of the “self-operated store” model

Metis’s PoS sequencer pool operates similarly to Arbitrum and Optimism among other Rollups. It utilizes a PoS mechanism for the election and block production of sequencers. When a user initiates a transaction, the transaction is sent to the sequencer node in the network. The sequencer is responsible for collecting transactions, packaging them, and using a TSS multi-signature method to sign a batch.

This will be very friendly for layer-1 contract verification signatures, because for signature verification, the TSS signature is completely equivalent to the signature of an EOA address, which will save gas.

However, this approach brings problems. The signing process is relatively complex and time-consuming. Every time the nodes in TSS change, a KeyGen operation (private key sharding, generating an aggregate public key) is required. This process can also be time-consuming and can be affected by the unpredictability of the network, leading to efficiency issues. Therefore, this method requires a high limit on the number of signing nodes.

Espresso: Modular design for shared sequencers

Espresso, along with Astria, represents the design intention of a shared sequencer, which is to provide a decentralized sequencer for multiple different Rollup networks. Therefore, the initial architecture design focuses on modularity, and is very friendly to cross-chain interoperability between different Rollups.

However, this also brings some limitations, such as:

• Firstly, it will bring varying degrees of complexity in many aspects. For instance, a block in Espresso may contain transactions from multiple different L2 networks, so it needs to filter out transactions belonging to its own Rollup chain. The generation of ZKP is also more complex than generating a proof for a single Rollup network;
• Secondly, since a consensus layer needs to reach consensus on transactions from multiple different L2 networks, the throughput would certainly be affected for a specific L2;
• It is difficult to adapt to some specific L2 requirements. For instance, due to different mechanisms of some L2s, the number of transactions that need to be accommodated in a block is different. For example, a block in Chain A cannot exceed a Gas Limit of 10 million, or a block in Chain B cannot exceed 500 transactions, etc.;
• Furthermore, during the consensus block production process, the sequencer will not execute transactions, which could result in the inclusion of some invalid transactions (such as nonce errors) in the block, potentially causing transaction fee losses for users;
• Finally, the design of the sequencer’s incentive punishment mechanism will also be more complicated.

Morph: Implementing decentralized sequencer design throughout the underlying logic

Morph, as the first Ethereum Layer 2 network to implement decentralized sequencer design at the underlying logic level, has emphasized the importance of establishing a decentralized sequencer from the start. It designed a feasible solution following principles of high efficiency, low cost, scalability, and easy maintenance.

In the operational mechanism of Morph, the decentralized sequencer network allows multiple nodes (sequencers) to participate in the packaging and sequencing of transactions, rather than being controlled by a single node.

Comparing with the Metis solution, Morph uses the Tendermint consensus signature and introduces the BLS aggregate signature into this consensus to reduce verification consumption.

Therefore, compared to the scheme of using TSS for batch signing, this scheme does not require additional P2P interaction, the signature algorithm is more efficient, the signature node switch is more concise, and the entire process is decentralized, eliminating the need to worry about single point issues.

Morph: Double-layer design mechanism of “underlying security + multiple benefits”

If we were to summarize the core architecture of Morph’s decentralized sequencer in one sentence, it would fundamentally provide a double-layer design mechanism revolving around ‘L1 staking ETH to achieve access’ + ‘L2 staking Morph tokens for election’:

• The L1 layer allows the formation of LST economics based on ETH staking, enabling users to earn Staking/Restaking returns similar to the ETH PoS model. In other words, Morph effectively borrows the ETH LST fund pool to endow the decentralized sequencer with underlying security.
• The L2 layer can form PoS interest income based on the staking of Morph tokens. Given the property of Morph tokens as underlying interest-bearing assets, users can further use their staked tokens to participate in on-chain ecological use cases, thereby constructing a rich array of profit derivative scenarios.

L1: Access through ETH staking

Firstly, users can stake their ETH on the main network and deposit it into Morph as collateral to participate in the decentralized sequencer network. If the sequencer behaves maliciously, this collateral will be confiscated.

Upon receiving the staked ETH, Morph will utilize the deeply integrated ETH Restaking protocol to implement the Restaking scenario of Ethereum assets at the foundational level, assisting the L2 layer to receive consensus security brought by Ethereum staking, thereby realizing the vision of ‘sharing Ethereum’s main network security’.

Through this design, Morph allows ETH holders to achieve the same effect as Ethereum staking, restaking, and even liquidity staking. This not only employs ETH to endow the decentralized sequencer with foundational security (Ethereum’s capital volume is large enough to raise the cost of malicious actions by attackers), but also re-releases user’s liquidity in the form of LST, greatly enhancing capital efficiency.

From the perspective of opportunity cost, users don’t have to worry about losing potential Ethereum LST/LRT benefits when staking ETH to Morph to participate in the decentralized sequencer.

L2: Staking Morph tokens for election and block production

Based on this, the second step is to stake Morph tokens (currently not issued) on L2 for sequencer election and block production.

Users can delegate their Morph tokens to any sequencer node to accumulate staking volume, and the network will rank based on the staking volume. The top X sequencers in the ranking will be successfully elected for this stage and can participate in block production and transaction submission.

As a reward, the sequencer that is successfully elected and participates in block production can receive Morph tokens issued by Morph as a reward. In essence, block production by the sequencer is ‘PoS node mining’ at the L2 dimension, and the issued reward is PoS interest income.

This essentially gives Morph tokens the property of ‘native assets with underlying income’. Based on this underlying income asset, a new layer of LST economic mechanism and DeFi trading scenarios can be constructed:

Users eligible to participate in block production can receive new LST (such as stMORPH) based on the staked Morph tokens. This stMORPH can accumulate staking income and further participate in on-chain ecological use cases, constructing a wide range of income derivation scenarios - such as DEX, lending, LSD, and other scenario use cases, enabling it to quickly use the existing rich DAPP ecology.

This can be coupled with the Ethereum ecosystem, for example, support for establishing liquidity pools in Curve, using stMORPH in Uniswap to exchange other cryptographic assets or form LP, and collateralize to borrow other cryptographic assets in lending protocols such as Aave, etc., to obtain diversified DeFi scenario farming income.

On the whole, under the overlay of multiple incomes, Morph’s mechanism as the first L2 decentralized sequencer on the entire network, is equivalent to building multiple incomes for ETH+Morph token holders, not only borrowing the security of the Ethereum capital pool, but also revitalizing Morph tokens to support the construction of a rich on-chain DAPP ecosystem.

Ecological “horse racing mechanism” based on sorter profit

In addition, this decentralized sequencer mechanism has given birth to another grand potential vision: redistributing sequencer profits (or disposal rights) to project owners/DApp developers on the chain, allowing the L2 ecosystem to truly possess ‘self-growth’ properties.

Simply put, Morph takes the macro responsibility to incentivize various self-organized ecosystems (developers/project owners/DApps/protocols), but each self-organized ecosystem takes micro responsibility for specific application landing and nurturing user ecosystems, thereby stimulating micro vitality. This model of Morph facing developers/DApps rather than directly facing users may be the singularity for L2 to achieve ecological breakthroughs and explosive growth.

In other words, in the future, Morph’s sequencer can completely redistribute profits according to a predetermined distribution mechanism to project owners/DApps on the chain after charging users gas fees. This can derive a new incentive mechanism.

For example, allowing project owners to receive rewards fairly and transparently according to their contributions, thereby implementing a ‘community horse racing’ self-growth competition mechanism—with the help of the decentralized sequencer mechanism, Morph can completely use the entire network’s sequencer fee profit disposal rights as a baton to reward and stimulate a spontaneous ecosystem making contributions to Morph with each DApp.

This fully utilizes the advantages of different project owners, and essentially achieves high market competition between various DApps in terms of Morph’s market promotion and innovative services, encouraging these contributors to jointly achieve sustainable development of the Morph ecosystem.

The simplest example is, if Morph chooses to link incentive measures with the gas expenditure of DApp smart contracts and the number of active users, then developers will undoubtedly be indirectly incentivized to make their contracts spend as much gas as possible and maximize their project’s active user numbers, thereby achieving a breakthrough from ‘0 to 1’ and widespread adoption.

This effectively allows developers, DApps, protocols, and even market makers and other different roles of B-end operators, to quickly form different types of ‘Morph sub-ecological communities’ based on their existing user groups for pulling in new users and promotions, and flexibly adapt precise strategies according to the actual conditions of their own community:

• For example, DApps can introduce incentives of different levels of sequencer profits such as 3%, 4%, and 5% for users of different transaction volumes, to increase their own user transaction activity.
• Or wallet operators can introduce phased reward policies for users with different levels of holdings, retaining core user stickiness and avoiding user loss.

Theoretically, this design concept can achieve ‘a hundred flowers bloom, a hundred schools of thought contend’, helping Morph to quickly open up the situation of promotion and landing from ‘0 to 1’ at a low cost, while also differentially providing users with efficient and optional diversified on-chain scene services.

Last but not least, the project owners/DApps receiving sequencer fee income can completely distribute this extra profit in the form of incentives to different types of individual users to meet their own operational needs. With this, each DApp has an additional method to incentivize users, and Morph also achieves its own promotion and widespread adoption purposes, achieving a ‘win-win’.

Conclusion

All in all, decentralized sequencers are not just about the technical narrative. With profit distribution rights delegated, it will be a complete reshaping of the L2 economic system.

Even the much-anticipated L2 ecosystem tipping point might emerge under the new economic model of decentralized sequencers.

The future always exceeds our imagination. Perhaps, looking back a few years from now, this will be seen as a new turning point. And the variables that the first decentralized sequencer player, like Morph, could bring to the Ethereum ecosystem and the L2 ecosystem, are worth looking forward to.

statement:

1. This article is reproduced from [techflow], original title “”Decentralized Sorter” debuts, understand Morph’s self-motivating ecological flywheel”, the copyright belongs to the original author [Ray], if you have any objection to the reprint, please contact Gate Learn Team, the team will handle it as soon as possible according to relevant procedures.

2. Disclaimer: The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

3. Other language versions of the article are translated by the Gate Learn team, not mentioned in Gate.io, the translated article may not be reproduced, distributed or plagiarized.