This article introduces Puffer Finance’s Based Rollups solution, which leverages Ethereum mainnet validators to achieve a decentralized sequencer, reducing transaction costs, enhancing security, and introducing a pre-confirmation mechanism to improve user experience.

Recently, the liquidity re-staking protocol @puffer_finance, active on @eigenlayer, launched a solution called Based Rollups. This solution attempts to introduce Ethereum mainnet validators to provide a more secure and efficient decentralized solution for Rollups, particularly focusing on the decentralization of the sequencer.

As a classic #LST protocol, Puffer Finance has leveraged its unique characteristics (supporting both Ethereum mainnet #PoS and Eigenlayer #restaking) to develop this new technological solution, expanding its narrative in a meaningful way.

Decentralizing the sequencer is a key concern within the community, as it is arguably the weakest link in Rollups systems and directly affects the user experience. Based Rollups seeks to decentralize sequencing by outsourcing it to Layer 1, which not only reduces the risk of overly centralized sequencing in current Rollups but also significantly lowers transaction costs and boosts system activity.

Developers can easily deploy and manage their own Rollups chains based on the Based Rollups architecture, enjoying the security and decentralization features of Ethereum.

Current Rollups Challenges

Currently, #ZK and #OP Rollups rely on centralized sequencers to determine the order of transactions. This centralization introduces risks, including sequencer failures, reduced user trust, and related #MEV issues.

To mitigate these risks, many Rollups have introduced “escape hatches,” mechanisms that allow users to exit the Rollups in the event of a sequencer failure. However, these mechanisms increase latency and gas fees and may be exploited for MEV extraction through malicious sequencing.

The pressing demand for Rollups with decentralized sequencers is undeniable.

Introduction of Based Rollups

Rollups, where the transaction order is determined by L1, are referred to as Based Rollups. This concept was proposed by Ethereum Foundation researcher Justin Drake in March 2023.

Based Rollups achieve decentralized sequencing by utilizing the L1 proposer to determine the order of transactions. This method not only inherits the activity and decentralization of L1 but also eliminates the need for escape hatches, thereby enhancing the security and efficiency of Rollups.

How Based Rollups Work

In Based Rollups, the L1 proposer can collaborate with L1 searchers and L1 builders to permissionlessly include Rollups blocks in the next L1 block. This means the order of included L2 blocks and the final transaction sequencing are determined by the L1 proposer. However, generally, the L1 proposer does not construct L2 blocks itself. Instead, each Based Rollups block is built by L2 builders, ensuring no additional workload is placed on the L1 proposer.

In the @taikoxyz Rollups, Based Rollups’ VM and Rollups execution agents execute transactions off-chain as the execution layer, while the transaction order, from the consensus layer onward, is determined by Ethereum’s consensus layer. The transaction data is also published on Ethereum, and the transaction state can ultimately be verified on Ethereum.

Advantages of Based Rollups

1. Inherits L1 Censorship Resistance and Enhances Transaction Activity: Since Based Rollups are operated by Ethereum L1 proposers and validator nodes, they inherit Ethereum’s censorship resistance, eliminating the need for escape hatches. This ensures high transaction activity, avoiding the delays and fairness issues associated with escape hatches.
2. Reduces Transaction Costs: Transactions based on escape hatches typically incur additional gas costs, reducing the activity of traditional Rollups. Based Rollups transactions, however, do not require extra gas fees, nor do they need to verify the signatures of centralized sequencers. With no need for escape hatches or external PoS consensus, the overall costs are further reduced.
3. Inherits L1 Decentralization for a Simpler and More Secure System: Based Rollups execute the transaction layer off-chain, while the consensus layer for transaction sequencing, data availability, and verification all occur on L1. This leverages L1’s searchers-builders-proposer architecture, making the Based Rollups system extremely simple, with no need for sequencer signature verification, escape hatches, or external PoS consensus. L1 searchers and block builders are incentivized to include Rollups blocks in their L1 bundles and L1 blocks to extract Rollups MEV, further enhancing L1’s security. By default, Based Rollups have almost no negative impact on L1 stakers; the only effect is increased revenue, as most MEV flows to L1.
4. Flexible Token Governance: Although sequencing is delegated to L1, Based Rollups can still have governance tokens to collect basic fees. Of course, they can also operate without tokens, as their correctness and fairness are guaranteed by Ethereum.

Challenges Faced by Based Rollups

Reduced MEV Revenue

MEV is a significant source of revenue for traditional Rollups, but most MEV in Based Rollups flows to L1 proposers. This sacrifices the MEV revenue for Based Rollups, though they still retain the option to earn income from L2 congestion fees (such as EIP-1559 style L2 base fees). \
However, Based Rollups that wish to capture their own MEV may employ some bribery mechanisms, such as including an auction mechanism, like a Dutch auction, in the L1 contract, forcing batch submitters to pay some ETH to the contract.

Limited Sequencing Flexibility and Lack of Pre-confirmations

While Based Rollups offer many advantages, they also face challenges, particularly related to soft confirmations. Soft confirmations refer to a user’s ability to reliably know that their transaction will successfully reach Ethereum’s Layer 1 (L1).
Current Rollups offer pre-confirmations, allowing users to know that their transactions will definitely be submitted to L1.
However, delegating sequencing to L1 in Based Rollups reduces sequencing flexibility, making it impossible to provide pre-confirmations or implement first-come-first-serve (FCFS) sequencing like Arbitrum.
To address the issue of pre-confirmations, Justin Drake proposed in the summer of 2023 the use of re-staking. In this design, a portion of L1 proposers commit (via re-staking) to include Based Rollups blocks in the L1 blocks they will propose in the future. Since L1 proposers know at least 32 blocks in advance, it is possible to designate who will be the proposer for each block.

Puffer Finance’s Improvements to Based Rollups

Puffer Finance aims to integrate pre-confirmations with Based Rollups through its UniFi architecture, offering fast (100ms) confirmation times while maintaining all the advantages of Based Rollups.

Pre-confirmation Mechanism Ensures Transaction Submission to L1

Pre-confirmations ensure that decentralized sequencers effectively submit transactions to L1. Ethereum validators queue up to propose blocks. If a pre-confirmation validator fails to fulfill their commitment, they face penalties such as slashing, ensuring higher reliability. This mechanism gives users greater confidence that their transactions will indeed be included in Ethereum’s L1 state.

100ms Fast Confirmation

For applications like #GameFi, soft confirmations are crucial to ensuring rapid response times (e.g., around 100 milliseconds). However, due to the decentralized nature of Based Rollups’ sequencers, these validators follow a 12-second block generation time, leading to a minimum confirmation time of 12 seconds, which hampers the speed of soft confirmations.

Puffer’s UniFi integrates pre-confirmations (Preconfs) with Based Rollups, enabling Based Rollups to deliver a user experience comparable to that of centralized sequencers, with a confirmation time of 100 milliseconds while ensuring system activity. This integration allows Based Rollups to retain all its original advantages, ultimately resolving the issue of liquidity fragmentation on Ethereum and promoting a more unified and efficient Rollup ecosystem.

UniFi Architecture

The UniFi architecture enables rapid scaling from a single centralized sequencer to tens of thousands of decentralized sequencers using Puffer’s validator nodes. UniFi seeks to seamlessly integrate pre-confirmations into its Based Rollup.

Users submit Rollup transactions, which are then processed by Puffer validators. These validators provide pre-confirmations, ensuring that users know their transactions will be included in Ethereum’s L1 state.

Puffer validators restake based on additional slashing conditions to ensure reliability, receive Rollup transactions from users, and issue pre-confirmations. These validators prepare to include Rollup transactions in L1 blocks.

The pre-confirmation slashing mechanism (Preconf Slasher AVS) imposes additional slashing conditions on validators to discourage them from breaking pre-confirmation commitments, preventing validators from failing to submit certain Rollup transactions to L1.

Puffer validators propose blocks to Ethereum L1 that include the pre-confirmed Rollup order.

The Puffer sequencer contract accepts Rollup transactions.

The PufETH Vault collects congestion fees and contention fees generated by Rollup transactions, which increase the yield for PufETH holders and provide native returns to UniFi users.

uniETH that can reduce market risk

unifETH is the universal Gas token in the UniFi ecosystem. It generates rewards through pufETH and is managed by a Decentralized Autonomous Organization (DAO) to avoid market risks, such as loan liquidation due to Ethereum price fluctuations, and Puffer’s deduction prevention mechanism can avoid these risks.

Gas-free transaction scenario

In Web2, users were accustomed to free internet service subsidized by advertising. In web3, the requirement for users to pay for services can potentially deter usage.

Puffer’s Based Rollup users can earn income by locking assets in the Rollup native bridge and generate native yields. This allows Puffer to support some application scenarios like gas-free transactions, which has an important impact on both web2 and web3.

Puffer’s Based dApp Chain

If transaction fees on a Rollups chain become too high for a dApp, developers might consider leaving the Rollups chain to create their own dedicated chain, allowing them to directly earn revenue from user transaction fees. Puffer offers a solution for developers with the Based dApp Chain.

Launching a Puffer-Based dApp Chain is as simple as deploying a smart contract, while inheriting Ethereum’s security and decentralization features. Developers can capture the transaction fees from the dApp’s Rollups chain without needing to operate a centralized sequencer and can enable cross-chain transactions and interactions.

Transactions on Puffer’s Based dApp Chain can be confirmed quickly within 100 milliseconds, and Puffer’s pre-confirmations ensure that transactions are submitted to L1.

Conclusion

Through collaboration with the Ethereum Foundation, Puffer Finance is providing a more secure and efficient solution for Rollups. This decentralized sequencing method not only reduces the risks of current centralized sequencers but also significantly lowers transaction costs and increases system activity.

With the integration of pre-confirmations and 100-millisecond fast confirmation times, Based Rollups will become an ideal choice for various applications, including GameFi, ensuring both a seamless user experience and transaction finality. Additionally, with Puffer Finance’s Based dApp Chain, developers can easily deploy and manage their own Rollups chain, free from concerns about operating a centralized sequencer, while enjoying Ethereum’s security and decentralization features.

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