This article hopes to educate the reader on sequencers, sequencing layers and the prospective high level economics of L2s sequencing infrastructure. This article will feature Espresso which is a solution engineered to provide cross-rollup interoperability, decentralised sequencing (and more) as a service to existing and future rollups or applications. In Pier Two’s belief, solutions like Espresso will create a more interoperable, efficient, and secure L2 ecosystem, with a potential to create sustainable economies for L2s.

Many new L2’s are launching

The layer 2 ecosystem is thriving. It has become quite simple to launch layer 2’s thanks to tools and RaaS (Rollup as a Service providers) and there has been a mass proliferation of hundreds of new L2s. On top of this, there are narratives being pushed such as L2’s being the ‘server’ equivalent in the blockchain economy. Application specific protocols like Lyra, Swell, amongst countless others have built a layer 2 into their protocol stack - with many more expected to go this route. With this in mind, there needs to be a reliable way for L2’s to be decentralised in an out of the box way such that L2s can always benefit from ultimate redundancy and censorship resistance to ensure that the blockchain economy maintains it’s security and decentralisation.

First, what’s a Sequencer?

Layer 2’s require a piece of infrastructure called a sequencer that can accept, order and batch transaction confirmations to the layer 1.

The sequencer is like “the air traffic controller for the specific L2 ecosystem that it serves,” Sandy Peng, co-founder of the Scroll rollup, explained this week in an interview. “So when Alice and Bob attempt to make a transaction at the same time, who comes first? That’s decided by the sequencer.” - source

Right now most sequencers are run by the L2 ‘labs’ teams or equivalent entities that support the development within the L2 (e.g. Offchain Labs/Arbitrum Foundation in the case of the Arbitrum Network).

Wallets, bridges, and other entities use the pre-confirmations that these centralised sequencers offer in order to provide a fast experience to users. But the fact that these pre-confirmations come from a single source can be problematic for everything from uptime to potential monopolies, and price gouging emerging. There exists an opportunity to create stronger guarantees around these pre-confirmations without sacrificing user experience. This is where Espresso comes in.

Enshined or based sequencing, where ETH validators provide the sequencing services for Layer 2’s has become an increasingly important discussion point as well. This is compatible with Espresso’s solution, as we will discuss. This could also be a natural extension of the efforts that are being driven by commit-boost and similar validator sidecars, which enable validators to simply provide additional onchain services. But, these solutions are for other articles.

Espresso’s Solution

Espresso’s solution consists of the Espresso Marketplace and the Espresso Network. Both are in service of greater interoperability, decentralisation, and efficiency. The Espresso Marketplace is a venue where chains, like L2 rollups, can sell the right to sequence transactions for them for a given period of time. Chains sell these “sequencing rights” to specialised actors like block builders that order transactions. These sequencers can order transactions for multiple chains at once, enabling coordinated block building and an improved interoperability experience for users. The marketplace is designed so that chains capture at least as much revenue as they would running their own centralised sequencer.

The Espresso Network is a high performance Proof-of-Stake network that is designed as a permissionless system run across a network of nodes (including by node operators like Pier Two). The Network serves as a source of truth for the marketplace, broadcasting the designated sequencers for any given time slot and running consensus over the blocks they produce.

As we’ve shared in other articles, coordinating and incentivising node operators isn’t a trivial thing and requires the right incentives and a lot of thought. For the 60+ L2’s that are building, being able to tap into an already curated set of operators, with high functioning and quality technology is a very compelling offering.

Do the economics for L2’s stack up to use a sequencing layer?

Today, L2s generate revenue from their sequencers. So why would an L2 use a sequencing layer if this is their source of income? Coinbase generated USD$15.5M in fees in Q1 from operating their Base L2 chain.

By leveraging the Espresso Marketplace, L2s do not have to give up their revenue. In fact, the Espresso Sequencing Marketplace is designed so that L2s can set a minimum threshold (for example the amount they’d make by sequencing their transactions on their own) and only participate in the marketplace if that threshold is reached.

Meanwhile, through the Espresso Network, L2s receive a more robust pre-confirmation of the block built for their network. Nodes running the Espresso Network run the network’s Proof-of-Stake consensus protocol called HotShot, earning rewards for their participation.

Wrapping Up

Pier Two is of the view that decentralised sequencers are likely to progressively take market share, and that by 2030 single sequencer instances are going to be more sparse. Especially where an array of sequencing solutions exist, like Espresso, which ensure economic alignment with the L1, that the L2 is inheriting it’s security from. Don’t sleep on Espresso (literally, it’s quite difficult to sleep after an espresso). Pier Two will continue to share the opportunities to stake and be engaged with L2s.