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Layer 2 Income Decryption: The Role of the Sequencer and Decentralization Trends
The main source of income for Layer2 comes from the Gas fees paid by users during transactions. After deducting the Gas fees for submitting data to Layer1, the remaining portion is almost pure profit. According to rough statistics, the profit of OP Mainnet in the second half of 2023 is approximately $5.23 million, the profit of Arbitrum for the whole year is $16.5 million, and the profit of zkSync Era from March to December 2023 is $22.24 million.
These enormous profits are closely related to the sequencer that operates exclusively on Layer2. The sequencer (Sequencer) plays a key role in Layer2, mainly functioning to receive user transactions and execute them, and then submit the sorted compressed batch (Batch) to Layer1.
The sorter can be likened to a bus driver. Users do not have to drive into the city themselves ( Ethereum ); they only need to pay a service fee ( lower than the cost of driving themselves ) to reach their destination, saving both money and effort. The driver will wait until the bus is as full as possible before departing and will rearrange the passengers to maximize the use of space inside the vehicle.
Currently, mainstream Layer 2 solutions such as OP Mainnet, Arbitrum One, Starknet, and zkSync Era use centralized sequencer schemes, operated by official or affiliated organizations. This approach facilitates management, improves efficiency, and can generate revenue. However, centralized sequencers have also raised some concerns:
Weak censorship resistance: A single centralized entity operates the sorter, and its censorship resistance cannot be compared to the numerous validators of Layer 1.
Low activity: Single point of failure risk. A centralized sorter may cause system downtime when overloaded.
Possible improper MEV gains: The sequencer has the power to manipulate the order of transactions, which may benefit itself.
To address these issues, mainstream Layer 2 solutions have proposed decentralized ordering schemes, including:
Geographical Decentralization: Deploying multiple sorters in different locations around the world, operated in rotation by reputable organizations.
Sorter Auction: Auctioning the operating rights of the sorter through smart contracts.
Leader Election: Users who stake tokens can be randomly selected as sorters.
Based Rollup: Layer 2 transaction ordering led by Ethereum validators.
In addition, there is a shared sequencer solution, where multiple Layer 2s share a third-party sequencer network, which can enhance atomic composability between Layer 2s and prevent MEV extraction, among other benefits.
Decentralized sorters and shared sorters can alleviate some issues, but they may also bring new challenges. For example, completely open sorting rights may lead to disorderly competition, resulting in new centralization. If shared sorters are widely used, they may also generate excessively concentrated power.
The development of blockchain and decentralization is a long process. The sequencer, as a key role in Rollup, has received much attention. It is believed that through continuous exploration, the current issues will eventually be resolved with appropriate solutions.