Decentralized Sequencers: The Next Narrative in Cryptocurrencies!
Natalia Ameline, mother of Vitalik Buterin, is one of the main contributors to this innovation.
Welcome to MrGekkoWallSt's virtual office! This is edition number 09 of my newsletter! Here, I organize and share my insights on the market, technical analysis, education, experiences, reflections, and the most relevant news of the period.
Reflection:
Today’s topic is technical: I will briefly explain the concept of “decentralized sequencers,” a new technology that has the potential to become a major narrative in the cryptocurrency market in the coming months.
Basic concept needed: Layer 2 blockchains (e.g., Arbitrum or Optimism) are scalability solutions that enable transactions to occur off the Layer 1 blockchain (e.g., Ethereum), where they are batched and compressed (rollups) before being sent back and permanently stored on the main blockchain (Layer 1).
The benefit of this scalability mechanism is straightforward: it mitigates congestion on the main network and provides greater speed, cost reduction, and efficiency for the entire ecosystem.
The key point is that every Layer 2 blockchain must have at least one sequencer responsible for ordering the transactions to be stored on the Layer 1 blockchain.
This is precisely where a specific deficiency lies, as 99% of Layer 2 networks have only a single central sequencer, making the entire network processing susceptible to a single point of failure.
With this in mind, it’s understandable why developers should naturally seek to decentralize sequencers.
We are just getting started, your mind is going to be blown!
To give you an initial reference for your studies, I will reveal the project that is leading this narrative.
Centralized Sequencer:
As I wrote in the reflection, the centralized sequencer acts as a single entity responsible for ordering transactions before they are batched and sent to the main blockchain.
This model is common in Layer 2 solutions to increase transaction speed and reduce costs, avoiding the complex consensus mechanisms required in decentralized systems.
See the following image for how a typical transaction settlement process develops in the Optimistic Rollup:
Problems with a Single Sequencer:
Single Point of Failure:
In a single-sequencer system, transactions will not be executed on the network if the sequencer stops, leading to activity failure.
For example, a failure in Arbitrum's sequencer on January 9, 2022, caused the network to be inoperative for about 10 hours.
Although users can send transactions directly to Ethereum, bypassing the sequencer in some Layer 2s, there are inconveniences such as a 24-hour delay for Arbitrum and a 12-hour delay for most OP Stack Layer 2s.
Old crypto enthusiasts will remember that this was unacceptable! Moreover, if the network is down and users simultaneously transfer assets to Ethereum, Ethereum gas fees will skyrocket.
In contrast, if a sequencer fails in a decentralized system, other available sequencers can operate, increasing network resilience.
Censorship Resistance
A single sequencer can deliberately exclude certain types of transactions or transactions from specific users from the transaction batch.
On the other hand, a decentralized sequencer system increases censorship resistance. If one sequencer censors certain transactions, others can add the censored transactions.
Malicious Acts by Sequencers
They provide receipts to users after executing transactions, indicating the user's updated state. In this process, sequencers might falsely claim that they have altered the user's state without actually executing and including the transaction in the batch.
Decentralized Sequencer:
In contrast, decentralized sequencers distribute the task of transaction ordering across multiple nodes.
This not only adheres to the decentralized nature of blockchain but also enhances security. This approach aligns with the decentralized spirit of blockchain.
If the sole sequencer in a single system behaves maliciously, there is no way to punish them. It's important to note that such malicious behavior by a sequencer will be exposed, and no user will trust that network anymore; the likelihood of such behavior is very low because the sequencer would lose its source of income.
In a decentralized sequencer system, sequencers that act maliciously can be punished by other sequencers operating the network. This limits the possibility of malicious behavior by sequencers.
For these reasons, the prevailing opinion in the blockchain industry is that it is necessary to transition from a single sequencer system to a decentralized sequencer system.
Metis - The First Decentralized Sequencer:
On March 14, 2024, Metis became the first Ethereum Layer 2 solution to decentralize its sequencer. This was a significant milestone and a revolutionary change for the entire cryptocurrency industry.
There are some very interesting catalysts that will complete this historic upgrade. These include:
Sequencer Rewards: Sequencer nodes will earn METIS tokens by processing transactions and contributing to block production. More participation means greater security against malicious attacks. It’s a win-win situation!
20% Mining Reward: In the initial phase of the decentralized sequencer launch, all sequencer nodes will enjoy a 20% mining reward rate.
Front-end: Users will be able to closely monitor the decentralized operations of the sequencer through a custom front-end designed by Metis.
Community Engagement: Active participation increases community recognition, opening doors for future collaborations and partnerships. To maximize engagement, there will be a series of initiatives designed to reward active users and stress test the network during the gradual decentralization of the sequencer.
Final Thoughts:
Metis is an Ethereum layer 2 that is leading in decentralization and appears to be the closest to what Vitalik Buterin currently envisions as ideal.
Something that might surprise many is that Natalia Ameline, one of the co-founders of the project, is also Buterin’s mother. This is an interesting fact that inevitably brings greater visibility to the project.
All layer 2 networks are centralized, as they have only one sequencer responsible for ordering transactions to be saved on layer 1.
This is not new; it is a problem widely known by developers even before building an L2, and it is also a consensus among them that it is not feasible to start an L2 by decentralizing the sequencer.
Since the beginning of the project, the Metis team has maintained a focus on decentralization above the average, which is why they are leading the sector.
There is significant narrative potential here because their innovations have introduced a new way to generate revenue through decentralized sequencer pools.
In other words, it is an innovation that helps increase decentralization, network security, and revenue generation and sharing with the community.
Decentralizing the sequencer is an inevitable premise. Imagine this expanding across the entire L2 ecosystem—it is something huge and perpetual!
In summary, Metis might currently be one of the most decentralized L2s and is also capable of pursuing advances in privacy at the protocol level.
By mitigating the risk of a single point of failure, more complex and sensitive sectors in DeFi might prefer to build on or connect with Metis.
There are also other projects developing solutions to decentralize the sequencer, such as Astria, Espresso, Fairblock, Radius, Madara, Taiko, Anoma, among others.
Finally, you can take advantage of the fact that the narrative hasn't heated up yet and delve deeper into research on decentralized sequencers to gain your own insights and conclusions.
Bonus: Since 2023, the team has also been developing a new technology (hybrid rollups), which combines optimistic rollups with zero-knowledge proofs (zkPs), and it is already in an advanced stage of development.
Relevant News:
Macroeconomy:
Cryptocurrencies:
Mt. Gox trustee to start Bitcoin, Bitcoin Cash repayments in July
SEC Sues Consensys, Calls MetaMask an Unregistered Securities Broker
Kraken’s Jesse Powell donates $1M in crypto to Trump campaign
BlackRock: Bitcoin Is A Hedge Against Geopolitical Uncertainty
Disclaimer:
THIS IS NOT A SPONSORED POST!
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