How far can a decentralized sorter go?

Limit of a decentralized sorter

Author: Kyle Liu, Investment Manager at Bing Ventures

Introduction: Sequencer is used to address scalability and performance limitations in the Ethereum network. Its introduction aims to transfer the majority of computational and data storage work to Layer2 by batch processing and sorting on-chain transactions, thereby reducing the burden on the Ethereum main chain. The ceiling of decentralized sequencer lies in the underlying protocols and network environment it relies on. Although decentralized sequencer can improve the security and resilience of the system, there are still some limitations and challenges.

Sequencer is a core component of the Rollup network, responsible for receiving transactions, sorting transactions, executing transactions, and submitting transaction data. If a single sequencer in the network fails or becomes unavailable, the entire network will stop processing transactions. However, many existing Rollup solutions only have a single sequencer, which makes them far less decentralized than some centralized Layer 1 alternatives. Therefore, the importance of decentralized sequencer is self-evident, and potential decentralized sequencer solutions should effectively enhance the decentralization of the system through design and implementation improvements.

Importance of Sequencer

Existing Rollup solutions include ZK Rollup based on zero-knowledge proof (ZK) and Optimistic Rollup based on optimistic execution. These solutions have better designs in terms of scalability compared to monolithic Layer 1 solutions. However, they also have some problems:

Problems with ZK Rollup:

  1. Computational complexity: Using ZK proofs to verify the correctness and legality of transactions requires a large amount of computational resources and time. This may result in transaction processing delays and high computational costs.
  2. Dependency on verifiability: ZK Rollup relies on external verifiability, which requires external supervisors to verify the correctness of ZK proofs. This may introduce trust issues and centralization risks.

Problems with Optimistic Rollup:

  1. Reversibility: Optimistic Rollup adopts optimistic assumptions during transaction execution, assuming that all transactions are valid and conflict-free. However, if there are conflicts or invalid transactions, the entire system may need to be rolled back and re-executed, resulting in uncertainty and processing time delays.
  2. Miner Extractable Value (MEV): Optimistic Rollup may face the issue of MEV, which refers to the abuse of transaction execution order, leading to manipulations of transactions and unfair transaction priorities.

These problems limit the performance and security of existing Rollup solutions and may affect user experience and usability. The key to solving these problems is to improve the performance and decentralization of Rollup through the introduction of new designs such as sequencer. The role of the sequencer is mainly manifested in improving throughput and compressing transaction data. The sequencer can sort the input transactions to improve the efficiency and throughput of transaction processing. By sorting transactions according to certain rules, conflicts and competitions between transactions can be reduced, thereby improving the overall system’s processing capacity. The sequencer can also compress transactions, packaging multiple transactions into a single transaction, thereby reducing the size of transaction data. This compression can reduce the cost of on-chain storage and transmission and improve the overall efficiency of the system.

Issues with Centralized Sorters

Existing Rollup solutions mostly operate their own centralized sorters because it is more convenient and cost-effective. However, the drawbacks of centralized sorters are also evident, including the potential for transaction censorship, excessive fees, prioritized transactions in execution (front-running), or the generation of adverse MEV (maximizing extractable value).

 

Source: Bing Ventures

We believe that the key to solving the problem with centralized sorters is to promote technological innovation and explore decentralized sorter solutions. As mentioned earlier, while current centralized sorters play an important role in improving throughput and performance, we should actively seek more secure, censorship-resistant, and decentralized alternatives. These solutions may require trade-offs between security, performance, and decentralization, and there are difficulties in their design and implementation, but they are expected to address the issues currently faced by centralized sorters.

 

The Road to Decentralization

Currently, the technology of decentralized sorters is still in need of improvement, and possible directions include more efficient sorting algorithms, more efficient validation mechanisms, and more intelligent sorter designs. Below, we summarize some routes that we believe are beneficial attempts to take. Undoubtedly, over time, the technology of decentralized sorters will continue to improve and evolve. This may include higher throughput, faster confirmation speeds, lower latency, as well as increased security and composability.

  1. Proof of Authority (PoA): This scheme authorizes a group of entities to take turns as sorters in a PoA system. It can effectively improve censorship resistance and has the lowest latency, but there is still a risk of single point failures.
  2. Based on Rollups: This scheme allows anyone to submit L2 batches to the Data Availability layer (DA), which then determines the final block (proposer). Its advantages are inheriting the liveliness and censorship resistance of the DA layer, but it may leak profits, be affected by MEV, and have slower confirmation speeds.
  3. Decentralized Verifier Technology (DVT): This scheme assigns sorting responsibilities to a cluster, where each node in the cluster signs independent proofs using a portion of their validator key. This scheme is flexible and can be used in conjunction with other solutions, but it adds some latency.
  4. Shared Sorter: This scheme allows multiple Rollups to enter a shared sorter, which can process transactions on both Chain A and Chain B simultaneously and provide strong economic security and real-time censorship resistance to the sorting layer. The shared sorter has the network effect of multiple chains but is still limited by L1 data and transaction sorting throughput.
  5. Establishing a New Set of Sorters: This scheme creates a decentralized sorter group without permission using a token incentive mechanism. Its advantage is increasing the utility of tokens, but there may be delays and implementation barriers for less well-known Rollups.

Although decentralized sorters have many advantages, current solutions have their own trade-offs.

 

Source: Bing Ventures

Potential Opportunities

Now let’s step back and ask: can decentralized sorters solve Ethereum’s problems once and for all? Have they already buried some hidden dangers for Ethereum in some places?

First of all, for decentralized sorter solutions that rely on underlying blockchain protocols (L1), their performance and scalability are naturally limited by the L1 protocols themselves. If there are bottlenecks in transaction processing and consensus in the underlying protocol, even if the sorter has high decentralization and responsiveness, the performance of the entire system will be limited.

Secondly, the impact of network environment on decentralized sorters is also an important consideration. The synchronicity and stability of the network directly affect the activity and security of the sorter. In an asynchronous network, the sorter loses activity, that is, it cannot process transactions in a timely manner. In a network with strong synchronicity, the sorter can maintain an active state more reliably.

So, this also means that with the development of decentralized sorters, the associated infrastructure will become potential investment opportunities. This includes technology providers that offer sorter services, security audit companies, cross-chain solution providers, governance and participation platforms, and more. These infrastructures are expected to address the issues we mentioned. It should be emphasized that decentralized sorters are one solution explored by the Ethereum community to improve system performance and scalability, but not the only solution. In the future, other technologies and improvements will be introduced to further enhance the performance of the Ethereum network:

  1. Multi-chain Interoperability: With the emergence of various blockchains and Layer 2 solutions, multi-chain interoperability will become an important aspect of decentralized sorters. Future sorters may need to be able to process transactions on multiple chains simultaneously and achieve atomic composability to provide a smoother user experience and more powerful functionality.
  2. Preventing MEV and Enhancing User Protection: Future sorters may take measures to reduce the impact of MEV and provide better user protection mechanisms. This may include adopting random sorting mechanisms, reasonable transaction fee mechanisms, and better privacy protection measures.
  3. Enhanced Governance and Participation Mechanisms: To ensure the fairness and security of decentralized sorters, future sorters may introduce stronger governance and participation mechanisms. This can be achieved through token holders’ voting, validators’ elections, and participants’ decentralized decision-making. More open and transparent governance mechanisms can promote community participation and drive system development.

In summary, as decentralized sorters continue to develop, we expect to see more business model innovations. This may include different transaction fee models, sorter-based data services, and on-chain applications, among others. Innovative business models will provide more economic incentives for sorters, thereby promoting their widespread adoption and sustainable development.

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