Do Based Rollups Solve Everything? | Justin Drake

What exactly are Based Rollups? We’ve brought Ethereum Researcher and Bankless recurring guest, Justin Drake, to give us his reasoning on why he thinks the future of Ethereum is Based. A handful of teams are already working on this Based Rollup future so, with this episode, and perhaps a few more, we’re front running it all and getting you downloaded on all things Based Rollups. Enjoy! ------ 🎬 DEBRIEF | Ryan & David Unpacking the Episode: https://www.bankless.com/debrief-justin-drake-based-rollups 🌋 JOIN US AT THE BANKLESS SUMMIT https://lu.ma/0bpju5ic?tk=1oUc7Q 📣GET YOUR ALL-ACCESS PASS TO THE PODCAST https://bankless.cc/podshownotes ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⚡️CARTESI | LINUX-POWERED ROLLUPS https://bankless.cc/CartesiGovernance ⁠ ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/88?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E ------ TIMESTAMPS 0:00 Intro 5:51 How’s the Roadmap Going? 12:34 The Most Logical Progression 16:53 Aggregating DeFi Apps 23:43 What Based Rollups Solve 44:01 Ethereum as the Sequencer 49:59 Based Rollups Core Advantages 58:39 Shared Sequencers vs Based Rollups 1:10:37 Based Rollups & Superchain 1:26:48 Ethereum L1 Capacity 1:33:49 Impact on ETH Economics 1:35:00 Impact on DeFi 1:37:48 Impact on User Experience 1:42:04 ETH Value Accrual 1:53:59 Trade-Offs 1:59:17 Bankless Summit 2:01:26 Closing & Disclaimers ------ RESOURCES Justin Drake https://x.com/drakefjustin Based Rollups https://ethresear.ch/t/based-rollups-superpowers-from-l1-sequencing/15016 ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  From my perspective, like, once you appreciate base sequencing and your base build, there's no going back.

• 0:09Speaker 00

  I haven't, I don't know of a single person who has gone the other direction. It's kind of up only, up to the right in terms of the converts.

• 0:22David Hoffman?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. And today on Bankless, we explore the frontier of based rollups. Today on the show, we have Ethereum researcher Justin Drake to give us the reasoning why he thinks the future of Ethereum is based. So what are based rollups? How do they differ from normal rollups? Why the Ethereum Layer 1 is the best sequencer for Ethereum's Layer 2 rollups? How does it fix Ethereum's fragmentation? And what does this all mean for Ether, the asset? There's already a handful of teams publicly working on the based rollups future, Tyco, Puffer, Spire, but also Justin alludes to at least a few of Ethereum's biggest rollups already planning to go based in the not-so-distant future.

• 1:03David Hoffman?

  So with this episode today, and perhaps a few more soon, we are front-running all of that by getting you downloaded on based rollups. So when Ethereum inevitably does go based, you'll have already seen it coming.

• 1:15Ryan Sean Adams?

  I think both David and I, you'll find in this episode, are very bullish on the concept of based rollups because it really solves a lot of the challenges that Ethereum is facing with its current rollup-centric roadmap. So this is the most comprehensive episode I think we've ever done on based rollups. And Justin, toward the end, said that he thinks that based rollups have really reached escape velocity. I know some people listening to that are like, "What? They just came on the scene." But realize, a lot of work has been going on behind the scenes to sort of like propagate the idea and design architecture for based rollups. I think it's getting ready to take off. So this is maybe a few months in advance of front-running, but 2025 could be a big year for based rollups. David, I want to talk to you about all of that in the debrief that we do right after this episode.

• 1:59Ryan Sean Adams?

  If you are a Bankless citizen, you're on Bankless Premium. That is an extra podcast, no commercials. It's got the bonus content David and I put in every single week. You have that in your feed. That's the rule. That's the episode that we're about to record where we give our thoughts on the episode. It's called the debrief. So go check that out as well.

• 2:16David Hoffman?

  Speaking of extra content, Justin is giving a talk at the Bankless Summit. So if you are going to DevCon and want to hear Justin talk, the Bankless Summit is happening the day after DevCon. It's like TED Talks for Ethereum. I've hand-selected some of the best speakers in Ethereum and charged them with the responsibility of producing the most interesting talk possible. I asked Justin if he could leak anything about his talk at the end of the episode. He doesn't give me too much, but he did say in a chat that it's painfully bullish. So I'm excited to see what all of that means. So let's go ahead and get right into this episode, all about base roles with Justin Drake. But first, a moment to talk about some of these fantastic sponsors that make the show possible, especially Kraken, our preferred exchange for crypto in 2024. If you do not have an account with Kraken,

• 3:00David Hoffman?

  consider clicking the links in the show notes, getting started with Kraken today. If you want a crypto trading experience backed by world-class security and award-winning support teams, then head over to Kraken, one of the longest-standing and most-secure crypto platforms in the world. Kraken is on a journey to build a more accessible, inclusive, and fair financial system, making it simple and secure for everyone, everywhere, to trade crypto. Kraken's intuitive trading tools are designed to grow with you, empowering you to make your first or your hundredth trade in just a few clicks. And there's an award-winning client support team available 24/7 to help you along the way, along with a whole range of educational guides, articles, and videos. With products and features like Kraken Pro and Kraken NFT Marketplace and a seamless app to bring it all together, it's really the perfect place to get

• 3:42David Hoffman?

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• 4:24David Hoffman?

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• 5:09David Hoffman?

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• 5:33David Hoffman?

  Bankless Nation, we are once again here with Justin Drake, which means that we are going to learn something today. Justin Drake, of course, is a reacher at the Ethereum Foundation. He has taught us many things on the Bankless Podcast, and today, we are hoping to learn about based rollups. Justin, welcome back to Bankless.

• 5:49Speaker 00

  Hi, David and Ryan. Thanks for having me.

• 5:51David Hoffman?

  So, before we get into the idea of base rollups, first, talking about rollups generally, how would you say the rollup-centric roadmap is going? The Ethereum effort defined and then moved towards the rollup-centric roadmap in 2019, so five years ago. Five years later, how would you evaluate our progress, our direction, in the vision that Ethereum set out for itself in 2019?

• 6:14Speaker 00

  Yeah, I think we're doing exceptionally well on certain dimensions. One of them is that there is a lot of experimentation and a lot of teams that have taken it to build an L2 or rollup of Validium. Another thing that I'd say we've been successful at is dramatically reducing the fees. And so, in some sense, scaling feels like a solved problem. We have a whole roadmap to increase the amount of block space, and we've seen tremendous progress with the fraud proofs and with the validity proofs. And so, from the perspective of scaling and having relatively secure rollups, I feel like we're doing exceptionally well.

• 6:57Speaker 00

  What I think that we're starting to transition into is basically the interrupt phase of the rollup-centric roadmap.

• 7:05Speaker 00

  Where we realize, we acknowledge that we have a fragmentation problem. We have a silo, siloism problem. And we'd like to bring back some of the network effects that previously existed at layer one and that we have lost. The network effects at layer one were unsustainable because we had anti-network effects, namely transaction fees, right? It's not sustainable to have a hundred dollar transaction fee. And that's something that we've solved. But now we have another anti-network effects, which arguably I'd say is decentralized sequencers, which prevent this, this optimal form of, of composability, which is, which I call synchronous composability.

• 7:51Ryan Sean Adams?

  When you say network effects, Justin, what do you mean by network effects? And why are they important?

• 7:56Speaker 00

  So network effects is basically when you have a network and every additional node brings in more synergies than just its raw weight. So you can think of it as just one plus one equals three. You have positive sum games, you have win-win situations. And one example of, of network effect would be, you know, shared liquidity. Every rollup kind of adds to the liquidity pool. And now Ethereum as a whole can become this, this DeFi hub with a best-in-class execution and whatnot. But right now, we're in a position where liquidity is fragmented. And so that particular network effect has started to break down a little bit.

• 8:40Ryan Sean Adams?

  So David asked the question, like, how, how's the rollup-centric roadmap going? And, and you talked about some of its strengths. You also mentioned toward the end, some of its, you know, weaknesses, maybe short term or, or medium term or long term. I'm, I'm not sure what your perspective is. But could we dwell a bit more on some of the, I guess, you know, like trade-offs or some of the, the weak points, some of the areas that Ethereum needs to, to figure out? So one is fragmentation, maybe, and a loss of some network effect. Are there any others that, that pop into mind here?

• 9:10Speaker 00

  Associated with the defragmentation, there's a little bit also of memetic confusion and also a loss of unity maybe at the social layer. There's competitive forces, there's maybe unaligned incentives and things like that, but nothing that fundamentally cannot be solved. So I remain optimistic. And interoperability is a big word under which there's lots of many different constituent parts. So one of the low-hanging fruit, for example, is just having basic shared standards at the wallet level, the equivalent of ERC20,

• 9:50Speaker 00

  but in a cross-roll-up model. The idea of having shared governance, this is something that's being experimented on, shared sequencing, shared snark aggregation, shared data compression and blob packing, shared deposits, the idea of having shared fungibility. All of these things are being worked on in parallel. And directionally, we're making tremendous progress towards fixing this fragmentation.

• 10:20Ryan Sean Adams?

  When you say memetic confusion at the social layer, a few things that come to mind for me, and I just want to sort of name them explicitly to make sure we get our problem statement right on the social layer side of things. Like, one memetic confusion area to me seems to be this idea that L2s are parasitic. Well, are they parasitic? That's one area of question, which didn't exist prior to the rollup-centric roadmap. There was only one Ethereum shared state. So it's very obvious that every app that deployed on Ethereum was net good for Ethereum. The social layer, it's sort of hands clap, cheer it on. So maybe that's one area. Another area of memetic confusion, I would say, is

• 11:01Ryan Sean Adams?

  around Ether, the asset. And this question of, okay, what are the value accrual mechanisms of Ether in this rollup-centric world? We've seen fee revenue go down, at least in the short term, post Proto Dank sharding and the deployment there. And so now there's a question of, well, What about this ultrasound money thing? You know, there's not as much fee burn at the base layer for Ether the asset. So these are two areas of memetic confusion that I've seen. This idea that L2s are parasitic, this idea that there's no value accrual from a cash flow statement for Ether the asset. Is that what you were explicitly referring to when you said memetic confusion? Or if not that, what else?

• 11:44Speaker 00

  So I think you summarized the perspective very well of the ETH holder, who's a little confused, but there's other entities that are also confused. As a developer, you know, I used to, you know, have it very, very easy for me. I knew that launching on Ethereum just meant deploying on layer one. But now I have to choose across a whole ecosystem and it's a little bit more confusing. And similar thing as a user. Now I make, I need to make an explicit choice as to which ecosystem I need to, to put my assets on. And then, you know, there's like 20 different flavors of Ether with every single deployment of a rollup.

• 12:24Speaker 00

  So I think we're, we're in a position of max awkwardness in the puberty phase. And hopefully from now onwards, it's downhill.

• 12:34David Hoffman?

  I want to zoom out a little bit and kind of look at the progress of Ethereum in a sense of order of operations. We once upon a time had the very close knit nucleus of the Ethereum layer one. And in 2019, after we kind of solved Plasma, which turned into rollups with this idea of fraud proofs, we had these rollup teams that extended outwards from Ethereum, like these, just like, you know, these vertical integrations, these, these things that would grow away from the Ethereum layer one. You know, Optimism, Arbitrum, Polygon, all of these networks that would scale, scale away, like you would move your assets from the Ethereum layer one, you know, away to these, to these layer twos. And this is what would create the fragmentation.

• 13:16David Hoffman?

  And now that you illustrate us in being in the interoperability phase of the rollup centric roadmap. Now it's like we're filling in the space that has been created as these rollups have extended outwards from Ethereum.

• 13:30David Hoffman?

  There's, I think there's an order of operations, right? Like first, we needed to create the fragmentation problem before we could actually solve the fragmentation problem. I don't, I don't know if like we could have even gone back in time in the Ethereum roadmap and tried to solve this fragmentation problem before, before it was even created. Maybe you can kind of just talk about the, the benefits of the fact that we first created all of these different rollups. And now we're kind of just like filling in the gap. How, how do you feel about the order of operations of, of how Ethereum progress has gone?

• 14:02Speaker 00

  Yeah, I very much agree with you that it's a, it's a logical progression. I mean, there could have been alternative paths and alternative ways for, for Ethereum to tackle things. One way would have been to go down the, the Solana route. Obviously, you know, we don't want to be taking these kinds of, of shortcuts. Another thing that we could have done is to scale Ethereum layer one using basically randomly sampled committees, which you can think of as, as sharding. And so here, the, the safety of each shard is not done through fault proofs or through validity proofs. It's done through naive re-execution from, from committees.

• 14:47Speaker 00

  I guess what we did is that we took a very pure path where we said that we don't like honest majority assumptions. And we know how to do these things without an honest majority assumption. And so we kind of opened it up to, to, to the broader market to build these rollups that are, in some sense fundamentally, fundamentally more robust because they only rely on, on pure cryptography or, you know, these, these crypto connect games which are fault proofs. Reflecting on the past and, you know, the different, the different strategy that we could have taken. I guess one advantage of this, this, this sharding approach that we didn't take would have been that we, we would have had more homogeneity across the, the different rollups.

• 15:30Speaker 00

  But the downside is that we would have had way, way less experimentation. And I'm actually quite pleased that we don't go down the sharding routes because there's a new way to do execution sharding, which is so, so much more powerful. So first of all, it uses Snarks ZK rollups to give us to remove the honest majority assumption that we knew how to do, but now the technology has caught up that we have line of sight towards having that at layer one. But the other interesting aspect is that we can take this ZK EVM and create a pre-compile within the EVM to programmatically deploy instances of the EVM.

• 16:15Speaker 00

  So with the vision that I that I described that we didn't go down, we would have had a fixed number of shards, so you know, something like 64 or 1,024. And that is kind of an awkward position to be. It's just an artificial number that we had to pick. Whereas with this pre-compile, we can have as many as we want. And then the other aspect of programmability is that we allow room for creativity. So we can, for example, have ZK EVMs with different sequences, with different governance tokens, with different fee mechanisms. Everything around the virtual machine is fully programmable.

• 16:53David Hoffman?

  I'm wondering, Justin, if you have an opinion on the following question. In addition to kind of fragment fragmenting the Ethereum network, because we have all of these different rollups, we've also kind of fragmented DeFi apps, right? There's many different implementations of Uniswap across all these different networks. There's many different implementations of Aave across all of these different networks. And DeFi is something that is strictly better when everything is kind of contained in the same environment. Composeability and liquidity capital, it's just more efficient, in fact, when everything is in the same spot. So in a future of Ethereum that we're hoping for, do you see that there are fewer implementations of these Aves, Uniswaps, of these applications?

• 17:37David Hoffman?

  And is that kind of something that we should be striving for or hope to be striving for? Is that like a success scenario when maybe instead of like 27 different implementations of Uniswap across all of these different chains, there's actually just like, maybe just one, maybe there's just one implementation of Uniswap where all the liquidity has aggregated? Maybe there's just one major implementation of Aave? Is that a goal? Is that something to aspire to? Or is that maybe something too prescriptive?

• 18:04Speaker 00

  I mean, I'm personally a believer of the app chain thesis. And I think it does make sense. Once the barrier to entry to deploying an app chain is low enough that there is one unit chain, one avatar chain, et cetera, et cetera. The issue that we have right now is that each individual app chain comes with overhead. So for example, if it's a ZK app chain, each one of these ZK app chains need to verify a ZK proof. And if you have a thousand ZK app chains, then you need to verify a thousand proofs every once in a while. And that's just very, very expensive. So we need infrastructure to, for example, aggregate the snark proof. So you have one snark proof to verify a thousand app chains. And it's a similar thing with the blobs.

• 18:49Speaker 00

  The blobs are like fairly large chunks of data. And it's possible that a single app chain only consumes a part of it, let's say one quarter. And so you want to take all of these different app chains and like do the blob packing together. So you have optimal utilization of of resources.

• 19:08Speaker 00

  A similar thing to blob packing is this idea of data compression. The more data that you're compressing, the better the compression ratio. And so what's happening right now is that each individual rollup is doing its own little isolated compression. When really what we should be doing, and this is a, you know, a network effect. It's a win win thing where we take all of the data across all of the rollups, all of the app chains. And we do one fell swoop data compression.

• 19:33Ryan Sean Adams?

  Justin, you were talking earlier about, you know, like you're, you're happy, you're satisfied that we took the rollup centric roadmap because ZK has made precompiles on the L1 possible. And so we have more potential for like rolling out ZK based like VMs and incorporating that into the layer one. I want to isolate that for our conversation because I don't think that is the base rollup conversation. Right? This is something that we're talking about in the medium to long term future and is something that is tangential to base rollups. Am I correct in that?

• 20:10Speaker 00

  That's exactly right. It is orthogonal to base rollups and it's called native rollups. So when you look at an L2, there's three different important criteria. Criteria number one is the data aspect. Do you put data on-chain or do you put it off-chain? The former is called a rollup. The latter is called a validator. And then the other layer you can look at is the sequencing layer. Like, how is the ordering of transactions done? And here you have base rollups, which use the L1 for sequencing, and you have non-base rollups that don't use the L1 for sequencing. And then the final aspect is the virtual machine, the execution.

• 20:53Speaker 00

  If you are exactly EVM equivalent, because you're using this precompile, which is basically Ethereum exposing the EVM to the application layer with this precompile, then you are a native rollup as opposed to being a custom rollup with a different virtual machine than the exact copy of the EVM.

• 21:14Ryan Sean Adams?

  I mean, we should do an entire episode, a separate episode at some point in the future, probably on native rollups, because it sounds like that is kind of the, almost the final evolution of bringing some of this execution back to the layer-one validators. The reason we're not talking about it for the bulk of today's podcast is because it's a more distant future, right? Think of that as the medium to long term. Whereas base rollups, my understanding, Justin, that's the here and now. Like, we're ready for base rollups essentially at this moment. This is not a distant roadmap sort of EIP in the future that we're going to incorporate in some hard fork, though there might be some upgrades necessary to fully optimize based rollups. But is it right to think of base rollups as maybe the next evolution of rollups in some sense?

• 21:59Ryan Sean Adams?

  But the final evolution of rollups, and I don't even know if this is the end game, but maybe I'll just say the end game for rollups is native rollup technology? Is that how you think about it?

• 22:09Speaker 00

  Yeah, so the very nice thing about base rollups is that they don't require a hard fork. And so you have dozens of teams now that are racing to go build all the infrastructure and deploy them. To say that they're like ready for prime time might be a little bit of an exaggeration in the sense that we only have like one base rollup in production at Tyco. And you know, there's adjacent infrastructure that is being built out. But I do agree with you that the progress in base rollups is definitely happening. And I think 2025 and 2026 should be like very big years for base sequencing. As for native rollups, in order to get to that very exciting endgame,

• 22:52Speaker 00

  we need ZK EVMs, but not only that, we need realtime proven ZK EVMs. And the good news is that we're definitely getting there. We know in theory how to parallelize snark proving, so that you can get the latency down effectively as low as you want. And historically, we've had snarkification of the EVM where a single block would take multiple hours, tens of hours. And then it got down to single-digit hours and then tens of minutes, single-digit minutes. And now we're at a point where it takes tens of seconds to prove a Layer 1 EVM block. And I wouldn't be surprised if in 2025,

• 23:37Speaker 00

  we have like single-digit seconds proving latency for the Layer 1 EVM.

• 23:43Ryan Sean Adams?

  Oh, very exciting. You can expect Bankless Nation, like a future episode, I'm sure on native rollups when that it comes closer to fruition. But now let's get to maybe the main episode topic and the bulk of where we want to spend our time. Because all of what we just said is sort of a context. It's a preamble. And maybe to your point, Justin, we are not ready for primetime for based rollups. But let's maybe call this the dawn of based rollups, because we are off zero. We have at least one deployed in production. And you think, and I think we share this belief, that 2025 is going to be a big year for these things we call based rollups. I feel somewhat that we should start with a definition. But before we get there, I just want to say the promise of based rollups.

• 24:27Ryan Sean Adams?

  There's somebody on Twitter who made the comment that, hey, if we had based rollups when we started rolling out the rollup-centric roadmap in 2020, 2021, then we wouldn't have the fragmentation problems or value accrual questions that you were mentioning, these memetic problems in the social era. If we just started with based rollups. And it's almost like, it's a shame we couldn't just start with based rollups to begin with, because the promise of these things, as far as I understand. And this is again, the memetic narrative that we'll have to dig into the validity of this, that it solves fragmentation, you have shared liquidity across all of the base rollups, and indeed also with the layer one. So isn't that nice? We don't have the fragmentation problem. And two, it also solves the value accrual problem to ETH,

• 25:12Ryan Sean Adams?

  because we are using the validators as the sequencers. And so we get to preserve some of the security around censorship resistance at a deeper level than maybe a traditional rollup. And also ETH validators get some fees from this transaction, a greater share of the fees from this transaction. So if we just say those words, it almost sounds like, oh, base rollup solves everything. And so coming into the episode, can we title this episode? Base rollups solve everything, Justin? Give us a definition for base rollups and tell us the promise here.

• 25:44Speaker 00

  So just to set expectations, base rollups don't solve everything. They do try and tackle like one specifically of the stack, which is the sequencing layer.

• 25:56Speaker 00

  And basically, when you build a rollup, you have a choice as to what is the sequencing mechanism? Who are the actors who will determine the order of transactions? Now, since the dawn of blockchains, Bitcoin 15 years ago, we've had essentially just one thing, which is called base sequencing, where the L1 is doing the sequencing, the validators, the consented participants, whether it's miners, whether it's validators, all doing the sequencing. And if you look at every other blockchain, whether it's Solana, BNB, Tezos, XRP, you name it, they all have base sequencing.

• 26:38Speaker 00

  And for the vast majority of the existence of Ethereum, everything was just base sequence. That is the natural, normal, default, canonical way of doing sequencing. But then something happened a few years ago, where we saw the emergence of these centralized sequencers, specifically in the context of the rollup-centric roadmap. And I think I attribute it to three or four different reasons, extremely pragmatic reasons for those different rollups.

• 27:15Speaker 00

  One of them is that they could launch extremely quickly. And it was a very, very straightforward as to what needed to be done. Just spin up a server and that server is responsible for all of the sequencing. But there's other things that that centralized sequencers provide. One of them is that they are a training wheel for security. So a lot of the virtual machines of the rollups are secured by fraud proofs or validity proofs. And these are extremely complex pieces of of code, you know, potentially thousands and thousands of lines of code. And it just takes one critical bug to jeopardize the whole rollup.

• 28:00Speaker 00

  So you could imagine like draining all of Arbitrum in one fell swoop. That would be absolutely terrible. And so what the rollups sequences are doing is making sure that the blocks that that end up being produced are created using your default software as opposed to software that is specifically crafted to go exploit a vulnerability. Right. And so as a black hat, even if I identify a bug in, for example, the Arbitrum fraud proof, I'm not able to exploit it because I'm not able to convince the shared sequencer to go build a block that will go exploit this bug. The other aspect, you have a service, I guess you could say,

• 28:42Speaker 00

  that centralized sequences provide is MEV protection for for users. So traditionally, you'd send your transaction in a public mempool. You gossip it and now you're exposed to front running and sandwiching. And that's that's a terrible user experience. With centralized sequencers, wallets can directly connect to the centralized sequencer. It's an end to end encrypted connection. So the only entity that is able to see the transactions before they land on chain is the centralized sequencer. And that entity is kind of trusted to not front run and not sandwiched their users. And so that leads to a great user experience. And then another final service that the centralized sequencers provide.

• 29:29Speaker 00

  Is that of preconfirmations or extremely low latency user experience, you know, on the order of either two seconds for the the super the superchain, or even much faster in the context of Arbitrum on the order of 250 milliseconds. And you can think of the centralized sequencer as being a cheat code, as, you know, taking some sort of a massive shortcut, which is, you know, very strategically meaningful to do because it's very pragmatic, but it's not long term sustainable. And there's all sorts of reasons for that. One is that it's not credibly neutral, and we'll talk about that.

• 30:12Speaker 00

  And that means that it makes it very, very difficult to convince, you know, your competitors to join forces in in shared sequencing. Like, would, you know, the optimism superchain want to share a sequencer with, you know, the off-chain labs and Arbitrum? It's very, very difficult to pick one server for all of Ethereum. Another issue is that it is a regulatory central point of failure. And it's also a vector for accidental liveness failures. This is something that we've seen in the past where rollups just randomly go offline for for sometimes several hours.

• 30:57Speaker 00

  And, you know, that is not what we want to base the the future of finance on. And then finally, there's a very, very big, you know, trust component to centralized sequences. We haven't seen it yet, but we could imagine, for example, a centralized sequencer getting hacked and then, you know, millions of dollars of front running happening because the the centralized sequencer has been has been compromised. And then another aspect is that because centralized sequencing fundamentally leverages trust as the technology, it's unscalable. And so if I'm a random Joe, you know, I'm a 16 year old, you know, programmer in my mom's basement and I want to go deploy a rollup,

• 31:40Speaker 00

  well, I don't have any trust and so I can't go spin up my own centralized sequencer. And so I think what the ecosystem has realized is that really we want to go down this route of decentralized sequencing. That is the, I guess, the end game, the proper way of doing things, the long-term sustainable path. But not only that, we also want shared sequencing. And this goes back to this idea of network effects and universal synchronous composability. In order to achieve this shared sequencing in an Ethereum-wide capacity, you know, going above and beyond the clusters that are being formed with Arbitrum Orbit

• 32:25Speaker 00

  and the Superchain and the ZK Sync Elastic Chain, we need credible neutrality. And so I think we're going to spend a lot of time in the rest of the episode talking about one thing, credible neutrality.

• 32:38David Hoffman?

  I want to keep on unpacking the sequencing thing because I think you alluded when we asked, what's the definition of a base rollup? You alluded to the fact that like, well, rollups, base rollups are the same as all other rollups except for this one thing that's different, which is how we sequence things. That is, that is the difference between base rollups and like Arbitrum optimism, is that it's only the sequencing layer, which is critically different in a base rollup versus the rollups that we know today. But I do want to put a pin on the typical rollups and how they sequence things, the centralized sequencer. Because I think in the crypto industry, we are all kind of like allergic to this word centralization and sometimes overly so. Decentralization, that's not decentralized, that's not decentralized. Sometimes it's used as like a cudgel in ways that it shouldn't

• 33:23David Hoffman?

  be. Leaning into like what Ethereum does and what Ethereum provides its rollups, the whole point of the rollup-centric roadmap is that we can actually have centralized layer twos because of the checks and balances that the layer one provides its layer two. So like the layer twos are in a state of can't be evil, even when they have centralized components. And that's actually has been articulated in the Ethereum rollup-centric roadmap, that that's actually a strength of rollups in their current form. Like Arbitrum can be allowed to have a centralized sequencer. And lean into the properties of a centralized sequencer because of the checks and balances that's provided by the Ethereum Layer One.

• 34:04David Hoffman?

  So even with the centralization of the sequencer for Optimism, Arbitrum base, whatever, there's only so much evil that can really be done here because of what the Ethereum Layer One provides. But maybe you're saying that even if that is true, we have still kind of tapped out the juice there is to squeeze on the end of the spectrum of there being centralized sequencers. So we've leaned into the benefits of centralized sequencers as far as we can, and we've hit the limits of the growth of the rollup-centric roadmap because Arbitrum as a centralized sequencer, Optimism as a centralized sequencer, that is the state of play here. And now, in order to get the next 10x of scale, we need to actually go to the other end of

• 34:47David Hoffman?

  the spectrum, which is the decentralized sequencer, which is where we return to credible neutrality and refragmentation. Would you agree with that kind of description of events?

• 34:56Speaker 00

  Yes, I would agree. I mean, one way to phrase it is that rollups significantly reduce the potential downside. We should be in a position where user funds are safe. And so, security is a huge part of being a rollup. And in some sense, that is what happens first before you can think of anything else. And if you look at the criteria of Layer 2 beats, there's the Stage 0 rollup, Stage 1, Stage 2. Essentially, it's all about security, just making sure that if I have an asset on a rollup, we can't have some operator that just steals these assets from me, we can't have some sort of security committee that steals them, or we can't have these assets be frozen.

• 35:41Speaker 00

  I always have the option to force a transaction on-chain to, at the very least, withdraw my assets. And that is table stakes. But I think, once we've all reached Stage 2, and we have these ultra-secure rollups, there's going to be a first for more. And really, we want strong network effects, like Ethereum-wide network effects. And so, yes, we have dramatically capped the downside, but we've also dramatically capped the upside.

• 36:14David Hoffman?

  And so just to maybe illustrate for listeners here, we have the centralized sequencer paradigm of the layer twos today, the one of one sequencers where we get, we get all the scale, we get the MEV protection, we've got a bunch of nice things. Would you say that base rollups are on the opposite end of that spectrum? Where you have a single centralized sequencer on one end, but then base rollups use Ethereum as a sequencer, we're going to get into that. But base rollups are kind of like, basically on the farthest other end of the same spectrum of the decentralization of sequencing. Would you agree that they're kind of like as far apart on that spectrum as possible?

• 36:51Speaker 00

  Yes, that's exactly right. And in some sense, you know, the two ends of the spectrum meet and then you can go full circle. So as I mentioned, you know, we started with base sequencing. That was the only thing available for 10 years of blockchains. And then we went down this path of centralized sequencers. And I think what's going to happen is that we're going to incrementally move towards decentralization. And the kind of steps that are possible is one, what I call a federated sequencer. So you have a multi-sig instead of trusting a single entity. And this is what Arbitrum is looking to do fairly soon. They have a 14 out of 20 multi-sig and they're going down this path of a federated sequencer.

• 37:33Speaker 00

  The path after that is basically a permissionless and decentralized sequencer where anyone, for example, by locking some stake can become a sequencer at some of the slots. So you have random selection across a permissionless set of consensus participants. And I believe, but I'm not 100% sure, that the ZK sync is going down that path. And so kind of they're skipping the federated state and going directly for decentralized sequencer. And then there's some rollups out there that say, okay, we're going to go straight for the end game and we're going to go back to base sequencing.

• 38:11Ryan Sean Adams?

  Oh, interesting. Okay, so there's different stages of decentralizing your sequencer that you can get to, the federated and then the permissionless and then all the way to the end we'll be talking about, which is based rollups. And some rollups may just kind of like go all the way to the end. I want to set some more context for this because every time we've said centralized sequencer or decentralized sequencing, you know, listeners might be asking a question, okay, like, refresh me again, what are we sequencing here? And what we're sequencing is the ordering of block transactions, right? So it's like, that, as we've illustrated in many former Bankless podcasts, is incredibly important. It's kind of a godlike power that gives you like abilities to say, front run, you know,

• 38:55Ryan Sean Adams?

  sandwich attack, all sorts of things. It is one of the things that those that are consuming block space actually pay for. So the sequencing, the ordering of transactions in a given block is a very important power. And that's why we're talking about, you know, decentralizing it rather than keeping it centralized. But you illustrated another point in what you were saying, Justin, was none of this was sort of like, rollups wanting to be evil. You know, we want to get our cut, we want to, you know, extract rent from users, therefore, we're going to centralize the sequencer. And some of that framing is out there, I would say, on the memetic level, that, you know, like, all rollups are doing this because they're greedy and evil assholes, or something like this. And like, what you're

• 39:37Ryan Sean Adams?

  talking about is, no, actually, there's incredibly good reasons for this. From a user experience perspective, from a security perspective, from a latency perspective, in order to be competitive and make this whole crypto thing useful, there's very good reasons to centralize the sequencer. So you're like, you're kind of putting that framing out there. One thing that's become clear to me, I think is clear to me, and I want to get you to verify, with the, like, rollups that we have today with some level of centralized sequencers, even if we get those to stage two, which, by the way, stage two does not mean decentralizing the sequencer necessarily, it's my understanding. So you can still be stage two as a rollup and still have a centralized sequencer.

• 40:21Ryan Sean Adams?

  What you get from that is protection against for user protection against the cannot steal mandate. So a rollup can never just like yoink your assets, can't steal your assets. They can't sandbank and freed you. They can't go FTX. They can't Alex Mashinsky, you know, all of your ETH, all right? So that's great. And that's something we've preserved. My understanding, though, Justin, correct me if I'm wrong, is in a stage two rollup with a centralized sequencer, we may not have preserved another virtue that we have on the layer one, which is a real-time censorship resistance. So let's say you want a transaction that is, you know, credibly neutral. And so let's say it's sanctioned by some third-party

• 41:04Ryan Sean Adams?

  nation state and you want to preserve the censorship resistance of that transaction. Well, I believe some stage two rollups have kind of a forced inclusion where you can kind of like after the fact, like push that transaction in. But it's not like as real time as the Ethereum layer one. And so even in a stage two rollup with a centralized sequencer, if they, you know, blacklist some set of transactions, which they may have to do based on their jurisdiction and whatever, you know, regulatory regime they fall under, they may legally be obligated to do this. You kind of lose that property that's inherent on the layer one, which is like more real-time censorship resistance. This is something I believe I've learned over the past, you know, kind of set of months

• 41:49Ryan Sean Adams?

  in going through this as kind of a degraded capability as opposed to the layer one. So we preserve the cannot steal, but we may not have preserved the cannot censor, at least in a real-time fashion. Can you fact check me? Is that is that kind of true with a stage two centralized rollup? Centralized sequence rollup, I should say?

• 42:09Speaker 00

  Yes, that is correct. So you could even imagine like an extreme example, a Wells Fargo chain, which is only sequencing transactions from nine to five and is closed on the weekends.

• 42:24Speaker 00

  And is filtering OFIC transactions. That is technically, you could still have a Wells Fargo chain, which is at stage two. And really, because you know, there could be a very long delay between you initiating a forced transaction and the forced transaction actually landing on the chain. It would be useless to you. Like if you want to make a payment, you know, you'll pay for coffee. It would take 24 hours. That would just not be workable. And so your only option, if you're being censored, or if you just happen to want to make a transaction on a weekend, in some sense, is just to withdraw and exit completely. Like the chain is not useful to you if you are actively being censored.

• 43:06Speaker 00

  And that is, you know, it's pretty good, but I think we can do so, so much better so that we can make sure that the short term censorship resistance, the short term liveness is as good as the Ethereum layer one. But in practice, what I think we've observed is that, you know, the liveness is actually pretty good. And again, as you said, like the reason why decentralized sequences exist is not because there's some sort of evil plan to the great liveness. Like every time there's an accidental liveness failure, it's accidental. It was not intended. But really what I see decentralized sequencing as unlocking is a credibly neutral shared sequencer.

• 43:48Speaker 00

  And that unlocks synchronous composability and then that unlocks network effects and brings Ethereum much, much closer together and ultimately yields an ecosystem that is an order of magnitude more powerful.

• 44:01David Hoffman?

  There's something that the base rollups do, which I think fits into the theme that we see across Ethereum at large, is that base rollups learn to repurpose the Ethereum layer one in a way that benefits them. And this time it's using Ethereum as the sequencer. Can we go into what that actually means technically? So as a rollup, what does it actually mean to use the Ethereum layer one as a sequencer? When we pop open the hood, what's going on under the hood?

• 44:28Speaker 00

  Yeah, so you're right. In some sense, Ethereum was not designed to to provide sequencing as a service. And you could say the same thing for for data availability. So in the early days of data availability, we had call data, which was meant to be like a place where you put bytes with basically inputs to function calls that you would have. And it was kind of abused in some sense by the rollups to put like arbitrary user data. And what we're seeing is

• 44:57Speaker 00

  Like hacked in there. It's hacked in there. And then, you know, we came out with a very clean kind of custom design solution blobs that were, you know, purpose built for for for the rollups. And there's a kind of a similar story, I guess, going on with with sequencing where initially the the base sequencer was meant to be for the layer one exclusively. And we we actually Vitalik kind of had this thought experiment, what if we use the the the base sequencer for L two? And the term that he used was total anarchy. Because basically you'd have you'd be in a position where all the users would submit their transactions in the main pool.

• 45:39Speaker 00

  And there there would be a, you know, conflict in transactions and some data would some of the transactions would revert, it would be a complete mess and and it would not work. Until we had proposer builder separation. So proposer builder separation basically says that even though the sequencing rights are given to the L one consensus participants, the heavy lifting of building optimal blocks is done by the by the builders. And so what it means in practice, what does basic base sequencing mean? Is that from the perspective of an L one validator, nothing changes. I'm connected to Mefboost.

• 46:21Speaker 00

  I'm given, you know, the the the most valuable block to sign. And I sign it and I don't even see the contents of that block. All I sign is the the the block header. And instead, all of the heavy duty sequencing is done by specialized searchers and specialized builders that will do the heavy lifting on behalf of the of the L one validator. So Not only are you reusing the proposing rights at the L1, but you're also reusing the full PBS pipeline. You're reusing builders, searchers, relays, private mempools, all of that stuff.

• 47:03David Hoffman?

  With the Ethereum rollup-centric roadmap, anyone can deploy a rollup, though, which means anyone can deploy a base rollup. But Ethereum, the Layer 1, isn't actually aware of base rollups. It doesn't know that there's a network elsewhere that is a base rollup. So how do the block builders, the people that are supposed to be sequencing this rollup, how do they actually become aware and actually opt into this duty of sequencing the base rollup? If anyone can deploy a rollup and, you know, how do these things actually integrate?

• 47:36Speaker 00

  Right, so my amendment, one of the mental models for base rollups is that it's the same thing as a Layer 1 contract, except that fees are 100 times cheaper. So just like anyone could go deploy Uniswap or Aave or whatever it is, Ethereum is not immediately aware. It doesn't know, it has no semantic understanding of what Uniswap is. It's just bytecode and instructions that are being blindly run. And ultimately, what is the mechanism to get these transactions on-chain and have them executed? It's transaction fees, it's incentives. And so users are willing to pay transaction fees, and that is an incentive for them to get picked up by the searchers and by the builders and ultimately go on-chain. It's the exact same situation with base rollups.

• 48:21David Hoffman?

  Is a base rollup mempool the same thing as the Ethereum Layer 1 mempool? Or is there a separate mempool?

• 48:26Speaker 00

  This is an implementation detail. You can use whatever you want. One of the trends that we're seeing is that the public mempool is dying. What's happening is that a lot of the top wallets, like MetaMask and Rabbi Wallet, have their own private mempool, where instead of gossiping transactions to the public mempool, they have private deals with builders, and they privately share it with the builders. And so that has one great advantage, is that because you're relying on the trust of the builders, there's no more front-running. And what we're seeing is that these wallets

• 49:08Speaker 00

  are actually incentivized to operate these private mempools because they can extract the back-running. So it's kind of this ethical way, in some sense, to make money from the order flow that you have, all while improving the UX for your users. And this is the kind of infrastructure that is very, very much reusable for base sequencing. So one of the things that I said initially is that centralized sequencing, sequencers, provide as a service MEV protection. But what we're seeing is that now MEV protection is done one layer out closer to the edge by the centralized wallet operators.

• 49:50Speaker 00

  And because of that, it's much easier, it's one less thing that you have to worry about if you want to decentralize your sequencer.

• 49:59Ryan Sean Adams?

  Justin, this mental model of a based rollup being like a smart contract on the Ethereum Layer 1, except a smart contract where gas fees are 100x cheaper, is really interesting. And I think a lot falls out from that idea. Could we go over what the main benefits are of a based rollup? Maybe from, I guess, the different stakeholders involved. So let's talk about from a user perspective. Let's talk about from a developer perspective. Let's talk about Ethereum as a whole. I don't know where you want to start with this, but when we contrast based rollups from

• 50:42Ryan Sean Adams?

  traditional rollups with centralized sequencers, what are the core advantages here?

• 50:49Speaker 00

  It sounds a little strange, but the core advantage is to not degrade the network effects that we have with Layer 1. It's just preserving what we already had with Layer 1. So remember how I said that we had these amazing network effects and that brought Ether, the asset, to half a trillion dollars? And we thought we were all going to the moon. And then there was this big anti-network effects, which was the transaction fees. We hit a wall. We couldn't grow these network effects anymore. And then we went down the path of rollups to scale, but then that introduced a different kind of more subtle type of anti-network effects, which is the breakdown of composability.

• 51:34Speaker 00

  And so what I'm hoping can happen is that we reintroduce the ability for any app chain, any contract, to call any other app chain synchronously. So that means at will, within a single block. So one canonical example here is, you know, AVE, when it makes a liquidation, it's in a single block, or even a single transaction, will liquidate its position to Uniswap. But what we're going to do is go up one level abstraction and have AVE chain, all think, you know, in one single block, liquidate its positions on Unichain all synchronously.

• 52:18Speaker 00

  If it's two separate chains that don't share a sequencer and don't have real-time proving and real-time settlement, you can't do this kind of liquidation. And so the network effects that we have at Layer 1 just break down. Yeah, in summary, all I'm trying to do is just preserve the network effects of Layer 1 while removing the fees as the main blocker that we've seen historically.

• 52:47Ryan Sean Adams?

  Okay, and then just to emphasize, those network effects are basically synchronous composability, atomic composability, where everything, you feel like you're on the same chain, is how users will feel, and shared liquidity. So there's not this kind of fragmentation of like, oh, this chain has better liquidity for this base pair, you know, versus that chain. I gotta go navigate and bridge my way and, you know, like, you know, figure out what chain to be on. It's basically one, single, unified, shared state. But we do have that additional, really cheap transaction fee capability that has been at the core and the entire purpose of the rollup-centric roadmap. So it'll all feel like one chain, one shared liquidity pool,

• 53:31Ryan Sean Adams?

  except fees will be incredibly cheap. I mean, earlier in the episode, I said, hey, Justin, do base rollups solve everything? And you said, well, no, hold on, it doesn't solve everything. But like, what I just said feels like it solves a lot. Everything? A lot? I mean, it feels like it solves a lot, let's just say that. But is this a realistic possibility here? If all of these rollups become base rollups?

• 53:57Speaker 00

  I think it is. And we can talk about incentive alignment. We can talk about the technology that we need to go build. We can talk about some of the downsides of base rollups and how we patch them. But fundamentally, in order to have the luxurious first-class composability that the L1 enjoys, we need two key fundamental ingredients. Ingredient number one, shared sequencing. Ingredient number two is real-time proving. Real-time proving is just an engineering problem. And snocks are getting so, so good that we should have them relatively soon. And then another interesting thing with real-time proving is that we have a training wheel called TES.

• 54:41Speaker 00

  TES are capable of providing real-time proving today. And so this is an opportunity for someone who wants to build these synchronously composable rollups to use TES as a training wheel. But then the other, much more difficult problem, in my opinion, is this trillion-dollar dance, this coordination problem, this social layer problem around which sequencer are we going to decide upon to be the canonical Ethereum-wide shared sequencer?

• 55:12David Hoffman?

  One question I have, Justin, is how this might change user behavior if, in a based rollup world. Right now, I have most of my activity consolidated to a single layer two, like the layer two that I prefer. And my assets are there, most of my transactions are there, and I use the apps that are deployed on that layer two the most. How does that change? How does my relationship as a user change with the network I'm on in a based rollup world? Because some of the benefits of base rollups is that, well, maybe there's an application on the Ethereum Layer One that I want to use, but the assets that I want to use in that Ethereum Layer One are on this based rollup. Or maybe they're on a different base rollup.

• 55:54David Hoffman?

  How does my relationship with the network I'm on change if everything is based?

• 56:00Speaker 00

  So there's a couple of things here. Like, one of them is that, to a very large extent, the detail, based or not based, is relevant to developers. There's been a lot of networks that have tried to go down the async route. There's Cosmos, Polkadot, the Internet Computer, NEAR, and Ton Network. And every time, it's kind of a similar story. Like, when you have asynchrony, in theory, you can have, like, massive, massive scalability. But the downside is that the developer experience becomes 10x harder. And so, you know, developers want simplicity and they'll just,

• 56:43Speaker 00

  they'll rather go with Solana than Polkadot or Cosmos. And really, what we're trying to do here is like, thread the needle extremely delicately so that we can have the synchrony that the developers want, while also preserving all of the values and requirements that the FM L1 has imposed itself.

• 57:06David Hoffman?

  So, over the last, since we had the role of centric roadmap, the first things and the dominant things that have come out of that are these very big, generalized Layer 2s. Optimism, mainnet, Arbitrum, base. These are very big, generalized Layer 2s. Does a based world lean more towards the app chain model of things? Where, in a world, there's more chains, but they're more application, they're catered to specific applications, rather than there being generalized base rollups? There's actually just applications that are base rollups? Do you think, in a based paradigm, that we lean more towards app chains rather than generalized Layer 2s?

• 57:43Speaker 00

  Well, in a world where we've perfectly solved interoperability, and that includes many other things, above and beyond just shared sequencing. So, I mentioned this barrier to entry to becoming an app chain. We need to have optimal proof aggregation, optimal data packing. Then I think, yes, the app chain model makes a lot of sense. Because, for one, it removes the dependency of having to opt in to someone else's governance, right?

• 58:15Speaker 00

  Why would Uniswap, for example, want to opt into Arbitrum's governance? They're like two different things. Uniswap only have its own sovereign and independent governance. And so it makes more sense for it to launch as a separate unit chain.

• 58:39Ryan Sean Adams?

  It's fascinating here because I think what you're describing, Justin, is Ethereum is trying to attract both types of developers, maybe. So developers through which asynchronous composability is fine, will still have the existing layer twos with centralized sequencers. But developers who want synchronous composability in that dev X, well, now Ethereum will have this other thing called the based rollup type of infrastructure and they could just deploy there. I want to ask the question because you mentioned two things that were imperative for this vision, foundational for this vision coming about. One is shared sequencers and the second is real time proving.

• 59:23Ryan Sean Adams?

  So when you say shared sequencers, I'm not sure it's clear to Bankless listeners, the difference between a shared sequencer and a based rollup. So my understanding of a based rollup is that that's where we're using the Ethereum validators as our sequencer. So of course it's shared, it's definitionally shared across all of the validators. And you're saying that maybe becomes the shelling point because that is the most credibly neutral cohort of sequencers that you could do. Why? Because you're basically using the L1 validators. But I think by implying, using the phrase as shared sequencers, maybe you're implying there's also a step before that? So is it possible for an existing rollup with a centralized sequencer?

• 1:00:06Ryan Sean Adams?

  Say, Base, we'll take them as an example. The Base rollup centralized sequencer, okay? They're going to continue doing their thing because why? There's all of the other benefits we just talked about with centralized sequencers. They don't want to give those up too early, right? They're building incrementally, they want to preserve those things. Then there's going to be this other cohort of straight all the way to the end game of base rollups, you know, the Tykos of the world, the Spire's of the world, they're building all of these, you know, base rollup, you know, app chains on that side of things. Is it possible for those two worlds to connect via route of this interim, you know, set of shared sequencer? Or maybe just more generally, what's the difference between a shared sequencer and the the end state of a base rollup?

• 1:00:52Speaker 00

  Great question. So base sequencing is a special type of shared sequencing, but not all shared sequences are based sequences. So what I expect will happen, as you said, is that there's going to be an intermediate step. And this is something that we're already seeing.

• 1:01:11Speaker 00

  You know, you could call it clustered sequencing where within individual ecosystems, whether that's Arbitrum Orbit or the Elastic Chain or the Super Chain, there will be a shared sequencer which is considered to be credibly neutral within the ecosystem. So you could imagine, for example, ZK Sync to use the ZK token to come up with a decentralized sequencer. And, you know, within the context of this ecosystem, which is, you know, ZK Sync era and like all of the friends of ZK Sync, then yes, that is a great place to have shared sequencing and therefore synchronous composability.

• 1:01:52Speaker 00

  And the great thing here is that we're going to see experimentation and we're going to see the value of synchrony and shared sequencing come up. We're going to see, for example, you know, this this data compression that I talked about, the block packing. We're going to see flash loans, just like we see on L1, kind of do like crazy, you know, Kung Fu, you know, moves in order to to squeeze as much AMV as you can and get the best execution. We're going to see latency go down dramatically because right now, let's say you have two chains within the ZK sync ecosystem. And in order for your application to work, it kind of straddles both chains. And so you need to do a transaction on chain one, and then you need to wait for the sequencer

• 1:02:37Speaker 00

  to pick up, you know, the next move and do another transaction on chain two. And so that is a multi-slot process which increases latency. It also removes fee certainty. So as a user today, if I want to make a transaction on L1, I know exactly what I'm paying. But if I have to split my transaction into multiple asynchronous subtransactions, then I know how much I'm paying for the first one, but I don't know how much I'm paying for the next ones because the gas prices are always moving. And this is where you can end up with stock transactions. So for example, you just haven't provided enough gas and then there's a fee spike and

• 1:03:19Speaker 00

  then now your transaction never executes. Or like for some like weird, you know, reason, the full transaction is unable to complete. So one example here would be that you have some funds on chain A, you want to go buy an NFT on chain B, you initiate a transfer of funds from A to B, and then someone buys the NFT before you. You're no longer in a position to buy it. And so now, you know, in some sense, you have a partially executed transaction that you need to go revert and things become quite complicated. Again, like no single asynchronous ecosystem has thrived in the past.

• 1:04:03Speaker 00

  And the reason is that there's this long tail of benefits that synchrony gives us. And as you said, the key to achieving Ethereum-wide shared sequencing is credible neutrality, the key to going above and beyond this clustered shared sequencing.

• 1:04:25David Hoffman?

  I think we've kind of just stated without explaining how base rollups provide synchronicity. I don't think we've actually defined it head on. Maybe we could take a moment and actually illustrate how do base rollups actually provide full synchrony across Ethereum?

• 1:04:43Speaker 00

  Anytime you have shared sequencing, whether or not it's it's based, you have an opportunity for synchronous composability. If you also have this second ingredient, which is real time proving. So imagine that you have a Uniswap on on on on Unichain, which is trying to liquidate a position on Ava chain. You can have within a single block, a first transaction that is going to, you know, go from Ava chain to read the price on Ava chain and tell Unichain exactly what the price is. And because you have the real time proving,

• 1:05:26Speaker 00

  this is an instant message that can happen within a single block. And then if the liquidation price is favorable, then you can have Unichain basically send assets that need to be liquidated. You have a withdrawal which happens within a single block. So you don't have to wait seven days in the case of an optimistic roll up. You don't have to wait, you know, several minutes. In the case of two days, it just happens within a single block. Assets go from the Unichain to Ava, sorry, from Ava chain to Unichain. They get liquidated. And then the proceeds of the sale, in a very similar way, get immediately withdrawn within a single block and go go back to to to Ava chain.

• 1:06:06David Hoffman?

  I think the key point here is everything is happening inside of a single Ethereum layer one block. That is the sequencer of these transactions that are being made across these base rollups. In the generalized rollup world that we kind of live in today, if I want to do, if I'm on optimism and I want to do something on Arbitrum, I take like a a bridge across. I take a cross, I take some sort of bridge aggregator and it hops me over the layer one from chain to chain. And that's where a lot of the fragmentation happens is because the layer one isn't really aware of what I'm doing until later. And and so I think the the base rollups, the important key factor here is that it's actually the layer one that is doing the the bridging of states

• 1:06:49David Hoffman?

  or the bridging of transactions across the base rollups. Layer one is doing the sequencing of both, you know, base chain A and base chain B at the same time. And rather than routing my order, you know, above the Ethereum layer one across two rollups above the Ethereum layer one, it's actually going down into the layer one and the layer one is able to process that that logic. Is this the correct way to illustrate things?

• 1:07:14Speaker 00

  Yes, that's exactly right. So today we have bridges and the way that bridges are built is that you have the two pillars and then you have a deck that connects the two pillars. What the real time proving does is that it brings the deck, you know, it makes it, you know, infinitesimally like extremely small. And then what real time, what shared sequencing does is that it collapses the two pillars into a single pillar. And so now you've taken your whole bridge and you've just collapsed it and everything can happen within within a single block.

• 1:07:44David Hoffman?

  So in a world of base rollups, there are many, many, many pillars, but they're all like touching each other and they're touching each other and coordinated by the Ethereum layer one. And so there's, there's many vertical chains going out from Ethereum, but they're all, they're, they're facing, they're all, the, the facades of each are all touching one another and it's just like one defragmented system because they're all completely touching each other.

• 1:08:11Speaker 00

  That's exactly right. Yes. And, you know, one of the initial critiques of shared sequencing is that people will say this is an unscalable module. And the reason is that you can't have every piece of state touch every other piece of state. You know, you have too, too much locking, it just doesn't scale. But the, the answer to that is that synchronous composability is better thought of as optional, opt-in synchronous composability. The vast majority of transactions will stay within a single execution zone. They will only touch, you know, one rollup, one, one app chain.

• 1:08:50Speaker 00

  But then there's going to be like a few like super valuable transactions where it, it makes sense for them to be touching three or four or five or as many as necessary different app chains. And they will be willing to pay the cost of basically locking the state for that period of time when they're, they're touching the, the state.

• 1:09:12David Hoffman?

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• 1:09:56David Hoffman?

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• 1:10:37Ryan Sean Adams?

  It's fascinating just to use that term "execution zones." You know, another term that David and I have been thinking of and just observing how it seems like the rollup union of chains is kind of evolving is this term "economic zones." Because, and I want to ask the question of how practically you think we go from a more fragmented world of different rollups to a more unified set of rollups from a composability perspective, from a shared liquidity and shared state perspective? And one observation that we've made is we're starting to see these economic zones almost congeal together at kind of the hyperchain or super

• 1:11:22Ryan Sean Adams?

  Chain type of level. I mean, you see, you know, the super chain, which is like the OP stack and you have base now, you have Unichain, you have Zora. And they're talking about shared composability, shared liquidity, shared interoperability between all of those chains inside of their economic union. You have the same thing going on with the ZK stack and the elastic chain. They have ZK sync, Chronos lens, AgLayer and the Polygon ecosystem doing the same set of things. Polygon mutable there, Ronin on there. You have Arbitrum and doing their orbits thing. And so there seem to be these economic unions of chains kind of forming that are composable within their sort of economic unions.

• 1:12:05Ryan Sean Adams?

  But you know, like they have, they have loose bridges to the other unions. And then you also see kind of a growing and the dawn of the based chain economic union, which of course is sort of the Ethereum layer one. Plus whatever Tyco does, plus whatever, you know, the future Spire does, plus whatever Puffer does, these base chains. So you have all of these economic unions that are starting to congeal. And what we want to get to eventually is where we have the right synchronous composability. And all of these unions kind of become one super union, super structure. So we have shared like composability across all of them.

• 1:12:46Ryan Sean Adams?

  Anyway, we're starting to see hints of there being enough advantage, comparative advantage in kind of like creating mini super chain style economic unions. And I'm just wondering if you can kind of extrapolate how all of this might happen. Cause now we're not just dealing with technology, we're dealing with incentives, we're dealing with like economies. We're dealing with like all sorts of coordination factors that happen socially. So how do you see this really evolving once we are in a based rollup era? Once this, this technology, this, you know, structure is available generally. Will some of these rollups kind of convert to based rollups?

• 1:13:29Ryan Sean Adams?

  Will all of the different economic unions eventually migrate and become based rollups as well?

• 1:13:36Speaker 00

  I think you put it very well, that there's these different unions that are happening. And the based union is in and of itself, an important union. And what I think will happen is that in the early days, there's going to be a few pioneers, a few visionaries who can kind of see the longer term future and are willing to make a bet and make a name for themselves with this based sequencing union. But you're right, as soon as the network effects become bigger and bigger, like one by one, what I expect will happen is that these clustered sequencers will convert. And that will have to do, as you said, with incentives.

• 1:14:22Speaker 00

  So one of the, I guess, observations is that some applications won't have any choice but deploying from day one as leveraging the base sequencer. And that has to do with neutrality. So I think a great potential case study here is E N S. Right? E N S is not like Uniswap where it can be deployed in many different places at the same time. It has to be deployed in one place. There's like one root of trust for E N S. And you know, E N S is the Switzerland of domain names. You know, I joked that the N in E N S stands for neutrality.

• 1:15:03Speaker 00

  And so it can't go, you know, deploy on top of optimism or deploy on top of Arbitrum. That would break the neutrality. And so it essentially has two options, as I see it. Option number one is that there is an E N S specific decentralized sequencer. So they could use the E N S token as the basis for a new proof of stake. And that is going to be a decentralized sequencer that would power, you know, E N S V two. Or option two. Is that they they use a base sequencing. Now, I personally don't see any advantages for them to go down the first route. It's just strictly more complex and it doesn't buy them anything.

• 1:15:43Speaker 00

  Two of the stated reasons, you know, for for having, you know, your own, you know, custom sequencer is that you can have a shorter slot times. And two is that you can capture MEV for yourself. But, you know, E N S does not generate any MEV. E N S makes fees through like subscriptions. And E N S doesn't need like super short slot times. If it takes 12 seconds or one second to register a domain, it doesn't make any difference. And so I think, you know, app chains like E N S makes sense to be deployed as as a, you know, leveraging the the the base sequencer.

• 1:16:23Speaker 00

  I guess something similar could be said for fine art and like, you know, credibly neutral N F Ts, things like CryptoPunk. So let's say that you want to build CryptoPunk 2.0, where it's the same concept, but instead of 10,000 punks, you want 10 million punks. And so there's no way that you can deploy it on R1. You have to deploy it as an app chain. And the only thing that makes sense is that you deploy it as a as a based app chain. Now, if we go back to the incentives, one of the, at least in the naive setup, naive base sequencing, as a as a rollup, I'm giving away my MEV to the the sequences.

• 1:17:05Speaker 00

  And that could be seen as a bad thing and a disincentive to become a base rollup. But the counterargument to this is that the shared sequencing will increase your overall footfall and traffic and increase your execution fees that you go collect. And so the the question becomes, am I gaining more in execution fees than I am losing in MEV? Now, my personal thesis, and this is a bit of an extreme, you know, caricature, is that MEV is going to zero. The amount of MEV is relative to execution fee is going to converge to zero. And that's for two reasons. Reason number one is that

• 1:17:48Speaker 00

  We have the wallets protecting users from front-running and sandwiching. And we're also going to have better applications that are designed so that MEV doesn't leak to the sequencer in the first place. It's recaptured. And so really, from a fundamentals perspective, I think each rollup needs to focus on execution fees. What are execution fees is basically a toll for the right to use the virtual machine. Any virtual machine has a limit in terms of how much footfall it can process. There is the famous gas limit, which is 30 million gas on Ethereum.

• 1:18:31Speaker 00

  And the way that we charge for execution is that we have mechanisms like EIP 1559. And every rollup today, all the top rollups, they have the equivalent of EIP 1559. And they're making money through congestion and execution that way. And that is what they should be focusing on. Now, one of the things that you said previously, Ryan, is that one of the big reasons to be excited about base sequencing is value accrual, right? Because MEV goes to the validators. I actually think that's not the case, partly because MEV is going to zero and so it's a rounding error.

• 1:19:14Speaker 00

  But also, if it's not zero, this is a bad thing because it becomes a disincentive for the rollups to opt in to a shared sequencer.

• 1:19:24David Hoffman?

  And with the applications capturing the MEV, this is something that we're starting to see out of the world of Sorrela and also Unichain. Unichain just got announced. So we have our first big application-specific rollup. And then Sorrela Labs is producing this thing, working on this thing called application-specific sequencing, which explicitly gives applications the ordering of their own internal transactions, more or less with the intent to do exactly what you said, which is allow the Uniswap application to retain the MEV. That it creates in order to give that back to LPs and traders. So this isn't just theory. We're starting to actually see this played out.

• 1:20:07David Hoffman?

  And so the business model then, if with this logic continues, is that MEV does drop to zero because we get more efficient, applications can retain it. And MEV doesn't go to the underlying chain, it goes to the application. Well, then the value here is really kind of the GDP of Ethereum. Like what total aggregate transaction volume can we produce? And I think within the idea of base rollups, sharing your apps, sharing your businesses, sharing the things that generate value across other chains is probably the most logical way forward, where like the value of one base rollup does actually create more value for other base rollups.

• 1:20:51David Hoffman?

  And this kind of gets back into the whole idea of just network effects. When the value of one application on one base rollup increases the GDP of a different base rollup, of a neighbor base rollup, the network effects, that is what networks effects are. That's kind of the vision that I see. Is that what you see?

• 1:21:09Speaker 00

  Yeah, that's exactly right. So if you have a base Unichain, like every time you have another base app chain that requires Unichain, that is additional footfall. So AVE is an example, Maker might be in there, for example. And a significant part of Uniswap's footfall today comes from these L1 interactions. And so one of the bearish takes, I guess, on Unichain being non-based is that for the most part, it will capture the flow from Uniswap X, basically from the Uniswap Labs front end. So if you go on uniswap.org, then yes, your flow might be routed to Unichain.

• 1:21:54Speaker 00

  But like the flow from AVE and all of the other ecosystem players, that will continue going to L1. And so I could totally see, in addition to the Unichain that has been deployed with an application-specific sequencer, to also have a base version of Unichain. What I could also see is actually a hybrid and a merging of the two. So really, what the UniTrain is trying to enforce is that, first of all, that there's no censorship. So anyone who wants to do arbitrage can do arbitrage. And number two,

• 1:22:39Speaker 00

  that the transactions are ordered decreasing by priority fee. And what you could imagine is an application or chain like UniChain basically saying, I'm willing to be based, but I want these two constraints to hold. So you could imagine, for example, a SWF kind of network of TEs that are going to sign off on a set of Uniswap transactions that have to be included and have to be included in this order, but the base sequencer is allowed to insert additional transactions. So you can kind of think of it like a constrained,

• 1:23:22Speaker 00

  even more constrained inclusion list, where the relative ordering needs to be preserved, but you're allowed to insert transactions. And the fact that the shared sequencer is allowed to insert transactions, this is what creates the synergies. This is what creates, you know, it allows you to fulfill the coincidence of wants and kind of extract the network effects that are otherwise impossible if the UniChain says, this is the list of transactions, end of story, no synergies possible.

• 1:23:51Ryan Sean Adams?

  Yeah, I was gonna ask the question, you know, Justin, if your personal take, if you think the UniChain would have been better off as a based rollups or would be in the future better off as a based rollup rather than the architecture it selected. But, you know, that's still maybe a valid question, but maybe the more general question is like, you know, let's get into the real tactics here. How do you think that this could happen? So a dream scenario for what you're talking about is basically the entire superchain, let's just pick on kind of the OP stack, and you have some pretty large chains there. You have base and you have OP mainnet and you have, you know, like UniChain and apologies to the other dozens of chains that I've left out in this, but they're all on the superchain and they kind of fix interoperability.

• 1:24:33Ryan Sean Adams?

  amongst each others and and then they sort of opt into some sort of shared sequencer or are on the path to making their entire superchain based or at least having that option so that chains inside of their network could flip that off or on and preferably on for the good of kind of like the network for the for the good of shared liquidity for the good of fixing fragmentation. Do you do you think that's like realistic? I mean, a naive podcaster is like, hey, like, why can't we just do that? Let's just like, convert the superchain into a based superchain and all of the chains within them now are hooked into all of the the shared liquidity of the L1. Is it that simple? Or are there? I mean, you you mentioned there's some other

• 1:25:16Ryan Sean Adams?

  designs here that might like kind of like bring the best of of all worlds into play. How do you think something like this happens for Unichain or the broader superchain?

• 1:25:26Speaker 00

  Right. So I've had, you know, various conversations with various founders and like various, there's various degrees of being base-pilled. I think, you know, Hayden, you know, understands the value of shared sequencing and understands the value of base sequencing. I don't want to put words in his mouth, but I I do think it is a plausible future that Unichain becomes this, you know, base rollup where you have, you know, these additional constraints, which makes sure that MEV, you know, ultimately goes back to the users and doesn't leak to to to to the sequencer. I think one likely way forward is that, you know, there's this, you

• 1:26:07Speaker 00

  know, bottom-zap grassroots movement of the base cluster that just incrementally grows bigger and bigger every year. But there is also a possibility for, you know, incumbents to, one day from another, just just flip a switch and become base. And I I don't want to leak like too much alpha, but basically, two of the top rollups by TVL have founders that are base-pilled.

• 1:26:35Speaker 00

  And so. Yeah, I think it is.

• 1:26:38David Hoffman?

  It's either Arbitrum optimist or a base. I don't, I don't know if there's any more than that.

• 1:26:44Speaker 00

  No, more than the top three, like let's say out of the top 10.

• 1:26:47David Hoffman?

  Top 10, okay. Justin, I want to bring in the conversation of the Ethereum layer one.

• 1:26:53David Hoffman?

  What kind of capacity does the Ethereum layer one need to have in order to kind of fulfill this base roll up vision? Because the layer one execution is meaningfully constrained. But I think if entire chains are going to use the layer one as a sequencer, we have to start to talk about what kind of execution powers the layer one has in order to actually manage all of that. What, how does this impact the role of the Ethereum layer one in terms of just like its capability here?

• 1:27:21Speaker 00

  Right, so the Ethereum layer one, you know, consumption in terms of execution doesn't really change. We don't need to go above and beyond the 30 million gas like the EVM as it is, is sufficient to verify the fraud proofs and the snark proofs. And that's, that's fine as is. What is a much more important factor is the slot duration. So right now we have this 12 second slot times and one of the discussions during 2024 has been, do we need to or can we reduce the slot times? And I think my opinion as of today is that there is a lot of low hanging fruit that could allow us to significantly reduce the slot time, for example, to four seconds,

• 1:28:05Speaker 00

  all while preserving the decentralization requirements that we have, namely that you can be a validator on a home internet connection and a Raspberry Pi. And so there's basically juice to squeeze in, in the future for improving base roll ups in that way. But there's another kind of trick that has been developed in 2024, which is this notion of pre confirmation, trustless pre confirmations. Because today we have reputation based pre confirmations where the centralized sequencer just, you know, pinky promise that the, the, the transactions that they have sequenced off chain will be indeed settled on chain in the way that they've been promised off chain.

• 1:28:47Speaker 00

  And the idea of trustless collateral-based preconfirmations is that the L1 proposers put forward collateral. And whenever they make a promise, which is nothing more than a signed message saying, your transaction will be included in position X and will execute in such and such a way. And if you're doing a Uniswap trade, you know, this is the price you're getting, these are the fees you're paying, you know everything upfront. And if this promise is not held, is reneged, then you stand to lose the collateral that you've put forward. And what this allows us to do is basically, from a UX perspective, mimic 100 milliseconds slot times. Why 100 milliseconds? Millisecond is because that's the amount of time it takes for information to travel

• 1:29:32Speaker 00

  on the internet. That's internet latencies. It's ping times. And so what we're going to see is base rollups like Tyco experiment very, very soon with these preconfirmations on mainnet. And then if this can be deployed to mainnet and be really robust, then what is the advantage of having a non-based centralized sequencer? Because even a two-second slot time, which is what the Superchain has, that would be 20 times slower than preconfirmations.

• 1:30:06Ryan Sean Adams?

  That's fascinating. You brought up earlier in the conversation, use this analog to data availability. So in the early days of the rollup-centric roadmap, you said Ethereum really, as a network, wasn't built for rollup data availability. There's kind of like this hackish way that rollups were using the call data function and just stuffing their data inside of that. And so the Ethereum roadmap kind of adapted and said, no, we're going to make this fast lane for rollups, so they could put all of their data in one place. We'll call these blobs. We'll make them super efficient. We'll have a path for scaling them so the fast lane increases in terms of capacity

• 1:30:49Ryan Sean Adams?

  and we have a home for all rollups for their data availability. Is there the... An analog to, because you also said the current Ethereum network is not really built for shared sequencing, right? So we have, you know, 12 second slot times, you know, we need to get our slot times down, that sort of thing. You're also talking about trustless preconfirmations. It's not clear to me whether that's kind of extra outside of the Ethereum roadmap, outside of the protocol, or whether that could be embodied. But like, I guess maybe just the general question of, do we need a kind of a proto-shared sequencing, you know, roadmap item to get us to an EIP where we deploy this?

• 1:31:32Ryan Sean Adams?

  And now Ethereum is meant for, is built for, you know, base rollups and shared sequencing. What sort of changes might we need to make to the roadmap in order to facilitate that? Or prioritizations would you recommend if this indeed is the future?

• 1:31:49Speaker 00

  Yes, so the answer is yes, we do have such a roadmap item and it's called APS, attestor-proposer separation. And the idea of APS is that as a validator, my main responsibility is to attest to the correctness of the chain and to produce inclusion lists. But the ultimate proposing of an execution block, which involves, you know, a lot of sophistication through the block building process, but also sophistication in the preconfirmation process, that would be offloaded to the broader market. Because right now, what we're trying to do, and it's kind of awkward, is that we're trying to shoehorn

• 1:32:34Speaker 00

  sophisticated preconfirmations to L1 validators running on a whole mint in the connection on a Raspberry Pi. And so the solution that has been proposed in the short and medium term is the equivalent of relays, but for preconfirmations, and we call them gateways. So as an L1 proposer, I will delegate my sequencing rights to a gateway, and the gateway does all of the heavy lifting on my behalf. And just like we have Enshrine PBS, you know, that promises to remove the need for relays, APS, attestor-proposer separation, also promises to remove the need for these gateways.

• 1:33:20Speaker 00

  And so that is the cleanest and most aligned. Path forward in the roadmap to really make Ethereum custom design for preconfirmations.

• 1:33:30David Hoffman?

  Okay, and just a quick question of when on that? Like, I mean, are we talking about way in the distant future? Or is this, you know, short to medium term?

• 1:33:39Speaker 00

  I'd say medium term. I'd say years, but less than half a decade.

• 1:33:45David Hoffman?

  Less than half a decade. I love how that's in the medium term in Ethereum world. Justin, how does a base roll a paradigm? How would that impact the economics of Ether, the asset? If it does at all?

• 1:33:56Speaker 00

  I think the, any impact would be, would be indirect. Basically, we would have, you know, a very competitive, a very strong network effect. And that would give more, you know, credence to the notion that, you know, Ether is money and it's a, it's a, it's a, it's a powerful money for, for the internet of value. What I think we potentially, you know, stand to, to lose if we go down this asynchronous route is, is basically lose to a competitor that, that has decided to fully embrace synchrony. And, you know, here Solana comes to mind.

• 1:34:34Speaker 00

  The optimistic take here is that, you know, we can, we can have the UX and the dev X of Solana with shorter, shorter latency. So instead of 100 milliseconds block times, we have these 100 millisecond preconfirmations. And we have the strong decentralization because validators can be on home internet connections running on Raspberry Pis.

• 1:35:00David Hoffman?

  I think in recent times, there's, there's been a debate about the role of central roadmap, right? Like, is the role of central roadmap right? Like, all of these kinds of like debates, especially with the rise of Solana, kind of like shifting the overton window of, of the conversation sphere. And I think a part of the framing of that debate could be illustrated as where does DeFi live? And the Ethereum layer one with 12 second block times and kind of constrained block space has been losing ground in like the home of DeFi. It's, it's lost ground to its own layer two. Arbitrum and Base have accrued a lot of DeFi value. Solana has accrued some DeFi value. And I think really the more accurate way to illustrate this is like,

• 1:35:45David Hoffman?

  where is the home of DeFi going to be? Because DeFi is kind of the golden goose. It has the most valuable transactions. It has the demand for very low latency transactions. In a based rollup world where many chains are all base rollups, how do you think about the question of where does DeFi live? Where does the home of DeFi? How does that even work in a world of base rollups?

• 1:36:09Speaker 00

  Right, so in a world where base rollups win, all of the TVL would be under the umbrella of the base sequencer. But there would still be a migration process from L1, where the gas use is extremely high, to a system like L2's where the proving, sorry, the execution is done off-chain. And so you can afford to have 100 times less gas. So going back to the idea of network effects and Maltka's law. Right now, what we've, the path that we've gone down is that roughly 10, 15% call it of the L1 TVL has migrated to the L2's. And that's like a relatively, you know, small hit to network effects.

• 1:36:54Speaker 00

  Like the L1 is still strong and thriving. But the more we go down this path, the more we're carving out network effects and weakening them. And so the better plan, in my opinion, is to have a migration of this TVL that preserves network effects. So we want to go to DApps, to App, from Apps to App chains. And that is going to save on gas. But we don't want to move from base sequencing to centralized sequencing because that breaks the network effects. And so there's a little bit of path dependence here, which is like, how quickly can we?

• 1:37:34Speaker 00

  Put the train on track to being in a direction where we don't systematically break down network effects and instead we can preserve them under this umbrella of base sequencing.

• 1:37:48David Hoffman?

  How does a base world impact the users choosing of the chain that they're on? Like, right now, I gotta go to a dropdown menu, I select Arbitrum, I select Optimism, I select CK Sync.

• 1:38:01David Hoffman?

  And there's all these choices that come with that. Like, I gotta kind of kick the tires of these chains that I'm using. I kind of have to know what chain that I'm using. When we have always assumed in the crypto world that eventually chains will just be completely abstracted. But we've kind of alluded to that North Star without really knowing the path there. When it comes to actually being on a chain or choosing a chain, what would that look like in a base world?

• 1:38:26Speaker 00

  Right, so from the perspective of UX, the number one thing that we can do is have shared fungibility. And it turns out that fungibility is an orthogonal thing to sequencing. So what we'd like is something like AgLayer. Or, you know, many different ecosystems are working on the equivalent of AgLayer, where there's a shared deposit contract, where all the different rollups basically deposit their assets there. And you get two benefits. One is that this is a homogenization layer whereby you can always go from one rollup to another. And because you're going through this deposit contract, the assets are fungible.

• 1:39:11Speaker 00

  But there's also another massive benefit, which is that if you want to go from an L2 to another layer two, you don't have to withdraw back to the L1 and you don't have to pay the extremely high L1 gas costs. And so it's a direct L2 to L2 withdrawal process. And that is going to remove the dropdown. And this is what Hayden was talking about in his episode, where, once you have fungibility, you can abstract away which chain the asset lives on. The bigger impact of base sequencing is around DevX. As a developer, like today, I have to choose an ecosystem. Do I launch on Arbitrum or do I launch on Base or Optimism?

• 1:39:54Speaker 00

  If I can just launch as my own independent based app chain, then I haven't, I don't have to make a choice. That is the natural move for me and I can still get all of the benefits of being proximate to other applications because the boundaries between these app chains, as you said, is they're touching, they're kissing, there's no space in between.

• 1:40:17Ryan Sean Adams?

  By the way, just for an update on that shared fungible layer for L2 to L2 kind of communication, we've done episodes on egg layer. It sounds like there are some other technologies that would facilitate that. That is also orthogonal to everything we've been talking about today on base rollouts. But how's that progressing? Are you optimistic that 2025 will see some real progress in that space? Kind of an aggregated layer for L2 to L2 interoperability, fungibility between tokens?

• 1:40:47Speaker 00

  Hundred percent. I'm extremely optimistic and I believe that pretty much every ecosystem is working on the shared deposit system, whether that's Polygon or the Superchain or others as well. And the good news is that we're going to see experimentation with these shared deposit contracts and we're going to be able to extract the best practices. And eventually I'm hoping that we're going to see a standard like ERC 20, but for shared deposits. Now, the tricky thing is that in order to achieve credible neutrality for shared deposits, we need to completely remove governance. It needs to be a dumb pipe, small contract. But in order to achieve that and to do it in a safe way,

• 1:41:30Speaker 00

  we're going to need multiple redundant implementations of SNOC, SNOC verifiers. Because like this amazing shared deposit infrastructure depends on SNOCs. And SNOCs are extremely complex and buggy. And so I think the ideal outcome is that you have three different ecosystems.

• 1:41:53Speaker 00

  Each come up with their own implementation and then they all agree together to deploy a shared deposit contract where they've all contributed one of the three verifies.

• 1:42:04Ryan Sean Adams?

  So it's that idea back to we'll have these economic zones, kind of creating their own shared layer, basically. And then hopefully we get an economic like super zone where you know, it's all pulled together in the in the future, too. I want to return, as we get to a close here, Justin, to the question of ETH value accrual that David was asking. And so something that I think there are almost like two camps. Actually, let me broaden this and just say, as long as I've been in crypto, there's always been this perennial question of like, okay, but like, how do we price? How do we value layer one assets? Right? And the Bitcoin community has a very like noted take on

• 1:42:46Ryan Sean Adams?

  this, which is like, as money, as a store of value, it's digital gold, stupid. That's the whole purpose. Right? Other ecosystems, I mean, alternative layer ones, let's call them, the Solanas, Naptos and Suves of the world, they're not as bold. They do not think that their layer one asset, at least like the organizers of this, they don't think their layer one asset is money. They think of it as kind of a capital asset and it's going to throw off cash flows from execution fees or MEV. I've come full circle to the idea, and like, I guess this has been the genesis of the Bankless Podcast, too, that the Bitcoiners were right. Okay, if a layer one asset is going to have value, it's going to be primarily as a monetary asset. And I know, Justin,

• 1:43:28Ryan Sean Adams?

  you've been a proponent of the memetic idea of ETH as money, but more specifically, an ultrasound money, which implies that there's some sort of cash flow burn on the asset that supply goes down over time. We've also called within Ethereum ETH a programmable money. There are also like other terms. Maybe it's a roll up money. Maybe it's a money for the on-chain economy. There's all sorts of prefixes you might put to kind of like the idea of ETH as money. But it comes back to, at least for me, what is Ether? How do you value it? As a monetary unit, as a store of value with some sort of productive yield? I want to ask your take on this. So being kind of an architect, partially of the ultrasound

• 1:44:09Ryan Sean Adams?

  money ETH meme, what do you, how do you think ETH is valued? Is it still money? What is kind of the memetic narrative that you're taking going into 2025 and beyond?

• 1:44:21Speaker 00

  Right, so I do agree with you that the value accrual story for ETH is mostly money. And one way to frame the ultrasound money meme is as a selling point to achieve this moniness. Right, it's about scarcity, right? If Bitcoin has the 21 million Bitcoin meme, we have an even more powerful meme. And, you know, we have more economic security. And so surely, like, these are the two most important selling points, security and scarcity. And so surely, we should be able to win the memetic warfare with Bitcoin.

• 1:44:59Speaker 00

  Having said that, I think there, I'm still very optimistic on the idea that Ethereum will accrue extremely significant flows on the order of billions of dollars per day. And that sounds completely insane, but the- And by that, you mean you're not just, you're talking about burn, basically, or capital flows? Capital flows, yes, in the form of data availability. And right now, we're in this kind of depression phase where, like, you know, data availability just accrues almost, almost nothing. Because we went from, you know, zero to something, you know, pretty, pretty big. And there's just not enough demand.

• 1:45:43Speaker 00

  What I expect will happen is that, you know, very, very soon, in a matter of months, we're going to see this, this fee market develop. And, you know, I do agree with David's take, which is that, you know, we don't want to be like too aggressive and celebrate too early. We want to grow the number of blobs as quickly as we can. So that we're basically have this growth phase of Ethereum before we, we, we start accruing, accruing value. You know, it's basically the, the Amazon strategy, right? Like, grow to be like the world, like Titan, and then, and then that ultimately makes you a very, very valuable company.

• 1:46:26Speaker 00

  But there's basically two stories to the flows. There's supply and demand. Let's look at supply first. Ethereum is constraining itself to home internet connections. Now, what dank sharding, full dank sharding gives us is roughly speaking, 100x-

• 1:46:46Speaker 00

  Over a single validator. So from a supply perspective, we have the equivalent of a hundred home internet connections for the whole world, for like the whole internet, all of finance, just a hundred internet connections. Now, in terms of demand, what are the network effects of data availability? And I see three of them. The first one is this notion of shared security. When you deploy an app chain, you can either deploy it as a validator or as a rollup. But if you want to really tap into these to these network effects, you want to be a credible

• 1:47:31Speaker 00

  money Lego. You want to be a money Lego that other applications feel comfortable, you know, calling into and and can know that, you know, in a hundred years, they'll be working just as well as they are working today. And so if you're building, you know, a Uniswap, for example, or Unichain, there's no way that Uniswap can, you know, be a money Lego as a validator. It has to be a rollup. The second aspect actually has to do with synchronous composability. If you have an external data availability provider, for example, Celestia, well, Celestia introduces its own sequencer, right? Celestia is a blockchain with blocks coming one after the other.

• 1:48:16Speaker 00

  And now you've lost the single sequencer that that has monopoly power over everything so that they can, you know, extract all of the synergies. And then there's a third network effect, which is something that I only realized late, but I think it's an extremely powerful one. And that has to do with the native rollups. So you remember how I said that we can ZKify the EVM and we can expose a precompile within the EVM so that rollups can become native? Now it turns out that this precompile, for subtle technical reasons, only works for rollups.

• 1:49:01Speaker 00

  It does not work for validators. And so if you want to have all of the benefits that come from native rollups, you have no choice. You have to be a rollup. And if you want the quick kind of technical explanation, the reason is that the snark proofs are generated off-chain and gossiped off-chain. And in order for anyone to be able to produce these proofs, the underlying data, the so-called witness data, needs to be made available. All of this is technical jargon, but the long story short is that if you want to be a native rollup

• 1:49:44Speaker 00

  and not have to worry about bugs in your EVM implementation and not have to worry about governance to stay EVM equivalent every time the EVM changes at L1, you have to be a rollup. And so here we are. We have 100 home internet connections for the whole world. And then what I expect will happen is there's going to be a massive demand from all of these rollups that want shared security, synchronous composability, and also be native. And the rough back-of-the-envelope calculation is that we can scale to 10 million transactions per second. This is this crazy thing where you start with 100 transactions per second,

• 1:50:29Speaker 00

  which is just a firm L1. You get 100x from rollup scaling. You get another 100x from dank sharding. And then you get another 100x from Nielsen's law, which is the exponential growth of bandwidth over a period of 10 years. And that gives you your 10 million transactions per second. And then, once you have that, there's sufficient capacity for everyone in the world. Many, many transactions per day, per human. And even if every transaction charges a tiny amount, let's say a tenth of a cent, that's still a billion dollars per day of income. So what I'm seeing, what I think is a plausible future,

• 1:51:14Speaker 00

  is that we basically grow the block spaces as aggressively as we can. And then in a period of 10 years, we have this gargantuan network effect. And because we're fundamentally limited, we only have 100 home internet connections. The fee market is naturally going to to do its thing. And even if we're talking about absolute dust per transaction on an aggregated basis, because there's so many transactions that are being processed, we're talking about billions of dollars per day of of income. And the reason why I mentioned that flows are important is because they're a way for us to rationalize the monetary premium. And I think the the best mental model that I have is is gold.

• 1:51:59Speaker 00

  Gold is this 18 trillion dollar asset. And some subset of it, you know, the number that's usually quoted is 10%. So about, you know, 1.8 trillion of the whole gold market cap comes from its use as an industrial metal. And that's something that we can that we can understand fairly well just by looking at flows. It's a it's an understood science, right? We understand, for example, you know, the cost of mining gold from the ground, and we understand how much gold is being lost to electronics every year. There's this there's this crazy statistic that tens of billions of dollars of gold is lost every year in dumps, right?

• 1:52:41Speaker 00

  Because you have your piece of electronic, it has a few, whatever it is, micrograms of gold, and then you just throw it in the dump, and that's effectively a burn. It's a burn. You're you're burning the gold. And and so you you can do these flows analysis, and you can you can look at, you know, other metals and and, you know, you would have a market cap of roughly 10% of what it is. And then the rest is the monetary premium that comes from the slow money, where you lock up the money in in vaults. And the the you want to look at the ratio that is locked. And so if if 90% of all the gold is locked, then you'd expect a one divided by one minus

• 1:53:23Speaker 00

  90%, which is which is 10x, one divided by 10%. And I think we can be in a similar situation with with ether, the assets where 90% of the supply is basically locked in these virtual vaults in either in the form of staking or in the form of smart contracts that basically provide the economic bandwidth for stable coins or whatever it is. And then only 10% of the economy is really circulating and that 10% is itself valuable based on flows alone.

• 1:53:59Ryan Sean Adams?

  Justin Drake, that you just end statement is definitely worth the price of admission for this entire podcast. Very comprehensive. You know, one of the my prime questions has been, well, is Ethereum DA a commodity? Can it be replaced with some other DA from another ecosystem? That I gotta say is kind of the best argument for why Ethereum DA is not a commodity. Anyways, just so much there. So thank you for that. I guess as we close this out and end it, I anticipate that, you know, because we've been through the blockchain roadmap like cycle many times is you create a new solution for a category of problems

• 1:54:41Ryan Sean Adams?

  and then you also spawn another set of problems that you have to then go chase down and solve. And so my final question, we don't have time for a comprehensive answer, but I'm sure there will be some who listen to this episode and they'll say, but wait, this one thing about base rollups, you didn't acknowledge, you know, this set of trade offs. I saw roughly before coming into this, I saw a tweet from Torgol from your scroll. He said this base rollups do not inherit real time censorship resistance and liveness guarantees from Ethereum. There's a lot of myths. He's going to write a article dispelling them. I know you haven't read that that article, you know, so I'm sure you can. There's also takes that I've heard that base rollups will increase block builder centralization and that's like a

• 1:55:23Ryan Sean Adams?

  new challenge problem for Ethereum in general. What do you think that the trade offs or the problems that might fall out of a max based rollup, you know, Ethereum? What are the next dragons we have to go slay after this?

• 1:55:39Speaker 00

  One of the things that I've observed with base sequencing is that there's a new reason why it doesn't work like every month. And so it's a game of whack-a-mole where, you know, we just have to go through them one by one by one. And I think the the best way to prove that this thing actually works is to just stop talking about it and actually deploy it in production.

• 1:56:05Speaker 00

  And, you know, we could, you know, have a conversation or debate and go through all of these technical points one by one. As it's as it stands, like, I

• 1:56:19Speaker 00

  haven't seen a really solid criticism from someone who's really, really gone down the rabbit hole and and and taken the time to, you know, go through all the 15 sequencing calls and preconfirmation calls that we've had. From my perspective, like, once you appreciate base sequencing and your base build, there's there's there's no going back. I've I've I haven't I don't know of a single person who who has gone the other direction. It's it's kind of up only up to the right in terms of the the converts. Now, it is possible that there's unknown unknowns and that we we we end up like hitting roadblocks. My personal thesis is that

• 1:57:03Speaker 00

  a lot of the problems that we will encounter are actually universal to any decentralized sequencer and any shared sequencer. And so really, base sequencing is just the the final layer of veneer at the very end. It's just a small detail. Is it this server or like this Raspberry Pi or this this other entity that's doing the work, but ultimately it's the very much the same kind of of of of technology. And so I'm not at all worried from a technology standpoint, and I would love to have these technical discussions with with Tugrel and others. If I may, just ending this this episode, I prepared a little meme and I wanted to see how how it lands and it's it's relevant to to to base sequencing.

• 1:57:48Speaker 00

  The meme goes as followed. If Bitcoin is digital gold, then Ethereum is digital Switzerland, a credibly neutral jurisdiction that can be the basis for internet finance. Now, I would liken Ethereum settlement to the Swiss legal system. It is the final and authoritative arbiter of truth. And I would also liken EFA, the asset, to the Swiss franc, a credibly neutral unit of account to denominate financial contracts. And this is where Ethereum sequencing comes in. Ethereum sequencing is like Swiss democracy.

• 1:58:32Speaker 00

  It is this credibly neutral layer of mediation that can unlock synergies and network effects that would otherwise be trapped by competitive and adversarial tensions. And so I think we shouldn't be focusing so much on the technical details of base sequencing, because those are, to a very large extent, shared with decentralized sequences and shared sequences. But we should be focusing on what makes base sequencing special, which is, in my opinion, credible neutrality.

• 1:59:04Ryan Sean Adams?

  Well, maybe Ethereum can be Switzerland, but with America's military, something like that. We want some security there, for sure, as well.

• 1:59:13Speaker 00

  Hundred billion dollars of economic security.

• 1:59:16Ryan Sean Adams?

  There you go.

• 1:59:17David Hoffman?

  Justin, this has been, I've learned quite a lot in this episode. This has been great. We have you speaking at the Bankless Summit at the day after DevCon, November 16th. Now, you've described your talk that you are producing as painfully bullish. Now, I don't really want to give anything away. I also don't know anything. Is there anything that we've covered here on this episode today that's going to be related to or overlapping with your content, your talk at the Bankless Summit? Or is that all novel material, a novel talk that you're giving at the Bankless Summit?

• 1:59:47Speaker 00

  I think it's mostly going to be novel stuff. I think that I will be reusing some of the material, but not much. Just as a teaser, in 2024, I have spent

• 2:00:04Speaker 00

  You know, most of my time focused on on sequencing. And it is, you know, a true pleasure for me to say that I think base sequencing and preconfirmation has reached escape velocity in the sense that my job as a researcher and coordinator is largely done. There's now, you know, dozens of teams, very, very strong teams that that are building all this infrastructure. And I think at this point, it's hopefully an unstoppable force. And so that means that in 2025, I can start working on, you know, new and exciting stuff. And I have all sorts of plans that will be disclosed in due time.

• 2:00:48Ryan Sean Adams?

  Ethereum stuff, Justin?

• 2:00:50Speaker 00

  Oh, yeah, Ethereum stuff.

• 2:00:53Ryan Sean Adams?

  Amazing, cannot wait. David, what are the dates of the Bankless Summit? That's the day after DevCon, right? And we should include, we'll probably include a link to that in the in the show notes, but give us the date again.

• 2:01:03David Hoffman?

  Yeah, it's November 16th. DevCon ends November 15th on Friday. The Bankless Summit is the day after November 16th. Unofficially, the ETH is Money Conference. Just to make sure that at at DevCon, there's enough content around Ether, the asset and its future in the Ethereum world.

• 2:01:20Ryan Sean Adams?

  Please inject some of that painfully bullish material straight into my veins. That that's going to be an exciting set of talks. Bankless Nation, this has been Justin Drake. We've talked about base rollups here today. We've also talked about many of the things that the FUD out there about Ethereum's future and very, very bullish episode here, Justin. Thank you so much for joining us.

• 2:01:39Speaker 00

  Absolutely. Thanks for having me, guys.

• 2:01:41Ryan Sean Adams?

  Got to let you know, of course, roadmaps are risky. So is crypto. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 2:01:52David Hoffman?

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• 2:02:37David Hoffman?

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