Research Summary
The research report discusses the role and significance of Sequencers in Layer 2 (L2) rollups in the Ethereum network. Sequencers are centralized entities in each L2 that collect transactions, order them into a single batched transaction (block building), and dispatch the consolidated transaction back to the Ethereum mainnet (block proposing). The report highlights that Sequencers can generate substantial revenue through the differential between the cost to post calldata to Layer 1 (L1) and the fee paid, and payments received for strategic ordering of transactions (MEV). The report also mentions ongoing discussions about decentralizing Sequencers and the challenges involved.
Actionable Insights
- Sequencers are a crucial part of any L2 token investment thesis: Their role in collecting, ordering, and dispatching transactions makes them a significant revenue-generating mechanism in the crypto ecosystem.
- Revenue generation through Sequencers: Sequencers can earn considerable revenue in the form of ETH or other tokens through the differential between the cost to post calldata to L1 and the fee paid, and payments received for strategic ordering of transactions (MEV).
- Decentralization of Sequencers: There are ongoing discussions about decentralizing Sequencers, but implementation has proven challenging due to the complexities of introducing a rotating leadership system for Sequencers.
