Recently, the liquidity re-staking protocol Puffer Finance, active in EigenLayer, launched a solution called Based Rollups, attempting to introduce ETH mainnet validators to provide a more secure and efficient decentralized solution for Rollups, particularly in the decentralization of sequencers.
As a classic LST protocol, it can offer new technical solutions by combining its own characteristics (supporting both ETH mainnet PoS and Eigenlayer restaking), which is a nice narrative expansion.
The decentralization of sequencers is the core concern of the community, as it is almost the weakest point of the Rollups system and can directly affect the user experience. Based Rollups attempt to outsource sequencing to Layer 1 to achieve decentralized ordering, which not only reduces the risk of the current overly centralized Rollups sequencers but also significantly lowers transaction costs and enhances system activity.
Developers can easily deploy and manage their own Rollups chains based on the Based Rollups architecture, enjoying the security and decentralization features of Ethereum.

Current Issues with Rollups

Current ZK or OP Rollups rely on centralized sequencers to determine the order of transactions. This centralization brings risks, including sequencer failures and reduced user trust, as well as the derivative MEV issues.
To mitigate these risks, many Rollups provide "escape hatches," a mechanism that allows users to exit Rollups in the event of a sequencer failure, but this increases latency and gas fees and may be exploited by malicious sequencers to extract MEV.
We urgently need Rollups with decentralized sequencers.

Introduction of Based Rollups

Rollups where the transaction order is determined by L1 are called Based Rollups, proposed by Ethereum Foundation researcher Justin Drake in March 2023.
Base Rollups achieve decentralized ordering by utilizing L1 proPosers to determine transaction order. This approach not only inherits the activity and decentralization of L1 but also eliminates the need for escape hatches, thereby enhancing the security and efficiency of Rollups.

How Based Rollups Work

In Base Rollups, L1 proPosers can collaborate with L1 searchers and L1 builders to permissionlessly include Rollups blocks in the next L1 block. In other words, the order of the included L2 blocks and the final ordering of transactions are determined by L1 proPosers. However, generally, L1 proPosers do not construct L2 blocks themselves. Instead, each Based Rollups block is constructed by L2 builders. This means there is no additional workload for L1 proPosers.
Taiko is an example of Based Rollups, where the VM and Rollups execution agents execute transactions off-chain, while the transaction order is determined by the Ethereum consensus layer from the consensus layer onward, and transaction data is also published on Ethereum, allowing for the final verification of transaction status on Ethereum.

Advantages of Based Rollups

1. Inherit L1's anti-censorship, enhance transaction activity: Since Based Rollups are operated by Ethereum L1 proPosers and validator nodes, they inherit Ethereum's anti-censorship properties, thus eliminating the need for escape hatches. This ensures transaction activity and avoids the transaction delays and unfairness issues brought by escape hatches.
2. Reduce transaction costs: Transactions based on escape hatches typically incur additional gas costs, reducing the activity of traditional Rollups. In contrast, Based Rollups transactions do not require additional gas fees and do not need to verify the signatures of centralized sequencers, further lowering costs.
3. Inherit L1 decentralization, simpler and safer system: Based Rollups only execute the transaction layer off-chain, while the consensus layer for ordering transactions, the data visibility layer, and the verification layer are all on L1. This reuses L1's searchers-builders-proPosers architecture, making the Based Rollups system very simple, without the need for sequencer signature verification, escape hatches, or external PoS consensus. L1 searchers and block builders are incentivized to include Rollups blocks in their L1 bundles and L1 blocks to extract Rollups MEV, further enhancing L1's security. By default, Based Rollups have almost no negative impact on L1 stakers; the only impact is increased revenue, as most MEV flows to L1.
4. Flexible token governance: Although sequencing is delegated to L1, Based Rollups can still have governance tokens to collect base fees. Of course, tokenless implementations can also be realized, as their correctness and fairness are guaranteed by Ethereum.

Challenges Faced by Based Rollups

Forced Reduction of MEV Income

MEV is a significant portion of traditional Rollups income, but most Based Rollups' MEV flows to L1 proPosers, sacrificing the MEV income of Based Rollups while still retaining the option to earn income from L2 congestion fees (e.g., EIP-1559 style L2 base fees).
However, Based Rollups hoping to capture their own MEV may have some bribery mechanisms, such as including an auction mechanism in L1 contracts, like Dutch auctions, forcing batch submitters to pay some ETH to the contract.

Limited Sequencing Flexibility, Unable to Achieve Pre-confirmations

While Based Rollups have advantages in many aspects, they also face some challenges, particularly related to soft confirmations. Soft confirmations refer to the user's ability to reliably know that their transaction will successfully reach Ethereum Layer 1 (L1).
Current Rollups provide pre-confirmations, allowing users to know that their transactions will definitely be submitted to L1.
However, delegating sequencing to L1 reduces sequencing flexibility for Based Rollups, making it impossible to achieve pre-confirmations and Arbitrum-style first-come-first-served (FCFS) ordering.
Justin Drake proposed using re-staking in the summer of 2023 to address the pre-confirmations issue. By designing with re-staking, a portion of L1 proPosers submit (through re-staking) to include Based Rollups blocks in the L1 blocks they will propose in the future. Since L1 proPosers know in advance about at least 32 blocks, it is possible to designate who is the proPoser for which block.

Puffer Finance's Improvements to Based Rollups

Puffer Finance aims to integrate pre-confirmations with Base Rollups through its UniFi architecture, providing fast (100 milliseconds) confirmation times while retaining all the advantages of Base Rollups.

Pre-confirmation Mechanism Ensures Transactions are Submitted to L1

Pre-confirmations ensure that decentralized sequencers can effectively submit transactions to L1. Ethereum validators queue to propose blocks. If pre-confirmers fail to fulfill their commitments, they face penalties such as slashing to ensure higher reliability. This mechanism gives users more confidence that their transactions will indeed be included in the Ethereum L1 state.

100ms Fast Confirmation

For applications like GameFi, soft confirmations are crucial for ensuring rapid response times (e.g., around 100 milliseconds). However, the sequencers of Based Rollups, due to decentralization, follow a 12-second block generation time, resulting in a minimum confirmation time of 12 seconds, which makes soft confirmations unable to respond quickly.
Puffer's UniFi integrates pre-confirmations with Based Rollups, enabling Based Rollups to provide a user experience comparable to centralized sequencers, offering 100 milliseconds confirmation time while ensuring their activity. This integration allows Based Rollups to retain all their original advantages, ultimately addressing the issue of liquidity fragmentation on Ethereum and promoting a more unified and efficient Rollup ecosystem.

Architecture of UniFi

The architecture of UniFi allows it to leverage Puffer's validator nodes, rapidly scaling from a single centralized sequencer to thousands of decentralized sequencers. UniFi aims to seamlessly integrate pre-confirmations into its Based Rollup.

• Users submit Rollup transactions, which are then processed by Puffer validators. These validators provide pre-confirmations, ensuring users know their transactions will be included in the Ethereum L1 state.
• Puffer validators re-stake based on additional slashing conditions to ensure reliability, receiving Rollup transactions from users and issuing pre-confirmations. These validators are prepared to include Rollup transactions in L1 blocks.
• The pre-confirmation penalty mechanism (Preconf Slasher AVS) imposes additional slashing conditions on validators to deter breaches of pre-confirmation commitments, preventing validators from failing to submit certain Rollup transactions to L1.
• Puffer validators propose blocks to Ethereum L1, which include the order of pre-confirmed Rollups.
• Puffer's sequencer contract accepts Rollup transactions.
• The PufETH Vault collects congestion fees and contention fees generated by Rollup transactions, which can increase the earnings of PufETH holders and return native yields to UniFi users.

uniETH that Reduces Market Risks

uniETH is a universal gas token within the UniFi ecosystem. It generates rewards through pufETH and is managed by a decentralized autonomous organization (DAO) to avoid market risks, such as liquidation due to Ethereum price fluctuations, while Puffer's anti-slashing mechanism can mitigate these risks.

Gasless Transaction Scenarios

In Web2, users are accustomed to free internet services subsidized by advertisements. In Web3, however, users need to pay for services, which may hinder usage.
Users of Puffer's Based Rollup can earn income by locking assets in the Rollup native bridge, generating native yield, which allows Puffer to support some applications that resemble gasless transactions, having significant implications for both Web2 and Web3.

Puffer's Based dApp Chain

If transaction fees on a Rollups chain become too high, developers may choose to leave the Rollups chain to create their own dedicated chain, allowing them to directly earn from user transaction fees. Puffer provides developers with the solution of Based dApp chains.

Launching a Puffer Based dApp chain becomes as simple as deploying a smart contract, inheriting the security and decentralization features of Ethereum. Developers can earn transaction fees from their dApp's Rollups chain without needing to operate a centralized sequencer, while also enabling cross-chain transactions and interactions.
Transactions on Puffer's Based dApp chain can be quickly confirmed within 100 milliseconds, and Puffer's pre-confirmations ensure that transactions are submitted to L1.

Conclusion

Through collaboration with the Ethereum Foundation, Puffer Finance is providing a more secure and efficient solution for Rollups. This decentralized sequencing approach not only reduces the risks of current centralized sequencers but also significantly lowers transaction costs and enhances system activity.
With the integration of pre-confirmation mechanisms and 100 milliseconds fast confirmation times, Base Rollups will become an ideal choice for various applications, including GameFi, ensuring user experience while guaranteeing transaction finality. Furthermore, based on Puffer Finance's Based dApp chain, developers can easily deploy and manage their own Rollups chains without worrying about the operational issues of centralized sequencers, enjoying the security and decentralization features of Ethereum.