Ethereum Layer 2 rollups could shift $210M in revenue

Ethereum (CRYPTO:ETH) developers and layer 2 leaders are advancing efforts to implement "based" and "native" rollups, aiming to enhance the network's security and reduce fragmentation.

These rollups, discussed in a January 25 call with Ethereum developers, are seen as tools to unify Ethereum’s base layer with its layer 2 networks.

Jesse Pollak, head of Ethereum layer 2 Base, stated that based rollups are “both a flexible and powerful tool” to strengthen Ethereum’s connectivity and security guarantees.

Ben Jones, director of the Optimism Foundation, added that such rollups would improve collaboration between Ethereum’s base layer and its layer 2 solutions.

Based rollups, a concept introduced by Ethereum developer Justin Drake in 2023, decentralise transaction sequencing by allowing all Ethereum validators to participate in block-building.

This approach contrasts with the current system where centralised sequencers process transactions for layer 2 networks like Arbitrum and Optimism.

While this transition could improve decentralisation, it comes at a cost.

Layer 2 networks would forgo significant revenue generated from Maximum Extractable Value (MEV), which allows block producers to rearrange transactions for profit.

For example, Arbitrum has earned $210 million from its centralised sequencer, while Base has generated $96.2 million.

Native rollups are also being considered to improve transaction execution on the base layer, enhancing network composability.

However, decentralised sequencing could increase transaction confirmation times to approximately 12 seconds compared to the current one-second speeds on many layer 2s.

Several executives support adopting "FABRIC," an infrastructure designed to facilitate based rollups.

Daniel Wang, CEO of Taiko, expressed readiness to implement FABRIC standards to address Ethereum’s interoperability challenges.

At the time of reporting, the Ethereum (ETH) price was $3,057.53.