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A | Welcome to Bankless, where we explore the frontier of Internet money and Internet finance. And today on bankless, we explore the frontier of composability of Ethereum's roll up centric roadmap. Today on the show we have Justin Drake as my technical co moderator as we both interview Ben Fish, the CEO of Espresso Systems... |
B | David, thanks for having me again. |
A | And coming in for his first time on bankless, we got Ben Fish, the Sultan of sequencing, the espresso emperor, the cross roll up connoisseur, the blockchain barista Ben, welcome to Bankless. |
C | Pleasure to be here. David, thank you for having me. |
A | So where the fragments of Ethereum threatened to turn this digital landscape into a maze of confusion, two men stand tall, illuminating the way to come save us from the labyrinth of Ethereum's roll up centric roadmap today on the show, we're going to be talking about shared sequencing and what this means for Ethereum's... |
B | Right. I mean, I'd like to push forward the discussion around shared sequencing and base sequencing. Specifically, I think we're in this interesting phase shift moment where people are starting to pay attention to the problems of fragmentation and also the solutions are starting to pop up. There's a bunch of misconcept... |
A | Interesting. Yeah. Ben, maybe share some of your similar thoughts or goals or just interests in the, the knowledge and content and conversations that you want to broadcast. What goals do you have for this episode? |
C | Yeah, similar to Justin, I would like to address head on shared sequencing and what it is and why I'm very bullish on it, why I think that it's very important for the evolution of the roll of space and for the scalability of Ethereum while preserving its unity and defragmenting what has happened to Ethereum with the cu... |
A | Okay, I love that. And I want to put a pin in that because I want to work towards that point. But I think we need to establish a foundation, some knowledge before we get into what the significance of that is. So let's see how fast we can kind of speed run through the 100 level and 200 level aspects of this conversation... |
C | Yes. So sequencing today for a roll up is the act of determining the transactions that will actually go into the roll up. And currently most roll ups today have a server that collects these transactions and orders them, gives confirmations to users that these are the transactions that are going to be included. And then... |
A | Maybe one way to articulate the purpose or advantage of shared sequencing, and this is just my understanding. So check me on this, Ben, is that when you have one rollup, you have the economics of that one rollup. And then when you have a sequencer that is spanning multiple rollups, aka a shared sequencer, we one roll u... |
C | Absolutely, yeah. It enables faster bridging between rollups. There are certain things that you can't do today, like maybe it's good. This isn't what you said is entirely correct, but I think just giving a few quick examples might help make it concrete. Let's say that I want to buy an NFT on one roll up, but I want to ... |
B | Yeah, I like the marketplace analogy, because it's all about creating value that otherwise couldn't have been created. So there are certain instances where we want this really low friction form of interaction, which we call synchronous composability, and that provides more value than the counterpart, which would be asy... |
A | Maybe the ethereum layer one, the common settlement layer for all rollups, maybe one way to perceive it is like a minimum viable composability for all rollups. At the very least, rollups are composable, albeit slowly, albeit extremely asynchronously, through the layer one. And that is our threshold, that's our floor, t... |
C | I'll say it like this. Ethereum is a shared sequencer. We already have a shared sequencer, right? Ethereum is a shared sequencer not only for all applications that run on Ethereum, it is a shared sequencer for rollups. It is not as good a shared sequencer as we want right now. |
A | It's not optimized to be a shared sequencer. |
C | Yeah, well, it's a shared sequencer that happens on a delay, right? And I think that it's talking about Ethereum as a shared. The difference between shared settlement layers and shared sequencers I think is greater than people might think. So I think all this discussion about shared sequencing is about improving on the... |
B | David, I really like your point around the minimum foundation that Ethereum provides, which is asynchronous composability. And the way, I guess a good metaphor is countries. Let's say you have two different countries. At a minimum, what you can do is transport from one country to another. If you get a visa or if you sh... |
A | Okay, so this all sounds great. Fantastic. Why don't we have this right now? Like why it seems so simple. Just like share the sequencers, just get it done. Why can't we have it? What are some of the obstacles, Ben, that you say you're running into a espresso? |
C | Right? |
A | What are just the net obstacles for the ecosystem as to why this is difficult? Like why can't we have this? Why can't we have this? |
C | Yeah, good question. So I think that in part there's a, you know, there's a technical challenge. There's also a more social challenge, a coordination challenge. Let me touch on the technical challenge first. So actually the original concept of rollups was just to share Ethereum as a sequencer. Like the original idea fo... |
B | Yeah. So if I were to summarize basically what you're saying is that the sequencer is this coordinator which provides various services it can do optimal sequencing and deduplication and compression, so it's a performance benefit, but it also provides UX benefits. One of them, as you said, is this finality, if you trust... |
A | Justin, where would you like to take things from here? I have one set of questions that maybe we will get to, but it's more about just one of the last that Ben said, which is like at the very start, no one wants to use shared sequencing. At the very end, everyone wants to use shared sequencing, the end being when every... |
B | Right? I mean, I do want to go through various innovations that Ben and his team are bringing to the table. One of the big ones that we've already alluded to is MEV redistribution. But I really like what you said, that here, shared sequencing is all about network effects. And so if you're one sole roll up, what is the ... |
C | Yeah, Justin, I agree. There are absolutely network effects, and the value of a shared sequencer increases quadratically in the number of roll ups that are joining it. I wouldn't say, however, that nobody wants to use a shared sequencer at the beginning. I think everyone talks about decentralizing their sequencer, and ... |
A | Ben, before you move on, I'd like to actually unpack that just a little bit more. Decentralizing a sequencer right now, the base case for Ethereum roll ups is we have centralized sequencers. We get some benefits from that. But ideally, we would like to go from the current state, where arbitrum or optimism have one sing... |
C | That is kind of what I was saying, yes. The other thing to note is with based sequencing, you automatically are sharing a sequencer with Ethereum, with the L one, with the EVM. So by involving the L one proposer in the sequencing protocol, all sequencing protocols basically have a rotation of who can propose the next b... |
B | If I were to summarize, Ben, I guess you're saying two things. One is that a lot of these teams already on their roadmaps want to decentralize their sequencer, and so they might as well have someone else do all the work. The roll up teams are experts in virtual machines. They know how to design the virtual machines and... |
C | Yes. Yeah, I'll soften just the first remark, because my personal view is that, and I know a lot of the leaders of these other projects, I think all these projects have brilliant people and they're all actually very, very capable of building advanced technical solutions across many different types of domains, including... |
B | Right. So one of the big concerns that rollup have when they're first exposed to this idea of shared sequencing is that they have to give up MEV as a source of income. And I have my own thesis, which is that MeV is going to go down by at least an order of magnitude, if not two orders of magnitude relative to this other... |
C | Yes. So I'll go back to what I said at the beginning, which is that I think of a shared sequencer, if built appropriately, and this is the way that we're building it at espresso. I think of a shared sequencer as a marketplace whereby chains are, roll ups are selling proposal rights by the slot to others, whether they'r... |
B | Roll up a, roll up b, arbitrum and base. |
C | Fine. Arbitrum and base. Right? So, hypothetically, arbitrum and base. |
B | I. |
C | Then, if they're the only two rollups on this shared sequencer, what's going to happen is that third parties are going to bid for the right to be the proposer for the next blocks of base and arbitrum. And there's different kinds of bids that we'll collect will allow people to bid individually on proposing the next bloc... |
A | Is that like a tariff? Ben, if we're using the nation state United chains of Ethereum metaphor, is that like a tariff? Like you must pay at least this. |
C | Not a tariff will. I mean, it's, I don't think it's exactly a tariff. It's more, I mean, in the language of auction of auctions, or, you know, the economic term would be a reservation price because, or reserve. Reserve price because it's saying that the seller is only willing to sell regardless above this price. What w... |
B | So if I were to highlight one specific point, what you're saying is that there's a mechanism whereby at the very least, the roll ups are getting the value, the MEV, that they would have received if they were completely isolated from a sequencing standpoint. And potentially they're getting more because there's excess ME... |
C | That's right. I also want to highlight again what you said earlier, which is that this has nothing to do with the gas fees that rollups charge today. Rollups are making hundreds of millions in sequencing revenue today. That's not from MeV. That's all from execution fees today mostly. And shared sequencers don't touch a... |
A | All integrated. Right. |
C | It's all integrated. Right. But shared sequencers separate that. So the transactions are still paying fees in the roll up itself. They don't. We wouldn't pay it to the shared sequencer. The execution fees that they're paying, the gas fees that they're paying within optimism, or arbitram or Zksync or whatever. Whichever... |
A | I want to talk about this reserve price just to try and get more of a mental model around it. So if arbitrum sets a reserve price of ten or two or 100 is the significance of that reserve price just arbitrum or any other layer two, raising or lowering the threshold of how much they need to be paid in order to be a part ... |
C | Yep. Yeah. |
A | Okay. So like maybe a tariff is like kind of a rough, rough analogy, rough metaphor. But I think where I was going with that is like this is the sovereignty of one particular chain, making sure that they are receiving what they perceive to be their due amount of value before they are okay with being interoperable with ... |
C | I like it. Yeah. I tend to be over precise. So I think I. Yeah, I do like the analogy. |
A | Okay, cool. |
B | While we're on the topic of sovereignty, is there any loss of sovereignty that might happen beyond economic sovereignty? So you've talked about how economically it does make sense to connect to this network, but is there something else that maybe is lost when we move to shared sequencing? My personal perspective is tha... |
C | Yeah, I mean, my honest perspective that this is, this is net positive. I'll tell you some of the concerns that I'm hearing that I see, and I think, I think they're coming from. These concerns need to be, I think, mitigated and considered seriously. I think one of the concerns that I hear is that, you know, shared sequ... |
B | Right, so I guess on the first point that you brought up, you're saying that it's very unlikely that we're going to have just one single roll up. They're going to win everything. The way that I think about it is there's going to be a very rich long tail of virtual machines. There's going to be virtual machines that are... |
C | Yes, yes. |
B | And so there's going to be some amount of assets that might never migrate from l one. Think of Ens, for example. The root of truth, of Ens might always be the l one, just for historical reasons and because of maximum security. The same might be said for large whales. They might always choose, just have their treasuries... |
C | Yeah, so I mentioned it at the beginning, but originally we were thinking of espresso as just a replacement for centralized sequencers, a shared decentralized sequencer that would have participation from ETH restakers through Eigen layer. And we thought that this was different than the narrative that you were describin... |
B | Okay, let's talk about this fast finality, because that's a whole new topic. But I just want to very briefly summarize what you just said, which is that each l two individually generates some value. But once we consider the l two s together, there's this excess value that's created, and that's all well and good, but no... |
A | Justin, can I also just kind of do my attempt at kind of explaining the topology of the network that I'm seeing here? So we have the base ethereum chain kind of thinking of this as just like the planet. And then we have some ball at the very center when it's got all of its validators. And then we have the vertical laye... |
C | Yeah, that was said exceedingly well. Yes, that was spot on. And just to come back to this, even though it might look like a subtle architectural change, I think the impact is massive. Because now rollups that are running on espresso are based rollups, it can be a choice that rollups make. So if a roll up, for example,... |
B | So, just to translate what Ben said, in my own words, there's two flavors of finality from the perspective of an l two. You can have finality which is unconditional, and you can have finality which is conditional on the l one reorgang or not reorgang, I should say. So if you want to have synchronous composability with ... |
C | Yeah, we can. So the way that that works, and this is unique to espresso's version of base sequencing. Let's look at what vanilla based sequencing would look like the transactions are. We're only adding l two transactions through l published l one blocks. Okay, so let's say we have a block. Block twelve on ethereum, ok... |
B | As a piece of context here. Ben is a hardcore cryptographer, trained as a professional cryptographer, and has made a lot of contributions, specifically on snarks and folding schemes and recursive proofs. |
C | Yeah, my side hobby is writing papers on snarks. |
A | Same. I love that in my spare time. |
C | But once we have real time proving, then you'll be able to have deposits from the l one into the l two and withdrawals into the l one within the span of one ethereum block. That's only what base rollups can do. We can still do that, but we can also have, between published Ethereum blocks, many l two transactions finali... |
A | So that's the idea with base proving. That one example, that means you could take a flash loan on the layer one, do some activity on the layer two, and then pay it back on the layer one inside the same block. Is that what it unlocks? |
C | Once we get real time proofing, we'll be able to do that. |
A | Okay, that seems like a very high. It's like, it seems like a gold standard of. |
C | Yeah, and this is going to, I mean, this is going to happen. There's many projects out there that are working on ASics for proving. Also with the innovations in recursive proofing, you really only need low latency on the construction of this final proof that summarizes all the individual proofs that happen. So it's get... |
A | Okay. Understanding at a high level how these systems work, somebody here in the actual running of the hardware, somebody here is extremely well networked with extremely strong computational resources. Right. That's just my intuition. Is that check out? |
C | Yeah. But that's also something that it can be outsourced. So if I'm, if I'm the proposer, I don't necessarily need to be extremely sophisticated if I can outsource some of this job to someone else. But I think, and this goes back to how we were saying, how we were talking earlier about how someone becomes a proposer. ... |
A | In trust, right? Yeah, yeah. |
B | And this is basically all the research that we've done with proposer builder separation. The proposer can run on a raspberry PI with a home Internet connection and still tap into the most sophisticated sequencer and builder markets in the world. And sure, there's extreme sophistication on the other side of PBS, but tha... |
A | And this is not a research problem. This is an engineering problem. Is that where we are in this development roadmap? |
B | Correct. This is purely an engineering problem. Just a few weeks ago, we've had this announcement from axial, which is a manufacturer of snark proving ASics that they have their first ASIC physical. We can touch it. And that actually does photos on the Internet that you can go and find. And not only that, but there's t... |
C | And in all cases, you still get the fastest preconfirmations from the proposers, which can be 100 milliseconds, but backed likely by less economic value. |
B | William, one final topic that I think is worth discussing is this idea of censorship resistance. We mentioned that there is potentially this hypercentralized builder and preconfirmer market, but I think in our discussions you've alluded to a potential clever solution, some sort of mitigation to that problem. Do you wan... |
C | Yes. It turns out to be the same solution that enables this MeV redistribution. We were talking earlier about how we have this auction that assigns roll up block proposal slots to shared proposers, and I say shared proposers with an s plural, because there's one special outcome where there's one individual proposer who... |
B | Right. So there's two different kinds of censorship resistance that we care about. The first one is around making sure that transactions get included on chain. And for that we have this really neat solution called inclusion lists. So you can always get your transactions on chain, even if it's some sort of censored roll... |
C | Yes. |
B | Now, the other concern that we have around sensor resistance is sensory resistance of the pre conformations. This 100 millisecond ux. We want to make sure that everyone has access to that. And what you're saying is that, that if we have a super sophisticated pre confer that happens for, let's say, regulatory reasons, t... |
C | Somebody will bid on it. |
B | Somebody will bid on it. And so you still have this 100 millisecond ux. And the reason why it's compatible to have two simultaneous pre confers is that they're actually acting on disjoint pieces of state. So whatever pre conformations they individually give will never conflict with each other. |
C | Correct. Right. |
A | It kind of sounds like maybe there's a similar pattern here to the meme that I brought up earlier about ethereum, the layer one as the foundation of composability. And it's also the foundation of censorship resistance. And with additional mechanisms that high watermark, that tide level increases up the stack for censor... |
C | Yeah, no, yeah, I think so. |
A | Guys, this has been an immensely educational episode, I think just with the overall direction and also some of just like the more down the rabbit hole details, things, lots of positive things to get out of this. Is there anything that we lose? Blockchain systems are systems of trade offs. What are we trading off to get... |
B | Sure. Yeah. I think it is important to talk about potential downsides of espresso's approach to counterbalance some of the upsides. Two that come to mind are, number one, we're introducing an honesty assumption in order for this off chain fast l two finality to happen. We're assuming that half of the espresso validator... |
C | Yes. I think that when we talk about downsides, I think that downsides are sort of a relative term, right? So we should be looking at, well, downsides compared to something else. So I think I look at it more as trade offs. What are the trade offs in the design space. Right. And certain trade offs may matter differently... |
B | Yes, and let me just summarize this one before we move on. What you're saying is that if the BFT consensus protocol loses liveness, let's say more than one third of the espresso validators go offline. Well, for some period of time the roll ups can't advance because they need this certificate of finality from espresso i... |
C | Well you don't turn off all the goodies necessarily, because the BFT gadget is separate from the MEV redistribution mechanism which is assigning the proposer. So you still have that MEV redistribution mechanism because this is an auction that's being run to determine who gets proposed and then that might be bought up b... |
B | Okay, interesting. That's a detail I didn't realize. So you're saying that the redistribution aspect only relies on the l one. It's some sort of l one auction that's happening. It does not rely on the Bft. And so even if the BFT is broken, you still have the redistribution. |
C | Right. |
B | Okay, perfect. So I guess the second topic is risks around restaking. |
C | Risks around restaking, right. Maybe elaborate first and then I can comment because maybe explain your concern around restaking and then I can add color. |
B | Right. So there's two, I guess, classes of restaking risk that people are concerned about. One is around removing the level playing field that we currently have with staking. So for example, if restaking requires very high hardware requirements or lots of capital or things like that, it increases the barrier to entry a... |
C | Right? Yeah. No, I've heard this concern as well, and I think that could be a valid concern. This idea that we need to be careful not to overlook social consensus when it comes to this additional role that restakers are playing. I think that it's important to consider the extent to which we are relying on what these re... |
B | I mean, recently I've been more and more optimistic about restaking because I feel that there's been a decoupling, a potential decoupling between staking and what's known as restaking. In some sense, restaking is a little bit of a misnomer, because you could put forward any asset as collateral. It doesn't have to be ei... |
C | Well, actually, let me just, I guess, clarify one point on the design of these attesters in espresso. So to be in a tester, to participate in this BFT finality catch that espresso provides, you can stake one of two assets. You can stake espresso tokens, you can stake eth. You don't have to be an l one proposer in order... |
B | Okay, understood. So what you are saying is that actually the collateral doesn't have to come from stakers, it doesn't even have to be ETH. And so there isn't this tight knit relationship that you're building with the attesta specifically? |
C | Yeah, I mean I think I view ETH restaking as a subsidy for ETH validators to participate in contributing a security to the system. So if you're already staking for Ethereum then you can reuse that capital to also contribute security to this pre conformation layer. But you don't have to be one of those nodes, you can ju... |
B | Pain, right? So just to provide a little bit of context as to why im asking this question is because there is a potential upgrade to Ethereum where we do whats called state capping or stake targeting, where we adjust the amount of issuance to go down to zero or even down negative, for example ten towards negative infin... |
A | Guys, this has been extremely all encompassing. I think this is bringing in a lot of different innovations that are all happening in parallel around the Ethereum sphere. The progress of layer twos, both in their technical prowess, their technical capabilities and their sheer number, along with Eigen layer restaking alo... |
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