{"id":171468,"date":"2024-09-21T13:00:00","date_gmt":"2024-09-21T13:00:00","guid":{"rendered":"https:\/\/crypto-economy.com\/?p=171468"},"modified":"2024-09-20T16:35:31","modified_gmt":"2024-09-20T16:35:31","slug":"based-rollups-a-solution-to-ethereums-layer-2-liquidity-dilemma","status":"publish","type":"post","link":"https:\/\/crypto-economy.com\/based-rollups-a-solution-to-ethereums-layer-2-liquidity-dilemma\/","title":{"rendered":"Based Rollups: A Solution to Ethereum&#8217;s Layer-2 Liquidity Dilemma?"},"content":{"rendered":"<p style=\"text-align: justify\">TL;DR<\/p>\n<ul>\n<li style=\"text-align: justify\">&#8220;Based Rollups&#8221; could <strong>transform Ethereum&#8217;s economic structure<\/strong> by aligning incentives between layer-2 solutions and layer-1 validators.<\/li>\n<li style=\"text-align: justify\">This approach <strong>uses layer-1 validators<\/strong> for transaction processing, unlike other rollups that employ their own sequencers.<\/li>\n<li style=\"text-align: justify\">The interoperability of &#8220;Based Rollups&#8221; may <strong>enhance liquidity access and gas demand<\/strong>, potentially allowing for <strong>zero ETH issuance<\/strong> in the long term while maintaining <strong>high staking yields<\/strong>.<br \/>\n<hr \/>\n<\/li>\n<\/ul>\n<p style=\"text-align: justify\">The <strong>&#8220;Based Rollups&#8221;<\/strong> proposal is gaining attention as an innovative solution to <strong>address incentive problems<\/strong> within the <a href=\"https:\/\/crypto-economy.com\/what-is-ethereum\/\" target=\"_blank\" rel=\"noopener\"><strong>Ethereum<\/strong> <\/a>network.<!--more--><\/p>\n<p style=\"text-align: justify\">This approach could <strong>profoundly alter the economic structure<\/strong> of the ecosystem, especially concerning the usage and demand for Ethereum (ETH). The key to this proposal lies in its ability to <strong>align incentives between layer-2 (L2) solutions and layer-1 (L1) validators<\/strong>, which could result in an exponential increase in long-term demand for ETH, up to <strong>100 times<\/strong>.<\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"550\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">So a based rollup is a type of L2.<\/p>\n<p>It still saves the data in a compressed format on the L1.<\/p>\n<p>But instead of its own sequencer, it relies on L1 validators to process the transactions.<\/p>\n<p>They still use rollup bundling, systems called \u201cprconfirmation commits\u201d and other features, to\u2026<\/p>\n<p>&mdash; Adam Cochran (adamscochran.eth) (@adamscochran) <a href=\"https:\/\/twitter.com\/adamscochran\/status\/1833576432674750752?ref_src=twsrc%5Etfw\" target=\"_blank\" rel=\"noopener\">September 10, 2024<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p style=\"text-align: justify\">&#8220;Based Rollups&#8221; represent a layer-2 scaling solution that, unlike other solutions, <strong>uses layer-1 validators instead of their own sequencers<\/strong> for transaction processing.<\/p>\n<h2>Realigning Incentives in Ethereum<\/h2>\n<p style=\"text-align: justify\">This methodology could transform ETH monetization by making <strong>fundamental changes to incentive structures<\/strong>. The proposal could massively increase ETH demand by providing an additional incentive for layer-1 validators who choose to participate in processing these rollups. This translates to <strong>an increase in the value of ETH <a href=\"https:\/\/crypto-economy.com\/ethereum-staking\/\" target=\"_blank\" rel=\"noopener\">staking<\/a><\/strong>, resulting in higher yields for investors.<\/p>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"alignnone size-full wp-image-171471\" src=\"https:\/\/crypto-economy.com\/\/wp-content\/uploads\/2024\/09\/eth-rollup-post.jpg\" alt=\"ethereum based rollups post\" width=\"825\" height=\"488\" srcset=\"https:\/\/crypto-economy.com\/\/wp-content\/uploads\/2024\/09\/eth-rollup-post.jpg 825w, https:\/\/crypto-economy.com\/\/wp-content\/uploads\/2024\/09\/eth-rollup-post-300x177.jpg 300w, https:\/\/crypto-economy.com\/\/wp-content\/uploads\/2024\/09\/eth-rollup-post-768x454.jpg 768w\" sizes=\"(max-width: 825px) 100vw, 825px\" \/><\/p>\n<p style=\"text-align: justify\">The interoperability of &#8220;Based Rollups&#8221; with other rollups could also <strong>enhance liquidity access<\/strong>, <strong>facilitate cross-chain settlement transactions<\/strong>, <strong>and raise overall gas demand<\/strong> on the network.<\/p>\n<h3>The Path to Zero Issuance<\/h3>\n<p style=\"text-align: justify\">This approach could enable <strong>zero ETH issuance in the long term<\/strong> while maintaining high staking yields. The transformation in the staking incentive structure would be driven by <strong>widespread use of the Ethereum Virtual Machine (EVM),<\/strong> rather than relying solely on ETH issuance rates.<\/p>\n<p style=\"text-align: justify\">We are at an ideal moment to implement such solutions. The recent Ethereum update, Dencun, <strong>resulted in higher inflation of ETH issuance<\/strong> due to a <strong>drastic reduction in layer-2 fees<\/strong>. This reduction, in turn, led to a decrease in burned fees and a <strong>drop in network revenue<\/strong>, exacerbating the inflation issue.<\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-171472\" src=\"https:\/\/crypto-economy.com\/\/wp-content\/uploads\/2024\/09\/ethereum-post.jpg\" alt=\"ethereum post\" width=\"825\" height=\"300\" srcset=\"https:\/\/crypto-economy.com\/\/wp-content\/uploads\/2024\/09\/ethereum-post.jpg 825w, https:\/\/crypto-economy.com\/\/wp-content\/uploads\/2024\/09\/ethereum-post-300x109.jpg 300w, https:\/\/crypto-economy.com\/\/wp-content\/uploads\/2024\/09\/ethereum-post-768x279.jpg 768w\" sizes=\"(max-width: 825px) 100vw, 825px\" \/><\/p>\n<p style=\"text-align: justify\">Validators participating in rollups <strong>could benefit from additional rewards<\/strong> beyond general network inflation rewards. These benefits include <strong>participation in Miner Extractable Value (MEV) auctions<\/strong>, where validators can offer ETH to become block validators, or models like pre-confirmation staking and proof of burn, which could <strong>require burning <a href=\"https:\/\/coinmarketcap.com\/currencies\/ethereum\/\" target=\"_blank\" rel=\"noopener\">ETH<\/a> to select new layer-2 validators<\/strong>.<\/p>\n<h3>More Demand, Less Increase and Greater Competitiveness<\/h3>\n<p style=\"text-align: justify\">Furthermore, the ability of &#8220;Based Rollups&#8221; to operate across multiple rollups can increase the number of cross-market settlement transactions, thereby <strong>raising gas demand on the network without increasing layer-1 gas fees<\/strong>. This dynamic could lead to a scenario where ETH staking yields <strong>remain competitive<\/strong> compared to other investments, such as U.S. Treasury bonds.<\/p>\n<p style=\"text-align: justify\">&#8220;Based Rollups&#8221; could revolutionize Ethereum&#8217;s economic model by realigning incentives between layer-2 solutions and layer-1 validators. This structural change could reduce ETH issuance inflation while maintaining high staking yields, opening new opportunities for ETH monetization and enhancing its market value.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>TL;DR &#8220;Based Rollups&#8221; could transform Ethereum&#8217;s economic structure by aligning incentives between layer-2 solutions and layer-1 validators. This approach uses layer-1 validators for transaction processing, unlike other rollups that employ their own sequencers. The interoperability of &#8220;Based Rollups&#8221; may enhance liquidity access and gas demand, potentially allowing for zero ETH issuance in the long term &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Based Rollups: A Solution to Ethereum&#8217;s Layer-2 Liquidity Dilemma?\" class=\"read-more button\" href=\"https:\/\/crypto-economy.com\/based-rollups-a-solution-to-ethereums-layer-2-liquidity-dilemma\/#more-171468\" aria-label=\"More on Based Rollups: A Solution to Ethereum&#8217;s Layer-2 Liquidity Dilemma?\">Read more<\/a><\/p>\n","protected":false},"author":34,"featured_media":171469,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[85,74],"tags":[4620,4656,4679,5170,5269],"_links":{"self":[{"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/posts\/171468"}],"collection":[{"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/users\/34"}],"replies":[{"embeddable":true,"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/comments?post=171468"}],"version-history":[{"count":1,"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/posts\/171468\/revisions"}],"predecessor-version":[{"id":171475,"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/posts\/171468\/revisions\/171475"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/media\/171469"}],"wp:attachment":[{"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/media?parent=171468"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/categories?post=171468"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/crypto-economy.com\/wp-json\/wp\/v2\/tags?post=171468"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}