Making Sense of Based Rollups

Scaling Ethereum has been one of the most discussed challenges in crypto. To address this, the community chose a rollup-centric approach. The idea is simple: Instead of hosting all applications on Ethereum, the focus is on rollups that offer faster, cheaper transactions while still settling back on Ethereum. As a result, you get faster, cheaper transactions, but still keep Ethereum’s security.

We now have optimistic rollups like Arbitrum, OP Mainnet, and Base alongside zk-rollups like ZKsync, all contributing to Ethereum's growth. They're bringing more users and value to Ethereum, however, concerns remain about their reliance on centralized sequencers and liquidity fragmentation across chains.

This is where based rollups come in. They integrate more closely with Ethereum's infrastructure, helping retain value within the ecosystem. This new method of building rollups could bring additional value to Ethereum and ETH.

What are Based rollups?

Based rollups, or L1-sequenced rollups, are a type of rollup where the base L1 chain, like Ethereum, manages transaction sequencing directly.

Unlike traditional rollups that rely on their own sequencers, based rollups tap into the security, liveness, and decentralization of the L1 by outsourcing transaction sequencing to the L1’s infrastructure. This infrastructure includes proposers, searchers, builders, and other actors who permissionlessly include based rollup blocks in L1 blocks.

Initially, this approach seemed inefficient — Vitalik once called it "total anarchy" in his 2021 article on rollups. But today based rollups have become much more feasible. In 2023, Ethereum researcher Justin Drake brought the concept back into focus, arguing that based rollups not only align more closely with Ethereum but also eliminate the need for separate security assumptions for each new rollup.

How do Based rollups work?

Based rollups use the L1 for consensus, data availability, and settlement layers, while handling execution independently. For instance, when Ethereum is the base L1, the key layers of based rollups are as follows:

1. Execution Layer — Managed by the rollup itself, where transactions are executed off-chain.
2. Consensus Layer — Relies on Ethereum validators to sequence transactions.
3. Data Availability Layer — Uses Ethereum as the DA layer to ensure that transaction data is available for validation by anyone.
4. Settlement Layer — Also part of Ethereum, where final transaction states of the rollup are recorded.

Based rollups use Ethereum for everything from ordering transactions to settling them. While this approach may not seem radically different from traditional rollups, it fundamentally shifts how sequencing is handled. Instead of relying solely on separate sequencers, based rollups leverage Ethereum itself for transaction sequencing.

In a traditional rollup, users send their transactions to a dedicated sequencer — essentially a single machine operated by the rollup team. This sequencer is responsible for collecting user transactions, determining their sequence, and packaging them into blocks that are posted on Ethereum.

In contrast, based rollups direct user transactions to block builders who manage both Ethereum and the rollup. This use of Ethereum’s infrastructure allows based rollups to benefit from the same guarantees provided by Ethereum, enabling transactions to achieve finality more reliably than in non-based rollups.

Top projects in the based rollup landscape

As a relatively new concept, based rollups are still being developed, with a few key projects emerging:

• Taiko — an Ethereum-equivalent (Type 1) ZK-EVM that is maximally compatible with Ethereum and does not introduce additional trust assumptions.
• KeySpace — a zk-rollup by Coinbase aimed at creating smart wallets usable across any chain.
• Taiko Gwyneth — a based rollup using pre-confirmations, designed for synchronous composability with Ethereum.
• UniFi — a based rollup developed by the PufferFi team that employs pre-confirmations to enhance user experience.
• Spire Labs — a framework on Ethereum that allows developers to build based appchains.

Why based rollups?

As Justin Drake outlined in his original post, based rollups are worth your attention for several reasons:

• Inherited Liveness and Decentralization — One of the key advantages of based rollups is their ability to inherit the liveness guarantees of the base L1 chain. As long as the L1 is operational, so is the rollup.
• Economic Alignment with L1 — The economic model of based rollups creates a mutually beneficial relationship with the L1. Priority fees and MEV from these rollups naturally flows to the L1. This synergy doesn’t just add value to the base layer, it also boosts the legitimacy and brand awareness of the rollups themselves, thanks to Ethereum’s community. 
• Cost Efficiency — Outsourcing sequencing to Ethereum reduces development costs, accelerates time to market, and lowers user costs (especially at scale) for based rollups. 

However, based rollups have trade-offs. They sacrifice some profitability by relying on Ethereum for sequencing, missing out on priority fees and MEV. Additionally, they contend with Ethereum's inherent challenges, such as slow block times, which can cause latency issues. 

These challenges explain why existing rollups are designed with their own sequencers — to offer a fast user experience. Although solutions like pre-confirmations of inclusion and execution are being discussed as potential ways to enhance the user experience of based rollups, it remains uncertain whether such improvements can be achieved without introducing trusted third parties. There's a real debate that these changes might compromise the simplicity and security that initially made based rollups appealing.