Darren Kleine

Centralization: the hideous enemy of freedom and progress in the realm of distributed ledger technology. It often rears its head as soon as developers encounter scaling challenges.



In decentralized protocols, the fastest way to move from point A to point B often ironically involves resorting to some sort of centralized mechanism. Forget ideals like <a href="https://blockworks.co/tag/censorship">censorship-resistance</a> and independence, devs might cry out, we just want this thing to be quick and cheap!



The quest for further decentralization in the blockchain space continues, but for some elements, Stephane Gosselin says, centralization might not be such a bad thing, after all.



The former co-founder and chief architect of <a href="https://blockworks.co/tag/flashbots">Flashbots</a> and founder of Frontier Research spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=RjSG38e1Zl0">Bell Curve podcast</a> about layer-2 rollups and how centralized sequencers might not be the problem that many fear.



<h2 class="wp-block-heading">All rollup sequencers are centralized</h2>



Let’s get one fact out of the way to begin with: All layer-2 rollups on Ethereum — <a href="https://blockworks.co/news/shared-sequencers-decentralization">every single one of them</a> — use centralized sequencers. 



The sequencer’s job is to process and order transactions into blocks to be added to the chain. It’s cheaper, faster and easier for rollup providers to maintain their own proprietary centralized sequencer system than to farm out the job.



“I&#8217;m still not convinced that that&#8217;s a bad thing,” says Gosselin, “I don&#8217;t think it&#8217;s a done deal to say that, actually, first in, first out sequencers on a layer-2 are a bad thing.”



The usual argument against rollup centralization, Gosselin says, is that it creates a “latency game” that draws centralization toward a specific geographic region. Being concentrated in a particular place leaves a rollup susceptible to censorship and oppressive <a href="https://blockworks.co/tag/regulation">regulation</a> wherever the rollup is deployed, Gosselin says.



“But, still, the question is like, is that actually bad?”



Ethereum has been designed, Gosselin says, as a maximally decentralized <a href="https://blockworks.co/tag/layer-1">layer-1</a> with relatively little economic activity on the base layer. Its goal is to settle data without what he describes as “contention” &nbsp; — demand for settling on a specific position — which takes place inside layer-2s instead.



“If you have an architecture where the layer-1 is only settling data blobs and there isn&#8217;t contention, and you have all the activity inside of layer-2s, it reduces the centralization pressure on the layer-1 significantly.”



<h2 class="wp-block-heading">Cross-chain messaging to the rescue</h2>



Cross-chain messaging could save the day, Gosselin says, providing censorship-resistance between layers when needed. “You have some way to push messages out from the layer-2 back into the layer-1, or maybe for it to be interpreted by some other spin-up of that layer-2 somewhere else.”



Through a messaging mechanic like <a href="https://ibcprotocol.org/">IBC</a>, Gosselin says layer-2s would remain censorship-resistant and non-custodial because individual rollup participants can “exit their state and bridge it over to some other roll-up in some other jurisdiction.”



Host Mike Ippolito points out that in such a situation, users would experience significant “market disruption.”



“There would be a period of time where we&#8217;d have to migrate the assets and everything down into the main chain and back up onto another rollup.”



The looming threat of disruption, Ippolito says, could “prevent <a href="https://blockworks.co/tag/tvl">TVL</a> and activity from migrating up to the rollups as much as they otherwise would.”



Gosselin concurs, noting, “the other argument is, well, if you have some way for the state to be able to exit back to the layer-1,” he says, “then you have a lot of contention on the layer-1.”



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“And so you have all the same centralization pressure on the layer-1,” he says.



“I don&#8217;t think, by any means, it&#8217;s perfectly solved.”



“At the end of the day, yes, you&#8217;re going to have trade-offs in these different execution environments,” Gosselin admits, but ultimately, app developers just want an interface for connecting and automatically deploying their services.



“These <a href="https://blockworks.co/news/rollups-arent-that-decentralized">shared sequencers</a> or decentralized block builders, cross-chain bridges, are all in the same game of trying to build and provide those services,” he says.



“There&#8217;s <a href="https://blockworks.co/news/blockchain-goes-modular">so many different ways to build these things</a> — and it’s not clear to me where it&#8217;s going to go.”



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Rollup Sequencers Are Centralized — And That’s Fine

Building blockchain-based applications tends to involve compromise at some point. Companies need to decide what to sacrifice — speed, cost, security and so forth — to achieve their particular priorities. 



A service may choose to build on a layer-1 blockchain like <a href="https://blockworks.co/tag/solana">Solana</a> over <a href="https://blockworks.co/tag/ethereum">Ethereum</a> for speed and cost advantages, but miss out on the network effect advantages of Ethereum. Alternatively, they might select a layer-2 rollup like <a href="https://blockworks.co/tag/arbitrum">Arbitrum</a> or <a href="https://blockworks.co/tag/optimism">Optimism</a> to stay in the Ethereum ecosystem, but give up some of the advantages of existing directly on a <a href="https://blockworks.co/tag/layer-1">layer-1</a> solution. 



On a <a href="https://www.youtube.com/watch?v=65fDsrpEifw">recent episode of the 0xResearch podcast</a>, founder of Eclipse Laboratories Neil Somani suggests that it doesn’t need to be this way. Rollup solutions like Eclipse aim to provide interoperability and customizability so developers can have their cake and eat it, too. 



Somani acknowledges that monolithic layer-1s like Solana and Ethereum do hold one important advantage for the moment: “The one thing that the monoliths have right now is network effects. They have a lot of liquidity on these chains. There&#8217;s developers who already write for those platforms and they identify with the brand.”



But with the advent of rollup technology, the desire for yet another layer-1 to join the crowded space is diminishing, he says. “The disadvantage is that there aren&#8217;t many reasons why a new chain would choose to be a monolith over being a rollup, assuming that the rollup tech is fully built.” 



Next-wave apps that are “really pushing the frontier” in the future, like consumer-level apps and fully on-chain games, will need customizations “at the execution layer,” according to Somani.



“They&#8217;re much better off having their own chain.”



Problem being, he says, layer-1 solutions are difficult to deploy, very expensive, cumbersome, and require teams to ensure reliability. “So, by deploying a rollup, they can avoid a lot of those pitfalls.”



<h2 class="wp-block-heading">A little history lesson</h2>



Somani explains a bit of the history of layer-1 development to provide context for the Eclipse-designed modular customization approach. “Ethereum gas fees were historically very high, and there have been many attempts to solve for that.”



Polygon and Binance Smart Chain, which were essentially <a href="https://blockworks.co/tag/evm">EVM-compatible</a> forks, sprung up to solve the gas problem when it first reared its ugly head a few years ago. They “precipitously took off,” purely because of timing with the gas crunch and the fact that no EVM-compatible layer-1 alternative existed.



Fast layer-1 monoliths like Solana stepped in along with the alternate vision of rollups like Arbitrum and Optimism. “These are all basically solving the problem of limited block space, solving for high gas fees.”



Other solutions like the Cosmos-centric appchain vision never really took off in the same way, Somani says. The value of <a href="https://blockworks.co/tag/cosmos">Cosmos</a> “isn&#8217;t really about lower gas fees” as there’s plenty of layer-1 solutions, like Solana, that already solve this problem. Instead, “it&#8217;s actually more about the customizability that having an appchain gives you.”



Each approach has its own advantage over the others. “Like Cosmos, you get customizability. Solana, and these alt L1s, you get low gas fees. And then the rollups get the benefit of sharing the security of Ethereum.”



<h2 class="wp-block-heading">Pick and choose</h2>



Somani sees Eclipse combining these “core properties” into a modular system that lets users “pick and choose and say, I want really low fees, but I also want to be in the Ethereum ecosystem. Or maybe I want to be in the Cosmos ecosystem, and I&#8217;m okay with a beefier execution node. I just want as much throughput as possible.”



“So we allow people to make those trade-offs by dividing up these different concepts or properties of a blockchain into these modules.”



Somani says the approach follows the same vision as Celestia, <a href="https://twitter.com/CelestiaOrg/status/1574799746509590528?s=20">a modular data availability layer solution</a>. Prior to building Eclipse, Somani says that Nick White, chief operating officer at Celestia Labs, reached out to him and explained what he saw as <a href="https://blockworks.co/news/blockchain-goes-modular">the future of blockchain technology</a>.



White broke down the complexities of blockchain into a few key properties, Somani says. Firstly, it has to execute transactions. Secondly, it has to order transactions and make them available for verification across the network in processes that are referred to as ‘consensus’ and ‘<a href="https://blockworks.co/news/sovereign-rollups-blockchain-scaling">data availability</a>,’ or ‘DA.’ Finally, it has to verify that state transitions were executed correctly in a process termed ‘settlement.’



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“Eclipse just takes those three concepts and separates them very cleanly,” Somani says.



“We let you deploy some customized execution chain, whether it&#8217;s EVM, <a href="https://www.blockworksresearch.com/research/nitro-solanas-vm-enters-the-cosmos">SVM</a> or some other virtual machine down the line. You get to pick your consensus and DA layer.”&nbsp;



“You can customize the DA layer,” he says, “and then you build in those additional customizations on top of the execution layer to facilitate whatever kind of application you&#8217;re building.”



“Maybe you&#8217;re a game and you need VR apps. You need verifiable random functions. Maybe you&#8217;re doing an NFT mint and you don&#8217;t want to charge gas. Now you can make it gasless. Maybe you want to do something special in the mempool like <a href="https://blockworks.co/news/mev-searcher-battle-for-profit">redistribute MEV</a>. These are all options available to you when you have your own chain.”



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Have Your Cake and Eat it Too? Customizable Rollups Across Blockchains

Bessie Liu

Aztec Labs is creating a hybrid zero-knowledge rollup designed to execute smart contracts in a private, trustless and scalable manner.&nbsp;



Developers built the Ethereum blockchain to optimize public consensus at the cost of native privacy, and privacy solutions often do not support a complicated ecosystem of decentralized applications.



Aztec’s hybrid zero-knowledge (ZK) rollup solution is aimed at solving this problem. In an interview with Blockworks, Joe Andrews, the head of product at Aztec Protocol, said that&nbsp; “we’re trying to build the privacy layer that we wish had existed when we set out all those years ago to put corporate debt onto Ethereum…the exciting part is, we think we can now actually do it.”



Aztec intends to combine private and public execution in one single ZK rollup. This is one of the fundamental differences between it and other Ethereum ZK rollups, Andrews notes.



“I think of Ethereum or other rollups in a way that is like — here’s my transaction request, please do this off-chain and create a proof that you’ve done it correctly, on Aztec, it’s here is the proof that I’ve done a transaction, please include this in your next rollup of transactions,” Andrews said.



This means that an encrypted transaction is happening solely on a user&#8217;s device, unlike other ZK rollups today, he said.



In practice, the use cases of this type of hybrid zkRollup could be used to enable confidentiality in various dapps — not just privacy apps, Zachary Williamson, the chief technology officer at Aztec Protocol, told Blockworks.&nbsp;



“What it does is it expands the design space of what you can build…you can build applications where the goal really isn’t just privacy, but requires information hiding to do what you need to do,” Williamson said.



Gaming could be one of these things, alongside private voting in DAOs or executing private trades on public automated market makers (AMMs), he claimed.



To ensure the enablement of private smart contract computation, the team is also developing its own privacy focused smart contract programming language, known as “Noir.”



Noir is completely open source and will be a general zero-knowledge circuit language designed to prove any cryptographic backend.



“The reason we want to be programmable and why we have a language is because the ideas that we can come up with as a first-party builder are going to be pale in comparison to what is going to be unlocked by just giving these tools to the entire community,” Williamson said.



In its current state, users can deploy private contracts on Aztec’s local system, with the public side of the technology still in the works.&nbsp;



The team said it is currently targeting a Q3 local developer testnet, and fully remote testnets at the start of next year.



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Aztec’s New Hybrid ZK Rollup Is Focused on Privacy and Compliance

They say the average web user spends about six seconds reading written content on a webpage before moving on. Load times, optimal design and, of course, interesting stories are crucial for keeping eyes stuck to any given page.



We are an impatient lot, accustomed to instant access to information.



Before you leave, consider the average blockchain dapp. That’s an application operating on top of an ostensibly decentralized network, like <a href="https://blockworks.co/tag/ethereum">Ethereum</a>, for example.&nbsp;



For users to consider a network truly decentralized, it a) should be composed of a collective of disparate participants and b) must have no central agents who could otherwise control or censor things in a way that is detrimental to users.



If you’ve ever dabbled in the average dapp experience, it might remind you of the old 56k modem days — whoops, I probably lost a few readers with that comparison — the transaction times and user experience can be painfully slow and unresponsive, especially now that we&#8217;ve been spoiled by near-instant internet performance.



Remember waiting for a JPEG to slowly fill the screen line by line back in the late 90s? You probably do since I already lost the ones who don&#8217;t. Now, you can capture that nostalgic feeling with a similarly plodding experience using <a href="https://blockworks.co/news/nft-investing-guide">NFT</a> and <a href="https://blockworks.co/category/defi">DeFi</a> dapps!



The key difference being, a dapp ideally operates on a decentralized network, free from censorship and centralized influence. But do you care? Does anybody care?



<h2 class="wp-block-heading">Users prefer a slick experience</h2>



A lot of users don&#8217;t seem to care all that much, says Josh Bowen, CEO of Astria, who spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=eZMAQIvgQt8">Empire podcast</a> along with the CEO of Espresso, Ben Fisch. Sadly, it seems that a slick user experience tends to trump the principles of <a href="https://blockworks.co/tag/decentralization">decentralization</a>.



“It’s a user demand question,” Bowen says, “Fundamentally, users prefer faster block times.”



“Maybe it&#8217;s somewhat cynical,” Bowen says, “but users, I believe, will trend towards something that provides a higher quality user experience” regardless of principle.



Users will naturally prefer consuming two seconds rather than twenty to complete a transaction, unaware of the trade-offs that enable the speedier option. “It&#8217;s one of these general difficult things of cryptography and security,” he says, “you become aware of them when they fail catastrophically.”&nbsp;



“Prior to that, everyone just assumes everything is going smoothly.”



By the time users realize they’ve accepted these trade-offs, it’s too late to do anything to fix it, Bowen says.



One trendy way to somewhat safely speed things up in a decentralized network is to use <a href="https://blockworks.co/news/rollups-speed-or-decentralization">rollups</a>. These are specialized blockchains that carry out tasks to alleviate the load on the main network. However, there is one aspect of rollup solutions that is centralized, and that is the sequencer responsible for organizing transactions. This is primarily done for the sake of performance.



Rollups like <a href="https://blockworks.co/tag/optimism">Optimism</a> and <a href="https://blockworks.co/tag/arbitrum">Arbitrum</a> operate their own sequencers, giving them a significant degree of direct influence over transaction ordering — a role that Bowen says <a href="https://blockworks.co/news/shared-sequencers-decentralization">should also be decentralized</a> instead of operating under the sole control of any rollup provider.&nbsp;



<h2 class="wp-block-heading">Does it really matter?</h2>



A word of warning: You’re going to see the terms ‘centralization’ and ‘decentralization’ an awful lot here but please, hang in there. You’ve made it this far.



It’s all a balancing act, Bowen says, “The job fundamentally is providing users with a good enough experience without requiring them to sacrifice the decentralization principles to get that better user experience,” he says.&nbsp;



If the only option available for a high quality experience is centralized, a good percent of users will choose it, he says. “So I think it&#8217;s important to provide them an option that is still decentralized while providing that good user experience.”



“I take a pretty cynical perspective in that, generally I assume users just, quite frankly, don&#8217;t give a damn about decentralization.”



Bowen feels that as the industry has progressed, people have become less motivated by the founding principles of blockchain technology. More often, speculative aspirations, the desire for speedy transactions and clout-chasing behaviors have prioritized ease-of-use and performance over the preservation of any fundamental values. He says it is up to builders in the space to “reinforce those primitives and provide good user experiences.”



Fisch argues that users do care about the benefits of decentralization, just not necessarily the principle itself. “If one of the founders of Arbitrum or Optimism shows up on TV in handcuffs and goes to jail… then yeah, I think everyone&#8217;s going to decentralize their sequencers really, really quickly.”



Ideally, he hopes it doesn’t have to come to such an event, instead moving toward “the ideals of the industry” without being threatened by external governing agencies.



Fisch adds that one advantage of decentralization that users already care about, whether they know it or not, is the composability enabled through the technology. “Users like the fact that all apps on Ethereum are composable with all other apps — and that comes from the fact that <a href="https://blockworks.co/news/measuring-decentralization-is-your-crypto-decentralized">Ethereum is a decentralized system</a>.”



“They&#8217;re all sharing the same system. They&#8217;re all interoperable.”



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Perhaps decentralization wouldn’t be necessary, Fisch suggests, “if blockchains were all perfectly competitive with each other.”&nbsp;



Which brings things back to the core issue, he says: “Internet services are prone naturally to centralization due to network effects.”



“So you do have to decentralize the operation of the internet service if you want to have long-term resilience.”



Speaking of long-term resilience… you stuck around for this whole story?&nbsp;



Consider yourself above average. You just might be patient enough for a truly decentralized network experience.



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Rollups Aren’t All That Decentralized. Does Anybody Care?

Innovation in blockchain technology is largely driven by a singular goal: <a href="https://blockworks.co/news/measuring-decentralization-is-your-crypto-decentralized">decentralization</a>.



After all, if the broad decentralization of data wasn’t the primary goal of all of this work, everybody could just share a giant spreadsheet on a centralized database somewhere à la Web2. That would be much faster and easier than any sort of distributed ledger solution.



Herein lies the problem: People want to use distributed technology, but with the conveniences of a centralized service. User demands create an insatiable craving for more speed and efficiency.



The centralized elements that are implemented to achieve this level of performance are often quietly tucked away, like a skeleton in the closet, to be dealt with — hopefully — at a later date.&nbsp;



The two goals of decentralization and speed seem to be diametrically opposed. You often can’t get one without sacrificing the other.



Layer-2 <a href="https://blockworks.co/tag/rollups">rollups</a> are touted as a potential solution to this conflict, but the emphasis in development and demand — at least for now — seems to fall squarely on the side of faster transactions, sweeping the problem of centralization under the rug. It’s a sort of “we’ll cross that layer-2 bridge when we get to it” attitude.



DBA co-founder Jon Charbonneau and <a href="https://blockworks.co/news/new-flashbots-upgrade-could-revolutionize-crypto-markets-after-the-merge">Flashbots</a> Product Steward Robert Miller spoke to Blockworks about the problem of focusing on speed at the expense of decentralization on the <a href="https://www.youtube.com/watch?v=b3o2YP6sxpg">Bell Curve podcast</a>.



Charbonneau suggests that in the near future, “there&#8217;s going to be meaningful pressure to decentralize, whether that is on a technical/social level” or “on a regulatory level.”



“There are probably some [regulatory] questions when you&#8217;re the only person operating this thing,” he quips.



The simplest way to increase decentralization, Charbonneau says, is to “strap a consensus set on there.”



“You have some form of <a href="https://ethereum.org/nl/roadmap/pbs/">PBS</a> — some form of auction between these validators who are on the rollups — and we know that&#8217;s a system that works reasonably well.”&nbsp;



“So my guess is we start to see that across a lot of roll-ups over the next year, plus.”



<h2 class="wp-block-heading">Let’s do this at the speed of light</h2>



Miller presents the challenge of squaring tools for decentralization like “existing consensus sets, auctions like PBS, which generally take a little bit more latency” with the “desire for super-low block times on rollups.”



“As far as the latency,” Charbonneau replies, “I understand that some rollups care a lot more about that than I care about that.”



“Low latency, certainly well below Ethereum L1 block times — yeah — users want that. Does it have to be 300 milliseconds, 400 milliseconds? No, I don&#8217;t really think it does.”



“I think it&#8217;s fine if your blocks are a second or whatever,” he says.&nbsp;



“I really don&#8217;t notice the difference, quite frankly, as a user. I don&#8217;t get the obsession with, ‘let&#8217;s do this literally at the speed of light.’”



<h2 class="wp-block-heading">Too close for comfort</h2>



Of course, <a href="https://blockworks.co/news/mev-who-should-profit">certain MEV participants</a> are obsessed with shaving milliseconds off transaction times to edge out competitors in pursuit of profit, which can lead to another problem.



Read more: <a href="https://blockworks.co/news/mev-who-should-profit">MEV: Who Should Profit From a Protocol’s Economic Activity?</a>



Miller points out one key issue in the latency game that derives from a simple fact: The closer participants are to each other, the quicker the network experience will be. “If you have an ordering protocol on your rollup that incentivizes latency gains,” he says, “the structure of the market you&#8217;re incentivizing is all actors to eventually co-locate in one place.”



“You may not get a rollup that has a single sequencer controlled by a single party,” he says, “but you may get a rollup that is controlled by a single data center in a single jurisdiction somewhere subject to a single set of laws, which is a huge surface area for regulation risk.”



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“It&#8217;s only one step worse than having a single sequencer — having your entire chain co-locating in a single Amazon or similar data center somewhere else within the world.”



“What we really want,” Miller continues, is “to have these systems geographically distributed across the world in many different places, such that no single sequencer is able to impose its utility function on the network and arbitrarily censor a set of transactions.”



“I don&#8217;t know what is the best, but I do worry that this desire that users have for super-fast block times,” he says, “would lead to geographically centralized chains, which would lead to <a href="https://blockworks.co/news/is-ethereum-censorship-a-concern-post-merge">censorship</a> over time.”&nbsp;



“And that&#8217;s sort of what I&#8217;m seeing in the future.”



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Rollups: Is It All About Speed? Or Are We Forgetting Something?

It’s been a problem since the inception of distributed ledgers. Layer-1 blockchains are slow, expensive to operate and difficult to scale.&nbsp;



One of the solutions to this challenge emerged in the form of zero-knowledge rollups — or ZK rollups — a key tool for easing many of the issues faced by layer-1 networks. Now, all kinds of improvements to rollups are supercharging speed and lowering costs, with Sovereign rollups in particular carving a new path forward.



Sovereign Labs Chief Technology Officer Preston Evans spoke to Blockworks about the significant advantages of Sovereign rollups on a recent episode of <a href="https://blockworks.co/podcast/0xresearch/5ff8bdf4-d3aa-11ed-9b31-bf7c6bb49e3b">0xResearch</a>. The only difference for the user, Evans says, is faster confirmations and cheaper fees.&nbsp;



It’s a bold statement, Evans admits, but it comes down to a clever loophole in the way ZK rollup costs are determined. The most expensive activity for most rollups is verifying proofs, he explains. But they don’t get any more expensive to check if they’re bigger, “so you can prove a thousand transactions or a million transactions for the same L1 gas cost.”



This would potentially result in several hours of latency under normal circumstances, but ostensibly not with Sovereign Labs’ solution to the problem. Instead, proofs can be sent directly to a peer-to-peer layer of light clients as needed, in real time.



<h2 class="wp-block-heading">Sampling the data</h2>



Another issue at the heart of keeping things on the up and up in any blockchain environment is ensuring that data is available when users need it. “It’s very important as a user that you know what’s inside the state commitment that the ZK-SNARK attests to or that the rollup attests to. That’s the data availability problem.”



To solve the problem, Evans explains, “you just have to publish the data on the internet somewhere,” Evans says, with the “gold standard” being a layer-1 blockchain. A number of specialized chains are designed solely for this purpose, with some of the best implementing data availability sampling.&nbsp;



Current rollups on Ethereum post their blocks directly to a bridge contract, as explained on a <a href="https://blog.celestia.org/sovereign-rollup-chains/">blog</a> posted by Celestia, a modular blockchain solution built for scaling.&nbsp;



Sovereign rollups can operate like a layer-1 blockchain, but with key differences that improve efficiency. <a href="https://irreducible.substack.com/p/essential-q-and-as-about-celestia?s=r">Celestia</a> uses a data sampling mechanism which enables light nodes to sample small chunks of data for verification. “The main difference,” the blog notes, “is that they also verify that the rollup block data was included and ordered on the Celestia data availability layer via a Merkle proof.”



This data sampling process allows a user to “very trivially check that the data availability chain is really doing what it claims to be doing,” Evans explains.



<h2 class="wp-block-heading">Why not just use AWS?</h2>



Centralized services are another path to speed and efficiency. Evans argues however that the goal for designing sequencers is ultimately decentralization. “If you just wanted a centralized chain, why not use a database on AWS?”&nbsp;



Centralized sequencers are essentially a stopgap, he says, but in the long term, decentralization offers a better alternative in the form of censorship resistance. “It’s very likely that some jurisdictions will treat centralized sequencers as money transmitters…Who knows what’s going to happen?” he argues. “If they decide to start censoring you, then you’re straight out of luck, right?”



Soft confirmations — essentially, a promise from a sequencer — are one way to bridge the speed gap, according to Evans. “If you send a transaction onto Ethereum, it typically takes 15 seconds, 30 seconds, maybe a minute to finalize.” In comparison, a centralized sequencer could potentially give a soft confirmation much faster than a layer-1 would finalize.



“There’s lots of interesting designs to explore,” Evans states. A centralized sequencer, for example, might have the right to include some transactions in a block and be able to give a soft confirmation but not have the right to make the whole block, thus preventing censorship.



“Frankly, it’s pretty early. A lot of these decentralized sequencers are really just white papers at this stage.”



“We try not to bet too hard on any particular model and just contribute the research and help push people towards the good decentralized models. But it’s really too early to pick a winner.”



<hr class="wp-block-separator">Get every episode of 0xResearch as soon as it’s out!0xResearch is the show for those who want to step up their game and think like a crypto analyst. We bring on crypto&#8217;s best to uncover the latest research, explore protocol developments and identify new narratives. We are two full-time crypto analysts who read white papers, governance forums and research pieces for fun (normal, right?) <a href="https://open.spotify.com/show/0rGocvZ7oZR6vuy0UHKAON?si=01b9d097b87a4aa7" target="_blank" rel="noreferrer noopener">Subscribe on Spotify</a> | <a href="https://podcasts.apple.com/us/podcast/0xresearch/id1651683074" target="_blank" rel="noreferrer noopener">Apple Podcasts</a> | or<a href="https://blockworks.co/podcast/0xresearch" target="_blank" rel="noreferrer noopener"> view all previous episodes</a>&nbsp;. <hr class="wp-block-separator">

Sovereign Rollups Carve a Path for Blockchain Scaling

Morgan Chittum

<div id="highlights-block_61bcd9ff02dfb" class="highlights">
 <ul>
 <li>Morgan Stanley sees the metaverse as an $8 trillion market</li>
 <li>Goldman Sachs said blockchain is one of the most “disruptive technologies” since the 1990s</li>
 </ul>
 
</div>



Morgan Stanley, the Wall Street giant that manages<a href="https://www.investmentnews.com/morgan-stanley-will-reach-10-trillion-in-aum-gorman-205368" target="_blank" rel="noreferrer noopener"> $6.4 trillion</a> in assets, said the metaverse will be “the next big investment theme” in a note to clients last month. On Tuesday, Goldman Sachs then described blockchain as being key to Web3 development in a report.&nbsp;



More and more behemoth financial institutions are addressing the metaverse to clients and investors.&nbsp;



&#8220;[The metaverse] can fundamentally change the medium through which we socialize with others,&#8221; Edward Stanley, an Equity strategist at Morgan Stanley, said.&nbsp;



Stanley added that certain stocks in gaming and tech sectors such as Roblox and Meta (formerly Facebook), along with those concentrated on augmented reality like Alphabet Inc., can benefit from growing adoption of the concept as well.&nbsp;



Goldman Sachs sees blockchain as one of the most “disruptive technologies” in the past several decades, including the advent of the internet.&nbsp;



&#8220;We believe that the metaverse is likely to be an amalgamation of different 3D spaces and that users will move between these regularly,&#8221; Rod Hall, an analyst for Goldman Sachs, said. &#8220;If any virtual goods or services are unable to move from one space to another with the user, we believe their value is likely to be more limited.&#8221;



Atomic Form co-founder Garrette David described the banks’ reports as “a huge positive,” adding it signals further adoption by institutions who have been historically skeptical of cryptocurrency as an asset class at all.



“Given the speed at which they&#8217;re reporting it, I would say we are definitely mainstream. It took banks years to publicly sell interests in, or comment on, economics behind public networks and blockchains,” David said, who runs a startup that develops non-fungible token displays and a Web3 platform.



According to Goldman, it will take “many years” and &#8220;cross-company collaboration” to seamlessly onboard millions of users into the virtual augmented world.&nbsp;



“Investment implications are hard to predict at this juncture, but companies who are dependent on centralized control of user identity will likely find their business models challenged by the adoption of blockchain,” Goldman said.



<hr class="wp-block-separator">
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<hr class="wp-block-separator">

How Megabanks Goldman Sachs, Morgan Stanley Are Talking About the Metaverse

Jacquelyn Melinek

<div id="highlights-block_61bcd9ff02dfb" class="highlights">
 <ul>
 <li>&#8220;We are still in the early days of Web3 and the most obvious opportunities right now are in gaming and social,&#8221; said Alexis Ohanian, general partner and founder of Seven Seven Six</li>
 <li>Earlier this month, Polygon acquired a zero knowledge startup Mir in a $400 million deal to scale Ethereum and bring more users to Web3</li>
 </ul>
 
</div>



Polygon and Seven Seven Six partnered to launch a $200 million initiative to support social media projects on Web3, the companies shared on Friday.&nbsp;



Over the past few years, there has been a realization that social media businesses have a profound impact on society, Sandeep Nailwal, co-founder &amp; chief operations officer at Polygon said in a statement. “With Web3, users create the value, control the network and reap the rewards. This is not just a different way to share lolcats online, though we love those. We are inventing new high-fidelity means of transmitting culture itself,” Nailwal said.



&#8220;We are still in the early days of Web3 and the most obvious opportunities right now are in gaming and social,&#8221; Alexis Ohanian, general partner and founder of Seven Seven Six, said in a statement. &#8220;This initiative will do just that, with a focus on gaming properties and social media platforms built on Polygon&#8217;s scalable infrastructure,” Ohanian added.&nbsp;



Polygon and Seven Seven Six were not available for additional comment when requested by Blockworks on Friday.&nbsp;



<h3 class="wp-block-heading">Playing the long game</h3>



Ohanian co-founded Reddit in 2005 and Initialized Capital in 2010. While at his first venture firm, he was a seed investor in Coinbase, Instacart, Patreon and other major businesses. Ohanian founded Seven Seven Six in 2020 and has formed a portfolio of 35 companies, including the makers of <a href="https://cms.blockworks.co/axie-infinity-developer-scores-152m-in-series-b-funding-nearing-3b-valuation/" target="_blank" rel="noreferrer noopener">Axie Infinity</a>, Sky Mavis. 



Polygon has an Ethereum-based proof-of-stake sidechain network that scales and powers some of the biggest DeFi and NFT projects including Aave, SushiSwap and OpenSea. The number of decentralized applications, or dApps, on the platform rose 9,900% from 30 in November 2020 to 3,000 in November 2021, Nailwal previously told Blockworks.



“We’ve already seen some of the best product founders in our portfolio start building on Polygon, and I’m excited for Seven Seven Six and Polygon to play a big role in shaping what the new internet looks like,” Ohanian said.&nbsp;



Polygon is also developing multiple alternative scaling solutions for Ethereum using zero-knowledge proof technology.



Earlier this month, Polygon acquired a zero knowledge startup Mir in a <a href="https://cms.blockworks.co/polygon-acquires-mir-in-400m-deal-to-scale-ethereum-and-web3/" target="_blank" rel="noreferrer noopener">$400 million deal</a> to scale Ethereum and bring more users to Web3. At the time, Nailwal said to Blockworks, “We want to be the AWS of [the] Web3 platform for developers to build on by providing a spectrum of solutions.”



Separately, last month, Seven Seven Six joined Solana Ventures in a $100 million initiative to help fuel decentralized social media platforms on Solana’s blockchain, Blockworks previously <a href="https://cms.blockworks.co/solana-and-seven-seven-six-double-initiative-to-100m-to-build-decentralized-social-media/" target="_blank" rel="noreferrer noopener">reported</a>. 



“The baggage of Web2 infrastructure and Web2 precedent is that you know you’re ultimately just harvested for an advertiser and that factors into product decisions and that factors into design decisions,” Ohanian said at the Solana <a href="https://cms.blockworks.co/the-solana-summer-never-ends/" target="_blank" rel="noreferrer noopener">Breakpoint</a> conference. 



“What’s really exciting is there’s a whole new slew of founders who have a chance to jump into a very energized community and start building something with a very different business model in mind…that’s compelling. We could see new platforms emerge very fast,” Ohanian added at the time.



<hr class="wp-block-separator"/>
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<hr class="wp-block-separator"/>

Polygon and Seven Seven Six Launch $200M Social Media Web3 Initiative

Ben Strack

<div id="highlights-block_61bb417d9cf9e" class="highlights">
 <ul>
 <li>Transaction scalability and privacy essential to the successful use of blockchain in commercial use cases, Mastercard executive says</li>
 <li>Offering comes as there is an all-time high of roughly 175 million Ethereum addresses</li>
 </ul>
 
</div>



Ethereum software company <a href="https://consensys.net" target="_blank" rel="noreferrer noopener">ConsenSys</a> has collaborated with Mastercard to address the challenge of scalable applications on the Quorum tech-stack through an offering that provides “enterprise-grade scalability” to financial organizations and others.



Called ConsenSys Rollups, the modular software solution is for permissioned blockchain applications focused on providing scalability and privacy capabilities. It can be used on the Ethereum mainnet, or on private ConsenSys Quorum networks.



Scalability and privacy are especially important as Ethereum’s usage has reached an all-time high of roughly 175 million Ethereum addresses, according to ConsenSys.



The offering seeks to enhance the privacy and confidentiality of transactions by using zero-knowledge proofs, which enable one party to demonstrate their knowledge to another without having to share the actual information.



“ConsenSys Rollups enables vastly more scalability in addition to strong privacy protections to both enhance solutions for existing use-cases and enable new use cases,” Madeline Murray, ConsenSys’s global lead of protocol engineering, said in a statement. “This innovative solution will help accelerate the building of the future of finance.”



The issuance of central bank digital currencies (CBDCs) on top of a ConsenSys Rollups-powered Quorum network, for example, could provide scalability and privacy capabilities for digital currency transfers among central banks, commercial banks, and retail users.



Consensys Rollups could also help allow micropayment applications on which users pay on a per-stream or per-view basis. Rollups on mainnet will allow Ethereum to meet new demand without network congestion, high fees or finality challenges, the company said.



The software solution can currently achieve up to 10,000 transactions per second (TPS) on a private chain, a ConsenSys news release states, compared to the roughly 300 TPS that can be achieved on private chains without Rollups.



The launch follows ConsenSys’s <a href="https://cms.blockworks.co/consensys-valued-at-3b-next-fundraise-may-make-it-so/" target="_blank" rel="noreferrer noopener">reported raise</a> of $200 million that closed in November, giving the company a $3.2 billion valuation. It also <a href="https://cms.blockworks.co/consensys-acquires-treums-team-nft-platform/" target="_blank" rel="noreferrer noopener">announced its acquisition</a> of the team and NFT platform of blockchain and supply chain company Treum in October.



<h3 class="wp-block-heading">Working with Mastercard</h3>



ConsenSys engaged Mastercard to co-develop key building blocks to make blockchain technology scalable on the Ethereum mainnet, or for private use.



Raj Dhamodharan, Mastercard’s executive vice president of digital assets and blockchain products and partnerships, said that blockchain technology, with appropriate governance and protections, can become a part of multiple solutions across the finance and commerce ecosystems.



<a href="https://cms.blockworks.co/mastercard-is-preparing-its-network-for-cbdc/">Mastercard CEO Michael Miebach said</a> during the company’s third quarter earnings call in October that the company is focused on facilitating crypto investments as well as readying its network for a CBDC.



“This engagement is really about the partnership with the community of developers to help solve for the next click in the scalability and privacy of transactions,” he told Blockworks in an email. “Both of these topics are essential to our successful use of blockchain in commercial use cases.”&nbsp;



Dhamodharan said that as the crypto community builds many of the layer-1 and layer-2 scalability solutions, Mastercard wanted to partner with a company with a similar approach in order to offer its tech experience and development capacity.



“In addition to scalability and privacy,” he said, “we are working on a number of projects on digital currency, smart-contracts and making commerce use cases work across several different blockchain networks.”



<hr class="wp-block-separator"/>
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<hr class="wp-block-separator"/>

Consensys Collaborates With Mastercard to Offer Scalability Solution

<div id="highlights-block_61534adab7a77" class="highlights">
 <ul>
 <li>Merkle Science has seen strong demand from financial institutions and law enforcement agencies</li>
 <li>Immutable X’s $12.5M token sale brought in over 720,000 registrants but only about 3.6%, or 25,000, of those registrants were able to become new token holders</li>
 </ul>
 
</div>



Roll, a blockchain infrastructure for social money, has raised $10 million in Series A funding led by IOSG Ventures, the company said on Tuesday.&nbsp;



Participation in Roll’s investment round includes Animoca Brands, Alchemy, Huobi Ventures Weekend Fund and Mischief Fund. Additionally, IOSG joins existing investors, including Galaxy Interactive, Hustle Fund, Gary Vaynerchuk, Trevor McFederies, Ryan Selkis and Balaji Srinivasan. The company said it has raised a total of $12.7 million in funding since it launched in 2019.



Roll is a financial operating system and network for social tokens, which are branded digital currencies that creators can use to “make a market that belongs to them and their audience without third-party intermediaries, like platforms,” the company said.&nbsp;



Additionally, Roll’s network mints branded social tokens unique to individuals so they can control and coordinate its value across platforms. Roll’s social tokens can use Ethereum smart contracts to develop a social token infrastructure that can interact with web platforms and smart contract applications.&nbsp;



“We’re at the point now where Roll uniquely allows them to mint these social tokens through the Ethereum blockchain; it can be plugged into anything anyone else is building on Web3,” Bradley Miles, co-founder and CEO of Roll said to Blockworks in an interview.&nbsp;



Roll has over 350 creators, up 250% from 100 creators a year ago, Miles said. The creators range from websites like <a href="https://cms.blockworks.co/weekly-roundup-binance-onlyfans-and-jay-clayton/" target="_blank" rel="noreferrer noopener">OnlyFans</a> and Youtube to NFT artists and celebrities like Terry Crews. In the past month, Roll’s social tokens have reached $250 million in market value and over $2 million in daily trading volume, the company said. 



“We’ve really experienced this explosive growth last year and this year,” Miles said. “We seem to be in a cultural bull market&#8230;We’re seeing the markets grow, we’re seeing the demand grow,” he added.&nbsp;



<h3 class="wp-block-heading">Kraken Ventures and others invest in $5.75M round&nbsp;</h3>



A predictive cryptocurrency risk and intelligence platform, Merkle Science, has raised $5.75 million in a Series A round led by Darrow Holdings.&nbsp;



Other participants in the round include Kraken Ventures, Uncorrelated Ventures, Fenbushi Capital, Token Bay Capital, Kenetic, and Lunex Ventures, the company said.&nbsp;



The funding will be used to prioritize product development, expand its token coverage and customize solutions for DeFi and NFT platforms, the company said.&nbsp;



Merkle Science has seen strong demand from financial institutions and law enforcement agencies “as crypto-related illicit activity and regulations have taken center stage,” Mriganka Pattnaik, the company’s co-founder and CEO said.



The company has clients across Asia, Europe and North America and has grown its revenue over 900% in the past two years, it said. “In the past six months, institutional interest for cryptocurrencies and compliance in the US has surged, which has prompted both the co-founders to move their base to New York as part of Merkle Science’s expansion plans,” it added.



<h3 class="wp-block-heading">Token sales galore&nbsp;</h3>



On Tuesday, a crypto fund managed by Republic Capital, the multi-asset investment platform, announced its participation in AVAX&#8217;s <a href="https://cms.blockworks.co/avalanche-closes-230m-token-sale-backed-by-three-arrows-capital-polychain/" target="_blank" rel="noreferrer noopener">recent $230 million private token sale</a> alongside previously announced lead investors Polychain and Three Arrows Capital. Although the sale was closed in June, it was not publicly announced until mid-September. 



The Avalanche Foundation says that it will use the proceeds to accelerate the rapid growth of DeFi, NFTs, and other new asset classes on the Avalanche blockchain, Blockworks reported.&nbsp;



Separately, the Ethereum-based Immutable X sold out its token sale and raised over $12.5 million in less than an hour, Immutable, the company behind the token, said in a <a href="https://twitter.com/Immutable/status/1442481019601309703" target="_blank" rel="noreferrer noopener">tweet</a> on Monday. 



According to the tweet, Immutable X’s token sale brought in over 720,000 registrants but only about 3.6%, or 25,000, of those registrants were able to become new token holders through CoinList, which is a platform that showcases digital assets before they’re readily available on exchanges.&nbsp;



Immutable is an Australian company that focuses on the first layer 2 for NFTs on Ethereum and allows users to set their own trading fees, among other <a href="https://www.immutable.com/" target="_blank" rel="noreferrer noopener">elements</a>. 



In mid-September, the company closed a $60 million Series B round co-led by BITKRAFT Ventures and King River Capital, with participation from Prosus Ventures, Galaxy Interactive, Fabric Ventures, Alameda Research, AirTree Ventures, Reinventure, Apex Capital, and VaynerFund.



Immutable did not disclose what the token sale on Monday will be used toward. However, after the $60 million in funding the company said it would use the investment to primarily expand its global engineering and sales team, while strengthening partnerships with gaming companies, Blockworks previously <a href="https://cms.blockworks.co/layer-2-solution-immutable-closes-60m-series-b-round/" target="_blank" rel="noreferrer noopener">reported</a>.



<hr class="wp-block-separator"/>
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<hr class="wp-block-separator"/>

Roll Raises $10M, Merkle Science Closed $5.75M and Avalanche Touts Token Sale

<div id="highlights-block_6144ca3ff08ae" class="highlights">
 <ul>
 <li>Solutions that better balance of composability, security and speed will be a key innovation in future as many users must currently weigh tradeoffs, executives say</li>
 <li>Multicoin Capital managing partner Tushar Jain revealed that his firm has a big bet on layer-1 Solana</li>
 </ul>
 
</div>



Layer-1 blockchains are currently more reliable than the layer-2s built on top of them, argued <a href="https://multicoin.capital" target="_blank" rel="noreferrer noopener">Multicoin Capital</a> managing partner Tushar Jain, but there exist tradeoffs between all these solutions.



“The biggest trade-off of the approach that Ethereum is taking is that it breaks composability…when you go to different shards, or if you go to different rollups,” said Jain, speaking at Blockworks’ Digital Asset Summit (DAS) in New York City this week.



Layer-2 is a term for solutions built to scale an application by handling transactions off the layer-1 Ethereum mainnet while utilizing the decentralized security model of that mainnet. But Jain argued that in times of high market volatility, it can be hard to move assets this way.&nbsp;



“The throughput of the entire sharded system, or the entire layer-2 ecosystem, gets bottlenecked down to the throughput of that base layer that is actually communicating everything,” Jain said. “You have some ideas of cross-chain layer-2-to-layer-2 bridges, but those are not great&#8230;Those types of bridges are not reliable when you need them the most.”



Protocols like <a href="https://hop.exchange/" target="_blank" rel="noreferrer noopener">Hop</a> are designed to solve this problem by allowing users to move assets between Ethereum&#8217;s layer-2 ecosystem and the layer-1 mainnet quickly and in a trustless manner.



<h3 class="wp-block-heading"><meta charset="utf-8">The Investment Case for DeFi</h3>



Jain was joined on the DAS panel, called “The Investment Case for DeFi,” by Michael Shaulov, CEO and co-founder of Fireblocks; Ben Forman, founder and managing partner at ParaFi Capital; and Jonathan Steinberg, founder and CEO of ETF issuer WisdomTree.



<figure class="wp-block-embed aligncenter is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Digital Asset Summit: 2021" width="1024" height="576" src="https://www.youtube.com/embed/aoo_GVVVbiI?start=4258&#038;feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



Speaking to tradeoffs between the competing solutions, Forman said that certain financial applications may require more scalability and less trust, while others demand a higher level of trust.



<blockquote class="wp-block-quote">“You’re probably more comfortable holding significant amounts of value — so hundreds of millions, billions — secured by the very decentralized and secure Ethereum L-1 versus having it on an L-2 environment,” he explained. “Then there are applications like lending and borrowing that may not require as many transactions per second versus trading, that likely do, so it just depends on which type of DeFi application you’re looking at.”</blockquote>



A report published by Galaxy Digital on Friday about the layer-2 ecosystem noted that layer-1 blockchains have not been able to scale significantly without sacrificing decentralization, a feature that defines the value proposition for the entire crypto economy.&nbsp;&nbsp;



Whether for scaling payments through state channels like Bitcoin’s Lightning Network or computation through rollups like Ethereum’s Arbitrum, Galaxy argues in the report that a layered approach to scaling brings the most benefit with the least compromise on base-layer security, resiliency and decentralization.



“There’s this triage of composability, the speed and the trust and so far we see that people give up on one or two of those to achieve the third or two out of three,” Shaulov said during the panel. “Eventually we somehow need to find the solution that satisfies all three.”



<h3 class="wp-block-heading">Avalanche, Cosmos and Solana, oh my</h3>



Meanwhile, competition within the layer-1 space alone <a href="https://cms.blockworks.co/competition-in-layer-1-space-continues-to-heat-up/" target="_blank" rel="noreferrer noopener">has heated up</a> of late amid a higher demand for transaction prices and throughput that are lower and faster than what the Ethereum network provides. Such platforms include Cardano, which now has the third-largest coin by market capitalization, as well as Solana, Polkadot and Avalanche.



“We’re seeing a lot of different layer-1 chains out there, and they’re all choosing different tradeoffs,” Jain said during the panel. “These things aren’t just better than the other.”



The Multicoin Capital managing partner called Solana one of his firm’s “big bets in this space,” noting that its maintaining composability is critical for a successful DeFi ecosystem.&nbsp;



The Solana blockchain <a href="https://cms.blockworks.co/sol-stumbles-as-solana-struggles-with-technical-issues/" target="_blank" rel="noreferrer noopener">suffered a major outage</a> on Tuesday, but <a href="https://cms.blockworks.co/solana-recovers-after-10-hour-outage/" target="_blank" rel="noreferrer noopener">recovered</a> the next day. Its native token, $SOL, was priced at $144.50, which was down 8% in the last 24 hours, as of 1 p.m. eastern on Friday, according to <a href="https://www.coingecko.com/en" target="_blank" rel="noreferrer noopener">CoinGecko</a>.



John Wu, president of Ava Labs — the company behind the Avalanche blockchain — <a href="https://cms.blockworks.co/das-2021-ava-labs-wu-says-economies-will-depend-on-next-gen-layer-1s/" target="_blank" rel="noreferrer noopener">said at DAS</a> that the new generation of layer-1 protocols competing with Ethereum will be “where the economies will be” due to the transaction speeds and lower costs.



Avalanche announced Thursday that it had closed a <a href="https://cms.blockworks.co/avalanche-closes-230m-token-sale-backed-by-three-arrows-capital-polychain/" target="_blank" rel="noreferrer noopener">$230 million token sale</a> in June, led by Singapore’s Three Arrows Capital and Polychain.



<h3 class="wp-block-heading">The future of DeFi?&nbsp;</h3>



The innovation and efficiency of traditional financial services on the blockchain will transform the industry, but it will require staying within the bounds of responsible regulation, Steinberg said.



Steinberg in 2006 founded the ETF issuer, which now has about $75 billion in assets under management. The executive compared the digital assets space to the ETF market, which he noted in 1999 had $40 billion assets and today approaches $9 billion.&nbsp;



WisdomTree’s CEO added bringing assets such as Treasurys and gold to the blockchain within the foundational regulatory principles of traditional finance will be a “transformative moment.”



“If we are able to create the innovations and the efficiencies possible on distributed ledger, we will I believe pick up the users, because it will be the better investor experience,” he said.



Forman said the term DeFi will disappear in ten years as crypto banks, traditional banks and fintech companies build on top of blockchains to provide access to all types of financial products.



<blockquote class="wp-block-quote">“Everything will just be finance,” he said. “You’ll go to Compound to do your lending and borrowing, you’ll go to Uniswap to do your trading, you’ll go to Nexus Mutual to do your insurance, and the complexity of all that is abstracted away from the end user.”</blockquote>



Amid recent <a href="https://cms.blockworks.co/opensea-hits-3b-in-monthly-nft-volume/" target="_blank" rel="noreferrer noopener">high NFT volumes</a>, Shaulov highlighted the immense potential of monetizing digital creations.&nbsp;&nbsp;



“You can just sort of imagine how anyone can upload a TikTok movie, get an NFT, go to Compound and leverage that to borrow against what they just recorded,” he said.



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