The recent temporary halt of block production on Consensys’ Linea network following a $6.8 million exploit on the Velocore DEX has renewed the debate about decentralizing sequencers in Ethereum Layer 2 (L2) solutions. Amidst this, Optimism passed a proposal to implement fraud proofs, moving towards “Stage 1” decentralization on L2s. But is decentralizing sequencers urgently necessary?

The Role of Sequencers in Layer 2 Solutions

Sequencers in L2 solutions order and batch transactions before submitting them to the layer 1 blockchain, enabling more transactions per second at a lower cost. However, centralizing these sequencers raises concerns about security and censorship. Steven Goldfeder, CEO of Offchain Labs, which develops Arbitrum, emphasized the importance of context when discussing sequencers. “The term ‘sequencer’ means different things in different protocols,” he said.

While a centralized sequencer can process transactions faster, it could potentially censor by delaying transactions. However, it cannot alter account balances or post illegitimate transactions, thanks to a network of validators that can challenge incorrect actions via a fraud-proof mechanism.

The Push for Decentralization

Goldfeder pointed out that while the sequencer is centralized, the validation process involves entities like Offchain Labs, Consensys, and even Google. He noted that the ultimate goal is for everyone to validate transactions. Arbitrum plans to roll out Arbitrum Bold, a protocol for managing disputes on Arbitrum chains, enabling permissionless validation.

Christine Kim, VP of research at Galaxy Digital, believes that decentralization is a spectrum and that fault-proof mechanisms alone do not ensure decentralization. “Rollups in general are significantly less decentralized and secure than the base layer, Ethereum,” she said. Kim emphasized that working fault proofs are necessary but not sufficient for achieving higher levels of decentralization and resiliency.

Sequencers and Robustness

Haseeb Qureshi, managing partner at Dragonfly, concurs that while decentralizing sequencers is important, making them more robust should come first. Of the top five L2s by total value locked (TVL), only Arbitrum has a fraud system in place. Optimism, Base, Blast, and Mantle lack such mechanisms, giving their sequencers more power over transaction outcomes.

Qureshi argued for the need to implement reliable fault proofs on platforms like Optimism’s OP Stack and to move away from security councils and multisigs. Kim also highlighted the importance of building robust governance mechanisms, reducing reliance on admin controls, lowering fees, and improving interoperability with other rollups.

A Balanced Approach

While the decentralization of sequencers is a crucial step for Ethereum L2 solutions, it is not the only measure needed to improve their security and resiliency. Implementing working fault proofs, robust governance mechanisms, and other decentralization initiatives are equally important. Achieving a balance between decentralization, security, and functionality will be key to the long-term success of Ethereum L2 networks.