Original author: davidecrapis.eth

Compilation of the original text: Deep Tide TechFlow

In February 2022, Barnabé proposed a Rollup economics framework on resource pricing and value flow, which is used to think about key concepts such as MEV, the interaction of L1 and L2 fees, operator revenue and costs in an L1-dependent economy. Its a simple framework for a simple world: a centralized rollup on independently operating training wheels. A lot has changed in the past 18 months: shared ordering, decentralization, proof/data aggregation, Rollup consortium, governance.

We propose a new framework that will help understand the new world into which Rollup is poised to expand. There is still a lot of experimentation going on, but several patterns are already emerging. We will analyze key patterns and hopefully provide a tool to help understand where things might be headed and answer current open questions.

Back to Basics: Revisiting Rollup Economics 1.0

The original Rollup economics framework consists of three entities: users, Rollup operators, and the base layer. It also has a similarly simplified view of value flows: L2 fees and MEV, carrier costs, and data distribution costs. Its a simple framework, but its useful to start here and build on it, as things get more interesting and complex very quickly.

From these basic processes, we can measure Rollup protocol surplus and reason about related concepts, MEV extraction and allocation, L2 issuance, L2 congestion charge allocation, and the time frame for Rollup to maintain a budget balance or achieve a budget surplus (the L2 ecosystem is constantly growing Economies that may find operating surpluses useful for funding public goods, development and growth in their communities).

Rollup protocol surplus = L2 fees - operating costs - data costs

The Rollup protocol has control over its L2 fees (including congestion pricing and MEV) and operating costs (including issuance and operator incentives). Whether the protocol decides to pursue balance or surplus goals, L2 operations require coordinated technology so that

(1) Optimally set L2 congestion charges,

(2) Extract and reallocate MEV,

(3) Reduce data costs through optimization and strategic release.

These are the main economical design choices that different L2 ecosystems are currently experimenting with. In the future, protocols may look to reduce uncertainty around data costs through the use of block space derivatives.

In the past 18 months, one significant thing has changed. Similar to L1 block building, we see Rollup operators being broken down into more specialized roles. As economies grow, specialization will naturally occur, which is a good thing because separation of concerns leads to more resilient systems, if we can address this in the design. However, the design space is larger now, so we needed a new map to guide our process.

Rollups are maturing

As Rollup matures, the complexity of Rollup increases, which we call Rollup Alliance. Rollup Architecture shared between Rollups of the same type is designed to increase security (through shared governance and community coordination), efficiency (through shared functionality and economies of scale) and user experience (through better interoperability and reduced fragmentation ). Meanwhile, independent providers are developing infrastructure to provide one or more of the above benefits to any Rollup who decides to choose their services. We describe these models in detail below.

Independent Rollup

A single Rollup is getting rid of training wheels, increasing security and decentralization. From an operational/economic perspective, the main cost areas include:

• Sorting: This incurs operational costs and incentive costs to incentivize the sorters.

• Data Availability (DA): Rollup must publish data on the base layer and therefore incurs data costs, which was the primary cost item discussed in the original framework.

• State Verification (SV): This directly increases the operational cost of zkRollup by proving the cost.

Across all these cost areas, a single rollup faces important tradeoffs between security and efficiency. For example, they may choose to use a lower-cost, less secure data availability tier. Data publishing costs (we call them data costs for short, although they include some L1 compute costs associated with publishing) have historically been among the highest line items. With the soon implementation of EIP-4844 on Ethereum and subsequent implementation of full Danksharding, this will be significantly reduced, giving Rollup the cost efficiencies it needs to scale and support new use cases. In the long term, efficiencies in data costs and related services may be achieved through the aggregation of off-chain innovation to unlock economies of scale.

Specific examples of aggregation include: shared ordering services; for Optimistic Rollup, an interesting idea is to share batch publishing, which can realize batch compression benefits faster, especially for smaller participants, providing more information through faster data publishing. Low cost and higher security; for zk rollup, shared provers are one of the most exciting rollup solutions, especially because they can do these aggregations recursively, resulting in efficient utilization of L1 data markets Huge gains, but at the cost of more off-chain computation. It is an obvious fact that sooner or later Rollup will choose to adopt shared services, either as part of a Rollup alliance or as part of an economic alliance.

One direction the Rollup ecosystem might take is to have more independent Rollups that are closely aligned with L1. Although we havent seen many implementations yet, there are at least two interesting architectures. One is to delegate its block ordering to L1s Rollup, thereby utilizing the L1 transaction supply network for MEV extraction, but retaining the power to set L2 congestion fees. The more extreme one is that Rollup is established in Ethereum itself. Well dive deeper into the economics of these models when we discuss Rollups MEV resiliency and decentralization.

Rollup cooperative

The first type of integration between two Rollups is a purely economic cooperation, such as an economic cooperative.

“A cooperative is a group of entities that share or work together to achieve a common goal, such as economic benefit or savings.” — Wikipedia

In its simplest form, there is a joint purchasing agreement between Rollups for some kind of service. Imagine there is a shared batch publishing service that Rollup can subscribe to and get lower data publishing costs. Deeper economic integration is also possible, such as a shared ordering service that both provides cost efficiencies and makes it easier for transactions between Rollups to be settled atomically, thus lowering trade barriers between them. This mindset is similar to that of the European Economic Community or other similar common market associations.

We can enhance the simple model of independent rollup economics by introducing intermediary service providers. In this case, there are two new economic effects on the Rollup ecosystem.

• Rollup cost structure: Rollup operator costs now include operating costs, service costs, and data publishing costs.

• Shared Services Economics: The new entity needs to achieve a balanced budget.

Examples of such services include Espresso Sorter, a shared service for sorting and publishing limited to shared batch releases, or shared proofs. In all these cases, there are two important economic issues with shared services.

• L2 service cost sharing: The total service cost needs to be allocated to the Rollup using shared services in an economical and fair manner.

• Decentralization of shared services: Achieve a degree of decentralization that, depending on the type of service, strikes the right balance between performance and robustness. This standard is lower than the base level, but it includes management incentives and MEV.

Rollup Alliance

Rollup federations differ from economic cooperatives in that they have both economic integration and some form of political integration. This mindset is similar to a federal state.

Technically, political integration is achieved through a shared cross-chain bridge, but it also requires a shared governance system. Here we will largely set aside political and governance considerations and we will assume the existence of a shared cross-chain bridge and focus on the economic relationships it implies. This Rollup federation architecture is emerging on all major Rollup systems, which are becoming platforms for deploying interoperable peer-to-peer Rollups.

For example, Optimism Superchain, Polygon 2.0, StarkWare SHARP, zkSync Hyperchains, and other related projects share similar patterns in their architecture. We outline this in the diagram below. Note that for effectiveness, we make the realistic assumption that the Rollup consortium automatically selects shared services and incurs no direct data publishing costs.

The existence of shared cross-chain bridges introduces additional economic variables. In particular, native L2 tokens, such as OP tokens in the Optimism ecosystem, provide important decision-making rights through governance for allocating resources, roles, and economic flows within the ecosystem (for example, OP governance is a hybrid-based An experiment in the governance of token identity). Once the Rollups technology stack matures and addresses first-level security issues, the next focus is on robustness, which may involve some degree of decentralization.

When Rollups considers building decentralized services (for ordering, proof, or verification), they will need to run a consensus protocol. This is when ecosystems of sufficient scale see the opportunity to upgrade their native tokens into production assets (which is exactly what Polygon 2.0 plans to achieve with POL). This is not the only way to decentralize L2 services, as Ethereum L1 can also be implemented taking advantage of its better security properties. However, for larger ecosystems that wish to retain more internal controls/governance and associated rewards/incentives, using native tokens may be an attractive direction.

The native token is an important economic tool to help bootstrap the L2 ecosystem/economy. Issuance can be used to reward service operators, fund ecosystem support projects, or public goods. However, when native tokens are used to support decentralization through some native proof-of-stake protocol, security may decrease with more dilution. Even if the native token is only used for governance, excessive dilution could lead to more sales by budget-constrained holders, potentially leading to a concentration of ownership. Therefore, it seems important to have a token issuance program that matches the growth in demand. Finally, another important consideration is making the L2 economy more reliant on the native token (rather than ETH), which also makes it less robust to certain failure modes, as moving to L1 may not be an option. At the limit, L2 still has the security provided by Ethereum, but loses the security provided by Ethereum as an external currency.

more layers

Another area of ​​active development is the development of application-specific or custom execution environments that eventually settle on the base layer, if not directly. These typically target applications that require low execution costs and simple deployment, and are willing to make tradeoffs in security. For example, games, social media, NFT products that do not require starting your own service economy or attracting/guaranteeing a large amount of liquidity.

These include different types such as L3, Validium and Rollup as a Service (RaaS) platforms. For example, Arbitrum Orbit is a platform that supports the deployment of L3 chains on Arbitrum L2 (One or Nova), with some configurability such as choosing the Arbitrum authorized Data Availability Committee (DAC) or Ethereum L1 as the data availability layer. StarkNet and other zk rollups projects have also been trying to implement L3. An extreme example in terms of ease of deployment is AltLayer or Caldera, which provide no-code solutions to deploy customizable Rollups and empower users to make security and efficiency trade-offs.

We focus on L3 systems. This is essentially an added layer on top of L2. From an L2 rollup perspective, this is another source of L2 fees. For the Rollup ecosystem, L3 is a new entity with its own budget balancing constraints:

• L3s revenue may come from fees, subscriptions (e.g. games), or other mechanisms such as revenue sharing (e.g. NFTs).

• The cost of L3 includes the operating cost of the system as well as the L2 fee for computing/data. These costs can be borne directly by L3, or paid by the RaaS platform in the case of managed services. This is another service provider that needs to balance the budget.

This is another example of economic specialization in the Rollup ecosystem.