Hello everyone, we have finished the research for the grant outlined above! Overall, our report is a cohesive review of the forms of consensus mechanisms that L2s may wish to implement if aiming to migrate from a centralized sequencer. We post a short summary of our report here with key points.
You can find the full report on our Substack, where the paper itself can be downloaded as well.
Methodology
We did an extensive literature review along with interviews with key players in the sequencing space. Specifically, we interviewed Maghnus Mareneck (CEO of Skip Protocol), Jayendra Jog (CEO of Sei Protocol), Ed Felten (Co-Founder of Arbitrum/OffChain Labs), Benedikt Bunz (Co-Founder of Espresso Systems), and Alex Stokes (Researcher at ETH Foundation). You can find some of our discussions on our YouTube.
We aggregated our findings to provide insight for L2s who wish to migrate from a centralized sequencer. To the best of the field’s knowledge, there does not appear to be a panacea that fully mitigates MEV through the use of a consensus mechanism or sequencer. Overall, we discuss the pros and cons of the following sequencing solutions along with their impact on MEV:
- Centralized Sequencers
- Shared Sequencers
- Byzantine Oligarchy
- Byzantine Democracy
- Proof of History (Solana)
Findings
We find that, generally, centralized sequencers can eliminate some forms of harmful MEV (eg. frontrunning) but have a monopoly threat and single point of failure. In contrast, Byzantine oligarchy decentralized sequencers encourage frontrunning and so either require a PBS-like mechanism or an ordering constraint to prevent centralization of MEV profits. We further consider Solana’s Proof of History as a way to correlate risk with computing MEV and the developing literature around Byzantine democracy.