Proposal Commitments, Pre-Confirmation, and Beyond
How Luban is Changing the Game
Introduction
Our portfolio company, Luban is building an out of protocol solutions for variety of proposer commitment. The first two iterations are L1 and L2 pre confirmation.
Based sequencing is the critical process of getting transaction data from these rollup chains included periodically into Ethereum's main layer 1 blockchain for security and data availability purposes.
Currently, rollups rely on a centralized sequencer, typically run by the rollup team themselves, to handle this base layer sequencing task. However, this centralized model raises trust issues and could become a bottleneck as rollup usage scales up. So there is a need for a decentralized base layer sequencing solution.
Luban aims to provide this decentralized base sequencing layer through their proposal commitment system. At its core, this system allows various participants, called proposers, to make commitments or proposals about the specific rollup transaction data they intend to include and sequence into future Ethereum L1 blocks.
Other participants, called delegators, can then verify these proposed commitments from proposers and execute the committed actions by actually constructing the layer 1 transactions to sequence the rollup data as proposed. This separates the proposal and execution roles in a decentralized manner.
To make this work, Luban's system has several key components they are building:
The proposal commitment scheme itself where proposers stake and declare their intentions to sequence specific rollup data.
Pre-confirmation mechanisms to provide probabilistic guarantees in advance about whether committed proposals will likely be executed as scheduled by delegators.
Penalty enforcement rules and mechanisms to punish proposers financially if they go back on their committed proposals after staking.
Robust communication protocols to efficiently transfer proposal data between all the parties involved - proposers, delegators, verifiers etc.
Execution infrastructure and technical capabilities for delegators to reliably execute accepted and verified proposals to sequence rollup data into layer 1.
A verification proxy process to cryptographically verify that delegators correctly executed committed proposals as intended, enforcing accountability.
By building this decentralized pre-commitment and execution layer, Luban essentially provides the missing trustless base sequencing piece for rollups to achieve greater security, scalability, and censorship resistance compared to centralized sequencers.
Proposer Commitments
Luban recently posted an article, "Towards a Credible Out-of-Protocol Proposer Commitment Scheme for Ethereum", speculating the industry vertical in detail delving into the concept of proposer commitments within the context of the Ethereum. It explores how these commitments can be utilized to enhance the agency of proposers and generate additional revenue streams without introducing significant operational complexity.
What is it?
A proposer commitment is a mechanism within the Ethereum ecosystem that allows block proposers to make binding promises about their future actions.
At its core, a proposer commitment involves:
A willing proposer (or their delegatee) who commits to perform a specific set of actions.
A cryptographically signed commitment of these actions.
A set of predefined penalties for failing to fulfill the commitment.
A verification mechanism to ensure the commitment is met.
Technically, a proposer commitment can be represented as:
Where:
Sig is the proposer's digital signature
Hash is a cryptographic hash function
τ_i represents a series of actions
φ_i represents the corresponding time or state dependencies for each action
The penalty for failing to meet the commitment can be expressed as:
Where:
P is the penalty function
α_t is the historical EVM state at block t
The proposal commitment scheme enables a decentralized two-step process for including rollup transaction data into Ethereum L1 blocks for security and data availability.
Step 1: Commitments from Proposers
There are "Proposer" participants who stake/commit to including specific rollup transaction data in a future layer 1 block they are assigned to propose
For example, a Proposer may commit to sequencing rollup block X's data into Ethereum block Y at time Z
This commitment is made by putting down a stake/bond and broadcasting the commitment via a layer 1 transaction
Proposers are incentivized to make accurate commitments to earn rewards from their stake
Step 2: Execution by Delegators
The commitments from Proposers are monitored by "Delegator" participants
If a Proposer's commitment is verified as valid, Delegators compete to actually construct the layer 1 block at time Z
The winning Delegator includes the rollup data X in their block Y as per the Proposer's commitment
Delegators earn a portion of rewards for properly executing committed proposals
This separates the "proposal" and "execution" roles in a decentralized way.
In addition to its proposal commitment system, Luban incorporates another crucial element to enhance the effectiveness and reliability of its decentralized base sequencing solution: the pre-confirmation mechanism.
This feature works in tandem with the commitment scheme to provide an additional layer of assurance and predictability to the base sequencing process. By offering probabilistic guarantees about the execution of committed proposals before their inclusion in Ethereum's Layer 1, the pre-confirmation mechanism addresses key challenges in transaction finality and user experience.
Let's explore how this system operates and its significance in Luban's overall architecture.
What’s Been Happening at Around for Pre-confs and Based Sequencing?
There have been different stances in and around pre-confs. Some may be generally accepting of the concept, but their approval may come with specific conditions and concerns.
Firstly, Some might be concerned about the potential impact on Layer 1 consensus. For any L1, the consensus mechanism is crucial for maintaining the security and integrity of the network. With pre-confs, we need to make sure that any implementation of pre-confirmation does not put additional strain on this fundamental layer of the Ethereum network. This could be because overloading the Layer 1 consensus might lead to slower transaction processing times, increased energy consumption, or potential security vulnerabilities.
Secondly, We also need to be cautious about the amount of work required from proposers. In Ethereum, proposers are nodes that suggest new blocks to be added to the blockchain. They play a critical role in the network's operation and security. We do not want proposers to do "too much work" which likely stems from a desire to maintain a balanced and efficient system.
If proposers are overburdened with additional tasks related to pre-confirmation, it could lead to several potential issues:
Increased centralization: If the workload becomes too high, only powerful nodes might be able to serve as proposers, potentially leading to centralization.
Reduced participation: A high workload might discourage some nodes from becoming proposers, reducing the overall robustness of the network.
Slower block times: If proposers need to perform complex operations for pre-confirmation, it might slow down the block proposal process.
Increased vulnerability to attacks: Overworked proposers might be more susceptible to certain types of attacks or manipulation.
We believe there’s potential value in pre-confirmation technology, but it’s not without approaching it with a cautious and pragmatic perspective.
We are pragmatically more inclined towards the “pricing aspect” of pre-confirmations.
By offering probabilistic guarantees about future block contents and transaction inclusion, pre-confirmation introduces new dynamics that can influence transaction fees, gas pricing, MEV extraction, block space valuation, sequencer compensation, and even lead to the creation of new financial instruments.
Transaction Fees and Gas Pricing
Traditionally, transaction fees are determined in real-time, with users competing for inclusion in the next block. This can result in sudden fee spikes during periods of high network congestion.
Pre-confirmation, however, allows for a more forward-looking approach to fee determination. It enables a futures market for transaction inclusion, where users could lock in a fee rate for a future block, similar to booking a flight in advance. This approach could lead to more stable and predictable fee structures, as the network can better anticipate and distribute transaction load across future blocks. To implement this, sophisticated smart contracts would be needed to handle these future commitments and adjust fees based on projected network conditions.
Gas pricing, closely tied to transaction fees, could also see a transformation with pre-confirmation. Currently, gas prices fluctuate based on immediate network demand. With pre-confirmation, a more nuanced gas pricing model could emerge. For example, gas prices could be set on a forward curve, much like commodity futures markets. This would allow for more accurate pricing based on expected future network conditions. Implementation would require integration with oracle systems to provide reliable future state predictions and complex algorithms to calculate fair gas prices based on these predictions and historical data.
Impact on Maximal Extractable Value (MEV)
MEV, or Maximal Extractable Value, refers to the value that can be extracted from transaction ordering within blocks. Pre-confirmation systems could make some traditional forms of MEV extraction more challenging by locking in transaction order in advance. However, they could also create new MEV opportunities based on the pre-confirmation process itself. For instance, accurately predicting which transactions will be pre-confirmed could have significant value, allowing traders to position themselves accordingly. This would necessitate the development of new MEV extraction algorithms that consider the pre-confirmation state and potential changes to the consensus mechanism to ensure fair distribution of MEV.
Block Space Valuation
Pre-confirmation introduces a new dimension of time to block space valuation. Block space could be priced differently based on how far in advance it is reserved, similar to how airline seats are priced based on booking time. Implementing this would require developing sophisticated pricing models that consider historical data, future predictions, and the time value of block space. Smart contracts would be essential to handle these time-based reservations and pricing adjustments.
Layer 2 Solutions and Sequencer Compensation
For Layer 2 solutions, pre-confirmation could significantly impact sequencer compensation models. Sequencers could offer pre-confirmation services, guaranteeing transaction inclusion in specific future L2 blocks. This could lead to a more competitive market for sequencing services, with sequencers differentiating themselves based on their ability to provide reliable pre-confirmations. Implementing this would require modifications to existing L2 protocols to incorporate pre-confirmation mechanisms and new economic models to determine fair compensation for sequencers based on their pre-confirmation performance.
New Financial Instruments and Markets
Pre-confirmation opens up possibilities for new financial instruments and markets. We could see the emergence of block space futures or options contracts, where users could purchase the right (but not the obligation) to include a transaction in a specific future block. This could lead to sophisticated hedging strategies for large-scale blockchain users. Market makers specializing in trading these block space derivatives could emerge.
Is there a Spin to Pre-confs?
Many major L2s have shown interest in pre-confirmations, mainly in areas such as transaction finality, user experience, or interoperability between Layer 2 and Layer 1.
However, regulatory concerns are a significant driver of this interest. In web3, regulatory scrutiny has been increasing, particularly around centralized systems that handle user funds or data. Layer 2 solutions, while built on decentralized networks, often incorporate some centralized components for efficiency.
One of the key centralized components in many Layer 2 systems is the sequencer. A sequencer is responsible for ordering transactions within the Layer 2 network. It collects transactions from users, arranges them in a specific order, and submits them to the Layer 1 network in batches. This centralized ordering allows for faster and cheaper transactions but introduces a single point of control.
The centralized nature of sequencers could potentially attract regulatory attention for several reasons:
Control over transaction ordering could be seen as market manipulation, especially in DeFi applications.
A central entity having control over user transactions might be viewed as similar to a traditional financial intermediary, potentially subjecting it to banking or money transmission regulations.
There might be concerns about data privacy and user information handling.
The ability to censor or prioritize certain transactions could be seen as problematic from a regulatory standpoint.
Pre-confirmation technology could potentially offer a way to decentralize the sequencing process. This could work by:
Distributing the sequencing role among multiple parties.
Implementing a consensus mechanism for transaction ordering.
Using cryptographic techniques to ensure fairness and transparency in the ordering process.
By decentralizing sequencers, Layer 2 solutions could potentially address several regulatory concerns:
Reduced single point of failure or control, making the system more resilient and less likely to be seen as a centralized intermediary.
Increased transparency in transaction ordering, potentially alleviating concerns about market manipulation.
Improved censorship resistance, addressing worries about transaction filtering or prioritization.
A more distributed responsibility for user data and transaction processing, potentially easing data privacy concerns.
This development also underscores the complex interplay between technological innovation, regulatory landscapes, and growth strategies in this rapidly evolving space.
What is Luban Doing Differently?
With several discussions with the founder of Luban, Harry has made a significant observation about the current state of blockchain development, particularly in the areas of pre-confirmation and Layer 2 scaling solutions. Through his insight, we have identified a crucial gap in the industry's approach to building new features.
Many teams in the blockchain space are heavily focused on building infrastructure. This infrastructure likely includes:
Pre-confirmation systems
Decentralized sequencers
Cross-chain bridges
Consensus mechanisms
Data availability solutions
These are all critical components for creating a robust, scalable, and efficient blockchain ecosystem. Teams are investing significant resources into solving complex technical challenges related to scalability, security, and decentralization.
These infrastructure components are undoubtedly critical for creating a robust, scalable, and efficient blockchain ecosystem. Teams are investing substantial time, effort, and resources into solving the complex technical challenges associated with improving scalability, enhancing security, and maintaining decentralization.
While teams are making great strides in developing advanced technical solutions, there is a noticeable lack of attention being paid to how end-users will actually interact with these systems. This gap in focus could lead to several potential issues.
Firstly, the advanced nature of these technologies might result in user interfaces that are overly complex and difficult for average users to understand and navigate. The intricate technical details that developers are grappling with could inadvertently be reflected in the user interface, creating a barrier for non-technical users.
Secondly, users might need to understand complex concepts like Based sequencing & pre-confirmation to effectively use these systems. This creates a significant technical barrier that could deter many potential users who are not well-versed in blockchain technology.
Thirdly, in the rush to solve technical problems, considerations of UX/UI design might be overlooked. This could result in systems that, while technically impressive, are not user-friendly or intuitive to interact with.
Lastly, without a proper focus on user interaction, there might be insufficient resources dedicated to educating users on how to leverage these new technologies. This could create an education gap, where even if the technology is powerful and user-friendly, users may not understand how to take advantage of its capabilities.
We see this gap in focus as a significant opportunity for differentiation. This could catalyze adoption, bridging the gap between advanced infrastructure and mainstream users who may be intimidated by the complexity of blockchain technology.
In a space where many projects have similar technical capabilities, superior user interaction could be a key differentiator.
Conclusion
We believe that Luban with its pre-confirmation mechanism and a strategic focus on delivering an exceptional user experience is an excellent approach to take.
This two-pronged approach tackles both the technical challenges of decentralized base layer sequencing and the oft-neglected aspect of user accessibility. In an ecosystem where many projects offer similar technical capabilities, Luban's emphasis on seamless user interactions could prove to be a powerful differentiator, unlocking the potential for their cutting-edge solutions to reshape how users interact with L2s and the future of Ethereum's roadmap towards a scalable, secure, and decentralized web3 ecosystem.
Find L2IV at l2iterative.com and on Twitter @l2iterative
Author: Arhat Bhagwatkar, Research Analyst, L2IV (@0xArhat)
References
Disclaimer: This content is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisors as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services.