The Hard Problem with Decentralizing L3s: Decentralizing the Sequencer

In our last post, we outlined the economic challenges that L3s face today to drive sufficient sequencer revenue. Unfortunately, it’s infeasible for most L3s today to break even.

It’s become increasingly clear that quick-and-easy solutions won’t suffice for a rollup-centric vision of Ethereum to work or be economically viable at scale. Instead, applications and communities need full agency and control over how their networks are designed, customized, and operated—and more importantly, how economic value in their network is created, reinvested, and shared with its key stakeholders.

What this means is that L3s will need to be decentralized to fully empower communities with the social and economic agency to build networks where sovereignty, interoperability, and economic viability are all simultaneously possible.

This is where L3s need to go next. This is where L3s are headed.

To Decentralize L3s, We Must Decentralize the Sequencer

However, for an L3 to decentralize, the heart of the L3—specifically the sequencer—must be decentralized. Unfortunately, this is no simple task.

Sequencing refers to the process of ordering the execution of a rollup’s transactions. Decentralized sequencing distributes this crucial work (and its related economics) among multiple participants in a way that is most aligned with the network’s mission and goals—enhancing the network’s overall resilience, openness, and alignment with its stakeholders in the process.

Today, nearly all L3s rely on centralized sequencers. Some run the sequencer themselves, while others outsource it to a centralized third party. A few are starting to explore shared sequencers that decentralize the workload but still enforce global rules around who can sequence, how transactions are sequenced, and how value is created and shared. For most L3s, neither option is ideal. Neither ultimately puts the power of how an L3 and its value are created, managed, or shared fully into the hands of its community.

That’s a problem, because an L3 and its sequencer should be owned and governed by its community, not a single or shared operator. So what are the biggest opportunities and roadblocks to making decentralized sequencing a reality?

Why Decentralization Matters to L3s

Centralization Risks

Decentralized sequencing eliminates single points of failure—leading to greater resiliency, uptime, and reliability. In a world with decentralized sequencers, rollups would be able to avoid significant downtime and costly events like ones we’ve seen recently where multiple L3s were severely impacted by the unintended effects of a small update from their centralized operator.

Decentralization also addresses concerns related to credible decentralization, neutrality, and censorship resistance. Because decentralized sequencers could not only enable maximal but varying levels of decentralization, decentralized rollups would as a result have greater flexibility to adapt to changing needs, circumstances, and regulatory requirements. 

Interoperability for Collaboration

While decentralized sequencing doesn't inherently improve interoperability, decentralized sequencers have greater agency in determining what networks they want to interconnect with and aren’t dependent on the decisions of centralized operators or shared sequencers. Decentralized sequencing also opens new possibilities to create networks of networks (e.g., collectives of L3s) bottom up—versus top down.

This optionality fosters greater experimentation, creativity, and collaboration between networks while maintaining their sovereignty.

Economic Agency and Sustainability

Decentralized sequencing offers rollups a number of powerful economic benefits.

• Significant reduction in the cost to operate and scale
• Increased revenue through new fee markets like blockspace auctions, MEV, cross-chain transactions, and more
• New value creation, management, and sharing mechanisms and models
• Agency over how a rollup’s economy and governance are designed, managed, and changed over time

The combination of these benefits will make L3s not just economically viable but also economically attractive as more value is unlocked and captured by the network itself, versus a centralized operator or other layer below it.

This is where we believe L3s and web3 more broadly are inevitably headed: toward a community-owned internet where value is primarily created and captured by communities.

The Roadblocks to Decentralized Sequencing

Despite these benefits, there are many reasons why decentralized sequencers have not been widely implemented to date.

Technical Complexity and Costs

Today, implementing decentralized sequencing is significantly more complex than defaulting to a centralized sequencer from a centralized provider. Teams must build their own off-chain sequencer, node infrastructure, and consensus network—all of which must be scalable, reliable, and denial of service, Sybil, and censorship resistant. This process is not only expensive but extremely time-consuming. For most teams, the costs and time spent significantly outweigh the benefits.

Stakeholder Alignment and Coordination

Bootstrapping, developing, and managing a decentralized sequencer network presents its own set of challenges. Determining who should participate in the network, how to select and permission participants, and what mechanisms should be used to align stakeholders are non-trivial. Even harder is designing, implementing, scaling, and maintaining such a system.

Permissioning becomes crucial for L3s. As L3s function more like onchain communities than generalized chains, they often know who they specifically want to include in their network and want to align their roles and incentives accordingly. Today’s designs for decentralized sequencing focus on allowing anyone to sequence for maximal decentralization and openness, but for most L3s, granular permissioning capabilities are better for aligning with their communities and networks.

Monolithic Architectures

Today, the one-size-fits-all monolithic designs of centralized and shared sequencers make decentralized sequencing impossible. Alternatively, networks that want decentralized sequencing must build them completely one-off and custom.

For decentralized sequencing to scale and become more widely adopted, new architectures must emerge designed for customizability, sovereignty, and interoperability. Is such a system that balances these tensions possible?

The Future of Ethereum

While decentralized sequencing presents significant technical and coordination challenges, it holds the key to scaling Ethereum and unlocking its rollup-centric vision.

If so, what infrastructure is required to enable decentralized rollups and sequencing at scale? How will these systems be designed in a way that prioritizes communities, applications, and their economic agency? Who is working on this today?

If you’re exploring any of these questions, please reach out. We’d love to talk and share what we’ve been working on.