The Future of Rollups is Based | Mteam

Welcome to the Bankless Summit, a series of talks from speakers all around the Ethereum ecosystem, which were all presented at a one-day event hosted the day after DEF CON called the Bankless Summit. We're releasing some of these talks on the podcast throughout the week, and the rest will be available on the Bankless Premium feed. You're about to hear from MTeam or Matthew, MTeam is what he's known as on Twitter, who is the CEO and co-founder of Spire, a base rollup framework. MTeam, for those who don't know, is 17 years old. I actually had to write an excuse note that he could give to his school for him to miss class and go all the way from the United States to attend DevCon and to give this talk about how based rollups help ETH's value accrual and tap into Ethereum's network effects at the Bankless Summit. Many people said that this was the most impressive technical talk at the Bankless Summit. I don't know what you guys were doing when you were 17, but I wasn't doing anything like this. So let's go ahead and hear from M Team right now, but first a moment to talk about some of these fantastic sponsors that make this show possible.

I'm here today because I am an Ethereum bull and a base rollup bull. And I think that we can make these two things work together. So if you don't know what a base roll-up is, then raise your hand.

Okay, a couple people. That's better than I thought. Um, raise your hand if you don't know what ETH is. Yeah, that's what I thought. Okay. Uh by the end of this presentation, you're gonna go home, fly home maybe, and you're gonna buy more ETH because this story that I'm about to tell you is incredibly bullish. More bullish than deflationary money or yield bearing money. All right, that's pretty boring. That's like TradFi stuff. I actually don't care. Um

I am MTeam. I am Matthew. I am the co-founder of a company called Spire Labs. We build a framework that gives developers the ability to make their own based app chains, a customizable and composable environment for their applications. If you want a base roll up, then talk to me afterwards.

All right, so to understand value accrual today and the future that I'm about to promise you, we're gonna talk about value accrual so far.

So Ethereum has been around for about eight years, and we've had a few different ideas about what value accrual could be.

The first one I think is really notable is EIP 1559, which is the idea of the burn, right? We have a multidimensional fee market made up of priority fees on top and the base fee down below. The base fee is set by the protocol and burned.

The priority fee is returned to proposers to incentivize them to include transactions.

Now,

this has like a core thesis in its entire value cool narrative, which is that the

ETH supply, as number of ETH goes down, then the unit value of each individual ether goes up, right? As long as the market cap stays the same, that's true.

That same idea is a part of EIP4A44 and blobs. The idea here is that Ethereum provides a valuable service,

DA blobs, to roll ups who purchase these. So that's the same thesis, right? As the number of ETH goes down, then the price of ETH goes up.

That's about where we are today. All right. Not a ton of work on specifically ETH value accrual, other than the kind of issuance and deflationary policy. There's some future things, though. There's MEV burn, where we use an auction that's down here to give the Ethereum protocol the ability to know how much MEV is being extracted by the sequencers in the system, and then forcing those actors to burn some of that value. Burning ETH makes ETH price go up, or so we think.

There's a there's one thing up here resiking that is not a ETH value accrual thesis, but a

Uh ETH staker value accrual thesis, right? If you are a staker and are willing to take on slashing conditions and provide economic security, then you'll make more revenue, which you could return to people who stake their ETH with you. So this is this is one thing that might be useful to just consider. The question about restaking is like, is economic security actually that valuable? Will AVSs really demand economic security? So far, it's been represented like somewhat empirically that really not that much. Um and unfortunately not enough for the the kind of billions of dollars that I want to see floating across my tokens. So what? So what have we learned? Uh MEV burn and EIP 1559 are at odds with the roll-up centric roadmap. The rollup centric roadmap will take activity and congestion and MEV activity and move it to layer twos, move it to rollups. This means this will no longer take place on layer one. So if you're bullish roll ups, then unfortunately you're bearish on the burn because the burn is dependent on layer one activity and MEV. Now it's very possible that there will be some MEV and some congestion taking place on layer one.

But unfortunately, that will not be nearly as much as what's taking place on rollups. Now, DA is a whole nother thing, right? Blobs are specifically designed for the rollup center code map, and they work really well, except that DA is not very sticky if you just have like a centralized sequencer rollup. A centralized sequencer rollup could choose to use Alt DA instead of Ethereum blobs. Justin Drake was up here talking about that kind of Ethereum DA premium. That doesn't matter unless you have uh you're using other kind of features of that DA. And we'll talk about those during this presentation. But the key one is synchronous composability and things like native rollups.

So we looked at all these very cool things, and researchers, um, Justin Jake, of course, realized something important. Ethereum is the best sequencer. And I'm gonna make this case over the next few slides, but some of you might be asking

Ethereum is a sequencer? Question mark. Um, and the answer is yes. Ethereum has been a sequencer for the past eight years.

Every consensus protocol that reaches consensus on inclusion and ordering is doing sequencing. Ethereum is sequencing Ethereum mainnet.

So you you know, you're like, of course, obviously, and have adjusted your question to Ethereum is a layer two sequencer. And I'm here to tell you that we have made the necessary research breakthroughs and the social coordination breakthroughs to make it so that I can practically answer that question, yes.

Ethereum is sequencing a layer two as we speak.

So we decided to call this Ethereum sequencing. No, we didn't. That would have been a great name. Um we decided to call it resequencing, which would still be a great name, but no, we did not. Uh we had to name sequencing rollups and Ethereum, and so

This guy up here decided on the name base sequencing. Don't ask me why. But the meme has stuck. And so the rest of this presentation is gonna be specifically about base sequencing, why it is valuable, and you know, in turn, why it is extremely valuable and important for etholders. To understand why Ethereum sequencing is valuable, we have to understand how Ethereum sequences. This is obviously uh important. I'll make the case that it's not that important. Today, we use an off chain auction called MevBoost that allows proposers that are granted sequencing rights by the Ethereum protocol to auction these off to specialized builders that are the ones actually extracting MEV.

And doing the sequencing, right? In the future, it's very likely that we'll change that because Mevboost has a big problem, which is that it uh pretty directly incentivizes builder centralization. That's why you have two builders. Uh, there's things like Fossil, which is fork choice enforced inclusion lists, and Braid, which is Max Resnick's proposal to do multiple concurrent proposers. There's also a whole bunch of other designs floating around out there that do something along these lines. These are all kind of ways to change how Ethereum sequence is, but I'm gonna make the case that it's not actually that important how Ethereum sequence is. Ethereum has a few good properties. One of those is uh liveness and reliability. This is a graph um of Ethereum's liveness over the past eight years. You'll notice there is no point where Ethereum had an outage. Um I tried to find a graph like online for this, but I decided to make my own because I couldn't. Um

Yeah, another thing, Ethereum has 12 second block times. That's an important part of its sequencing. It also has other properties that are happy to talk about, like an efficient builder market.

But

by far the best property

is what Ethereum sequence is, not how Ethereum sequence is. The reason Ethereum Layer One is such a big font is because Ethereum Layer One is massive and has a lot of network effects.

Network effects are really important to sequencing, and I'll explain that in a second. But first, just kind of loosely define network effects. Network effects are anything that makes one network more valuable than another network and scale with kind of the growth and usage of that network.

They are good things, always good things.

So network effects are something that are really difficult to fake.

We can uh go to another alt layer one ecosystem, and they might sell us on the idea of network effects, but they would be unfortunately lying. Um Ethereum over the past eight years, and as the first

Turing complete blockchain has offered us the ability to amass a gigantic network effect. Solana has 15% of the TVL. Um, Monet has like 0% of the users. Solana has Murt and Kyle. Um I don't think that's a Bible, it's up to you. And these people change the perception of Ethereum's network effect on crypto Twitter to something very different than it actually is. So I'm gonna show you some numbers on the next few slides and prove a few things to you.

This is stable coins. Stable coins are a part of Network Effect because they enable decentralized finance and open finance if you're using centralized stable coins.

Ethereum has more than half of all issued stable coins. Solana has only 2.15%.

Massive win for Ethereum.

But don't clap yet, because we have TVL. 55% Ethereum. With that big big blue one is Ethereum. Solana's over here at 7.34%. 15% of the TVL of Ethereum. There are some other smaller chains. Let me just like kind of reiterate this. 55% of all value locked across every blockchain is on Ethereum layer one. That's not Ethereum layer one and layer two. It's Ethereum layer one. Now, TVL uh metrics, activity metrics, volume metrics can all kind of be faked, right? It's possible to gain these metrics. Something that is much harder to fake is the kind of thing that the Electric Capital Developer Report will tell you about, which is developers. 16.7,000 newcomers wrote code in Ethereum.

2.7 times more than the next largest ecosystem. These are 2023 numbers. I'm eagerly waiting for 2024 numbers. You'll see over here we have Polygon is the second largest ecosystem. Solana is the third largest independent ecosystem. There are more developers that work on chains that are not on this list than developers that started writing Code and Solana in 2023.

There's also quite a bit of contract innovation in Ethereum.

This is one of my favorite charts for just EVM code, but 71% of contract logic originates on Ethereum. Now, this doesn't apply to like SVM code, so it's not a fair comparison at all. But it's just an interesting number. Ethereum layer one is still the home for a lot of contract innovation, and that has remained true for quite a while. It's also quite a bit of app dispersion. Contract logic originates on layer one and then moves to layer two. This is kind of the vibe we're getting from this. Obviously, B and B or Polygon are two of the um biggest receivers of contract logic after it originates on Ethereum. One interesting thing is that ARPROM is like the largest uh one of our rollups that uh that actually creates apps. It's not base, uh, which surprised me, at least in 2023.

The other thing about Ethereum is a massive researcher and developer community. I chose these researchers because I really like them. We also have the entire ETH research community, of which I've contributed to. Many people in this room have contributed to. It's amazing. We have these institutions, these organizations that work hard to make Ethereum better and easier to develop on. This QR code will take you to the Protocol Guild website where you can see a list of more than 150 contributors to Ethereum.

Now, this is from uh Stark's uh DEF CON keynote and

The amazing thing about Ethereum is not only not only this research sauce, but also like practical developer things. People who have tried to build on SVM will tell you that it actually sucks. Building on EVM is way, way nicer. And it's because of these tools that are primarily open source, except for Ethereum, of course, and are really, really useful for developers. That is network effect for the EVM ecosystem, but applies to Ethereum Layer One as well. Now, Ethereum is also home to the second largest cryptocurrency. It's natively issued on Ethereum. It is the ledger of last resort. As you heard today, ETH is permissionless money. Ethereum has no VC unlocks, unlike other cryptos. Has a reasonable issuance policy, as we just heard, and that issuance policy might be getting even better in the future. And of course, has a top tier ticker.

Ethereum is also global. So

There are researchers and core developers distributed around the world. This is not true for other layer ones who are building products, not protocols. It is translated into tens of world languages, which doesn't sound that um important for us English speakers, but it really is for bringing on um new developers and new researchers. There's also a global community event, as evidenced by this. I live in the United States and I'm in Asia, which is amazing. And you know, one other kind of anecdote here is I was at an event, uh, a DEF CON side event called EIP Fun, where I met um Chinese native speaking researchers who translate Ethereum research into Chinese for the Chinese native speaking um research and developer community. One interesting thing that they told me that shocked me was that um these these Chinese speaker speaking researchers and developers are about six months behind the chain tip, like the research chain tip. Um

You know, they're still learning about things that we published research for six months ago. The reason for that is because translation is slow and information dispersion is slow and there's a massive communication overhead. I think that's a problem, something we can improve in Ethereum. But I can imagine that uh for a layer one Solana, they're not only six months behind, they're like forever behind because there is no um communication there.

Let's go let's continue. So this is uh all about network effects. How does this play into value crawl? Um so value cruel is great. I love value cruel, but I really like sustainable value accruel because sustainable value cruel is even better for my bags. Um, the frame shift that I want you guys to take here is think not what you should do for your layer one, but what your layer one can do for you. Stop saying layer twos should accrue value to ETH. Layer twos shouldn't do anything. This is a permissionless network. What we can do is provide a valuable service. ETH can generate value for layer twos and exchange receive fees.

So why sequencing? Why do I think sequencing is that valuable service? Uh there's a few numbers that are publicly available. More than one billion dollars of layer one MEV has been extracted since the merge.

This is a conservative estimate. I believe that the number is probably much closer to $2 billion. Centralized sequencers, who do a lot of sequencing in Ethereum today, more than layer one, are absolutely rolling in cash. Coinbase makes more money than Ethereum.

Quant funds

pay millions of dollars for lower latency in TradFi. If you believe that finance and price discovery will start taking place on Ethereum and its layer twos, then you have to at least expect that such things will begin to happen on Ethereum as well.

Sigmating value itself also scales with scale.

So as Ethereum layer one scales up and gets better and is able to facilitate more financial activity and just more activity in general, then the sequencing value will also scale. There's a network effect there as well.

So, this is where base rollups kind of enter the equation. I just have a few images to provide a definition if you want a real definition. Um, I gave a DEF CON talk on this. Base rollups do execution externally to Ethereum and use Ethereum for security and sequencing. This is opposed to a centralized sequencer rollup that does execution externally, just like a base rollup, uh, but also does sequencing externally, but then uses Ethereum for security. And

Of course other things.

so here's what I think these properties end up looking like. Here's how we like kind of fit these dig stall puzzle pieces together. We have based app chains, or at least based rollups, maybe special purpose, um, all using

Products, services on the layer one, sequencing, obviously. Uh oracles like Chainlink, and asset issuance like USDC and native ETH and LSTs.

This is opposed to what we have today and probably will have for the next year or so, which is a bunch of layer twos that have their own sequencing, have their own oracles, and have their own asset issuance, which is like pretty much the very definition of fragmentation, because they all have their own liquidity too.

Well, we can change that.