From Fusaka to Based Rollup: How far is ETH from value capture?

The article discusses the ongoing challenge of Ethereum (ETH) value capture after the Dencun upgrade, arguing that current Layer 2 (L2) solutions still retain most profits, leaving the problem unresolved.

The Dencun upgrade's EIP-4844 (blob fee mechanism) created a price floor but did not solve ETH value capture, as L2s like Base still capture over 70% of profits, paying only minimal fees to Ethereum L1.
A proposed solution is Based Rollup, where L2s inherit Ethereum L1's decentralization, security, and activity, using L1 proposers for transaction ordering instead of centralized sequencers.
This approach addresses two major issues:
- Liquidity Fragmentation: All transactions in Based Rollups are ordered in the same L1 block, enabling cross-L2 interoperability.
- ETH Value Capture: Sequencer profits (and MEV) largely become revenue for L1 block builders, converting to rewards for ETH stakers.
A key obstacle is that most L2 blockchains are reluctant to adopt Based Rollups and give up their lucrative profit margins.
The L2 application chain Reya is cited as a positive example, using ZK proofs for finality, L1 validator ordering, and buying back ETH with 20% of its fees. Its success could encourage more L2s to adopt a Rollup-based architecture, ultimately benefiting ETH value capture.

After the Ethereum Fusaka upgrade, the adoption of EIP-7918 (the minimum reserve price for blob fees, approximately 1/16 of the base execution fee) created a guaranteed price mechanism, leading many to believe that this would solve the ETH value capture problem.

In reality, there's still a long way to go. Currently, L2 still captures the majority of the profits, for example, the base server receives over 70%, paying only a small amount of blob fees to Ethereum L1.

To truly solve this problem, and also address the L2 liquidity fragmentation issue, there are solutions. One such solution is Based Rollup, which allows L2 to directly inherit the decentralization, economic security, and activity already present in Ethereum L1, instead of creating a new centralized sequencer or small validator set. Adding Native Rollup (execution layer integration) would make it even more perfect.

Adopting a Based Rollup approach can alleviate two major problems currently plaguing the Ethereum ecosystem: liquidity fragmentation and ETH value capture. Currently, most L2 blockchains use centralized sequencers. This allows the sequencer to refuse to include transactions; outages can cause L2 to shut down (which has happened multiple times in history); and MEV and profits are monopolized by the L2 team, preventing ETH from capturing reasonable value.

With Based Rollups, L2 blockchains can be driven towards decentralization. Traditional L2 blockchains face significant challenges in achieving decentralization, such as implementing their own fraud/validity proofs and decentralized sequencer systems. Based Rollups allow L1 proposers to handle transaction ordering, with proofs supported by Data Aspect (DA) and fraud/validity proofs. Simultaneously, all transactions in Based Rollups are ordered within the same L1 block, achieving cross-L2 interoperability and mitigating liquidity fragmentation issues. Ethereum L1's ETH captures reasonable revenue, and most of the L2 sequencer profits become revenue for L1 block builders, converting into rewards for ETH stakers. The prerequisite here is that L2 blockchains are willing to adopt Based Rollups; currently, most L2 blockchains seem unwilling to relinquish their most lucrative profit margins.

The L2 application chain Reya currently uses ZK proofs to ensure finality and L1 validator/delegation ordering, and buys back ETH with 20% of protocol/transaction fees. It offers better ecosystem feedback for Ethereum L1 than Lighter. If Reya succeeds, more and more L2 application chains will adopt a Rollup-based architecture, which will benefit ETH value capture.

From Fusaka to Based Rollup: How far is ETH from value capture?

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