Unraveling the Lucrative Potential of Sequencer Fees in Layer 2 Solutions
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In the dynamic world of crypto, rollups are emerging as the most profitable business model. With sequencer fees generating substantial revenues for Layer 2 solutions (L2s) daily, the financial potential is immense.
In this post, we delve into the mechanics of this lucrative model and highlight some projects capitalizing on it.
If you’re familiar with Friendtech, you know that rollups or L2s are Ethereum’s answer to scaling challenges, offering faster transactions and lower fees than the mainnet. These rollups bundle multiple transactions into one, easing the burden on the main Ethereum chain (L1).
But have you ever considered how these chains are, in essence, money printers? Let’s explore how this works:
𝐑𝐨𝐥𝐥𝐮𝐩𝐬 𝐚𝐫𝐞 𝐭𝐡𝐞 𝐛𝐞𝐬𝐭 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐦𝐨𝐝𝐞𝐥 𝐢𝐧 𝐜𝐫𝐲𝐩𝐭𝐨 𝐫𝐢𝐠𝐡𝐭 𝐧𝐨𝐰 𝐛𝐲 𝐟𝐚𝐫…
Sequencer fees are bringing in huge revenues for L2s, every single day, in this post you’ll learn how, and find some projects who are taking advantage of this 👇
If you’re reading this, you’ve probably heard about Friendtech, and you know that rollups or L2s are Ethereum scaling solutions with faster transactions and cheaper fees than mainnet…and you may have even used them yourself before.
These rollups, as we as a community have came to understand, work by bundling multiple transactions into a single one, effectively lightening the load on the main Ethereum chain (L1).
𝐵𝑢𝑡, 𝘩𝑎𝑣𝑒 𝑦𝑜𝑢 𝑒𝑣𝑒𝑟 𝑡𝘩𝑜𝑢𝑔𝘩𝑡 𝑎𝑏𝑜𝑢𝑡 𝘩𝑜𝑤 𝑡𝘩𝑒𝑠𝑒 𝑐𝘩𝑎𝑖𝑛𝑠 𝑎𝑟𝑒 𝑙𝑖𝑡𝑒𝑟𝑎𝑙 𝑚𝑜𝑛𝑒𝑦 𝑝𝑟𝑖𝑛𝑡𝑒𝑟𝑠…?
Here’s how it works:
As you can see, there are three main components in the system:
– rollup operators (sequencers, executors, posters)
– the base layer (L1)
The operators are the entity/tech stack which batches TXs and processes them for rollups.
The flow chart is shows users paying L2 fees (cost of gas), operator costs (computational costs, servers etc), and data costs (processing TXs back to L1).
So users pay fees which drive revenue, minus the costs of operations & data processing = left over profit.
And when there’s killer dApps on your L2? It prints fees.
For example… @BuildOnBase is averaging over $50k/day in fees in the last week, the majority from FT. Naturally, when there is a new, profitable opportunity in a given market, participants start companies to take advantage of this novel discovery.
Introducing: Rollups-as-a-service (RaaS)
An emerging of business model in this space with leading companies like alt_layer, cartesiproject, Calderaxyz, and others who are pioneering this approach.
𝘚𝘰, 𝘸𝘩𝘢𝘵 𝘦𝘹𝘢𝘤𝘵𝘭𝘺 𝘪𝘴 𝘙𝘢𝘢𝘚?
Companies which provide rollup technology for developers, protocols, and builders overall. This service frees developers from the complexities of managing the intensive software, sequencers, cloud services, hosting and other parts of the backend.
Teams which choose to build atop these solutions are handed the Software Development Kit (SDK) in an easy to use codebase/dashboard to build customized rollups for their dApp/chain.
No more struggling to find nodes or coding from scratch.
This means devs/teams/protocols can deploy their dApps on their own Layer 2, reaping the rewards of rollup scalability and cost-efficiency without the headache of building and maintaining their own rollup infrastructure.
It’s a win-win situation economically as well. The teams below are able to capture a share of the fees generated by the sequencer of the rollups deployed with their tech.
Now, let’s dive into some of the key players in this exciting RaaS game:
‣ Alt_layer: I met with their team in Paris briefly and this team is leading the charge, offering a robust and scalable rollup infrastructure. Their business model is somewhat like traditional cloud services – you pay for what you use.
AltLayer’s RaaS solution comes with some fantastic services:
First, there’s the Shared Sequencer Set, which involves a universal network of sequencers called a beacon layer.
These sequencers operate on all rollups within AltLayer’s RaaS solution. They enable cross-chain atomic chains as well, which is pretty cool.
Then, there’s the no-code dashboard, a dream for developers and non-coders alike. You can set up your preferred execution layer in a matter of minutes with just a few clicks. You can tweak network-level parameters, chain-level settings, and even middleware solutions with ease.
For those who like to get their hands dirty, there’s also an SDK for rollup deployment.
𝐼𝑡’𝑠 𝑎𝑙𝑙 𝑎𝑏𝑜𝑢𝑡 𝑜𝑝𝑡𝑖𝑜𝑛𝑎𝑙𝑖𝑡𝑦 𝑖𝑛 𝑐𝑟𝑦𝑝𝑡𝑜.
‣ Cartesi: This team has combined an Optimistic Rollup framework with their 𝗖𝗮𝗿𝘁𝗲𝘀𝗶 𝗠𝗮𝗰𝗵𝗶𝗻𝗲 𝗘𝗺𝘂𝗹𝗮𝘁𝗼𝗿, allowing teams to develop smart contracts and dApps using any Linux package or library.
This is the huge differentiator for Cartesi.
A DApp running on a Cartesi Rollup has various components, including Cartesi Rollups themselves, Cartesi Machine (a Linux OS emulator), and the DApp’s front-end and back-end. It’s like having a mini Linux world for your dApps.
Today is a huge day for Cartesi as their first rollup, Honeypot, has gone live on Mainnet!
They’ve also just released their “Dave” update, which is a permissionless prover system. We have an interview with them coming out on The Rollupco soon from MessariCrypto Mainnet, stay tuned!
Last but not least…
‣ Calderaxyz: This team specializes in crafting high-performance, customizable, and application-specific L2s. They’ve created their own custom-built optimistic rollups called Caldera Chains.
A huge trend I’m seeing is apps like ourZORA and others moving to their own chain for customizable control over their execution environment.
Caldera could be a big player in this space.
These chains are incredibly fast, can process hundreds of transactions per second, and offer sub-second confirmation times. Plus, they’re EVM compatible, so you can run your standard Ethereum smart contract code without modifications.
This is particularly handy for dApps with unique requirements or those dealing with a massive volume of transactions (like NFT marketplaces, or games). It’s all about efficiency and scalability, with the main blockchain focusing on security and consensus while the rollups do the heavy lifting.
In conclusion, the rise of the RaaS business model is a testament to the growing importance of rollups in crypto.
Companies like Altlayer, Cartesi, Caldera, and others are blazing the trail, providing the infrastructure and tools needed to build the next generation of scalable dApps on rollups.
They are pioneering a novel business model and being rewarded for doing so!
With more teams adopting the rollup or app-specific rollup model, we can anticipate a significant boost in the scalability and usability of all dApps!
Oh, what’s that smell?
As for you, user and pioneer of the Wild Wild West…
I encourage you to test out the rollups that these teams are launching, position yourself early in dApps, collect airdrops, educate yourself and get ready for the mass influx of new users.
The tidal wave is coming 🌊
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⚠️ DISCLAIMER: Investing in cryptocurrency and DeFi platforms comes with inherent risks including technical risk, human error, platform failure and more. At certain points throughout this post, we might get a commission for promoting certain projects, if this is the case we will always make sure it is clear. We are strictly an educational content platform, nothing we offer is financial advice. We are not professionals or licensed advisors.