Blockchain technology has evolved significantly over the years, introducing various innovations aimed at solving some of the most pressing issues faced by traditional blockchain networks, such as scalability and efficiency. One innovation enabled through sequencer decentralization is sequencer mining. This blog post aims to simplify sequencer mining for beginners within the context of Layer 2 scaling solutions, explaining its role, how it works, and its importance in a clear and concise manner.
Sequencer mining is a process associated with decentralized sequencers, which are integral to blockchain and Layer 2 scaling solutions. It extends the traditional concept of mining, known for its role in consensus mechanisms like Proof of Work (PoW), to include the operation of sequencing transactions.
A sequencer is an entity responsible for collecting transactions, creating rollup blocks, and submitting them to the Ethereum main chain. It plays a crucial role in maintaining the synchronization of the rollup chain with Ethereum mainnet, akin to the role of a validator in Proof of Stake blockchains, but with more control over the rollup chain.
In the ecosystem of optimistic rollups, a sequencer holds a semi-trusted position, tasked with ordering transactions within the rollup. This is pivotal for efficient resource utilization and cost reduction by aggregating multiple user transactions off-chain and committing them as a single transaction on the host chain.
A sequencer node is pivotal in scaling and processing transactions for blockchain networks that utilize Layer 2 solutions like Optimistic Rollups. Its functions include:
Unlike traditional mining, sequencer mining involves ordering transactions correctly, a crucial aspect for Layer 2 solutions such as Optimistic Rollups. Sequencer miners ensure the efficient and accurate sequencing of transactions, which are batched and processed off the main chain to enhance throughput and reduce fees.
Sequencer miners might be chosen through various methods, including staking or reputation systems. They are incentivized via transaction fees, rewards, or both, ensuring their commitment to accurate and efficient transaction sequencing.
Sequencer mining distributes control and enhances the security and decentralization of Layer 2 solutions by allowing multiple participants to engage in transaction sequencing. This approach mitigates the risks associated with centralized sequencers.
Sequencer mining represents a significant innovation in scaling blockchain networks, addressing significant Layer 2 risks like transaction reordering and liveness. Additionally, it allows to properly align incentives across all network participants.
A key challenge in sequencer mining is striking a balance between decentralization, security, and scalability. The selection and incentivization mechanisms must be carefully designed to ensure fairness and prevent potential centralization or exploitation.
Metis is the first rollup platform that decentralized its sequencer, this upgrade makes all network participation be decentralized, allowing for a seamless and secure rotation of sequencers. Additionally, the capability to expel malfunctioning or malicious entities ensures the perpetual stability of the network.
The Rewards/Mining Rate Adjustment mechanism aims to keep Sequencers motivated and ensure the network runs smoothly and effectively. This mechanism involves changing rewards or mining rates to balance the network's economic structure, boost Sequencer involvement, and enhance network security.
During the initial phase of the decentralized sequencer's launch, all sequencer nodes will receive a 20% mining reward rate. The goal is to strike a balance between making the Sequencer role appealing and ensuring the network's security and efficiency.
Additionally, there are strategic initiatives in place, like #MetisLSB, incentivizing LST-based products like liquidity pools, lending pools, and CDPs, that will create new and deeper use cases for METIS Liquid Staking Tokens.
Decentralized Sequencer Governance
