[Music]
hi
everyone uh there's a little box here
just in case I I need to see down on top
of the front
row Okay cool so uh yeah my name is
Connor that's not my
slide perfect okay so yeah uh I'm Connor
I'm from nethermind and today I'm going
to talk about uh Revenue model for Bas
rollups uh now I wrote this title before
I really sort of had an idea what I was
going to talk about and then I realized
that Revenue probably just refers to
income but Bas rollups are not just
about when you're thinking about rollups
in general it's not just about income
it's about income and expenditure and
comparing those two is is how you decide
if you want to be a part of the Bas
rollup and I guess not only are we going
to talk about like the base rollup as a
sort of an entity but also the entity
these like the real life people that are
that are participating in Basse rollups
um so a quick primer on Bas rollups for
anybody who isn't aware but they're lost
uh is a rollup is said to be based or uh
L1 sequenced when its sequencing is
driven by the base L1 um so basically
the LB One proposers
are in charge of of of producing the of
proposing the blocks for for this rollup
and the rollup derives its state from
the from the the sequence of
transactions that appear on the L1 now a
lot of rollups might actually you could
you could squint and say that most rups
are like that already uh but I guess the
key thing is that the Elum proposers
aren't supposed to be sequencing the
chain
uh so the goal of today's talk uh is
introduce the players in base rups so
we're going to look at each of the
players and like think about the income
and expenditure that they have and
should they be playing should they be
playing this game uh identif yeah
identify their income and expenditures
uh discuss How likely they
are how these income and expenditures
are going to change on the road map
that's like upcoming the big changes
that we're expected to see and then
motivate you all to I guess participate
in Bas rups and be thinking about these
income and expenditure problems that
exist uh and then yeah I mentioned fat
stacks for all but really what that
means is everybody has positive p&l when
when they're playing these
games um okay so who's who do we have
here uh so we have the users they're
like the most important right we we're
always trying to sort of make although I
was on a panel yester today where we're
talking about uh where we're talking
about who should be gaining the revenue
in a system and users were the with the
bottom of the list but users should be
the ones that are gaining something from
playing the game so they're going to be
the ones that are going to be like
driving the revenue for a base up uh
proposers and sequencers and putting
them in the same bracket uh ZK provs uh
so we have this proposer over here and
this based uh this based uh blockchain
that's accepting the blocks uh we have
ZK approvers uh because I guess a stage
two rollup should have ZK proofs
uh the Dow so I guess when maybe some of
you are here and you're thinking about
the revenue model for base rup and
you're thinking that it's the Dow that
we're trying to like create revenue for
but I think there's just too many
players in the ecosystem uh to like
fully focus on just the Dow or like
whatever this the treasury that exists
on a d on on a Bas up we're going to be
thinking about them along with everybody
else and then also we're going to have
to think about these other chains and
rollups because they are actually a Big
Driver of the revenue the income
expenditure for a rollup so I have this
the shark from Finding Nemo uh so
depending on how you look at it it could
be a friend or it could be a fo and
there will be cases where they are they
are both uh okay so setting the table uh
so I guess maybe one of the reasons why
why I got accepted today was because I
basically when I when I submitted this
talk we were in we were around June or
July and we were in a situation where
Tao was losing money by posting blocks
to L1 uh which people were focusing on
and people were getting really scared
like Bas rups might not have a future uh
what's happening here uh but there was a
good reason for this Tao wanted to make
sure that uh users were getting a
reasonable ux that they were getting
updates every 12 seconds because base
rups can only confirm blocks when they
get posted to the L1 now again there's
this concept of preon informations but
they aren't live yet but at the time Tao
was force forcing L1 blocks on onto the
uh oh sorry L2 blocks onto the L1 uh
while they were only half full less so
they weren't actually generating enough
fees to to sort of uh compensate for the
cost of posting to L1 uh so but again
this was this was sort of the the p&l
that grow the pi grow the pie was
generating right and the the p&l that
they were looking at was L2 gas fees
collected uh minus the L1 fees that were
paid to post data and proofs to the L1
uh so that's a relatively simplified
model uh of the the revenue the income
minus expenditure for a base roll up uh
there's actually a lot more components
that we need to consider when we're
thinking about is a is this base rollup
uh viable to
run uh so if you want to get AIT bit
deeper nethermind research did get a
little bit deeper at one point and I
guess we're we're getting deeper uh by
the day um we had this sort of maybe a
little more complex model where we were
looking beyond the onchain cost and
looking at the sort of the the running
costs of running aover for example uh
like running aover is not cheap uh not
only do you have to actually pay the
electricity cost for running the prover
you actually have to buy the pro in the
first place uh so most people today
aren't actually buying provs they're
Outsourcing to like AWS or or any of
these internet Cloud providers um so
there's there's add additional cost that
need to be considered there there's also
additional incomes so I'm I'm going to
get to those in a second um so again
like I guess we're we're in a situation
where maybe okay someone says your
income your your income minus
expenditure is bad so or someone else
says it's not actually that bad and
really everything that's everyone is
looking at this and sort of a quite
imprecise model and we're not actually
able to consider all of the all of the
incomes and all of the expenditures and
I guess you could say that we're
shooting from the hip a little bit um
but these metrics do do provide us with
some indication of how things are
changing right if they're getting bad if
they're getting really bad or if this
really is something unsustainable and in
this in that sort of early stages for
Tao that wasn't un sustainable model but
it is getting better and that that's
that's the key um so again setting the
table this is the fourth slide that's
setting the table I was struggling for
titles uh so thanks to rollup
competition uh users can base users can
migrate easily between rollups that have
similar Network effects so Network
effects are a key part of of why why
users will stay on a rollup uh today or
base rollup today but base rups sort of
by the warm fuzzy feeling the B rups
give us is that they're actually very
connected with L1 and other base rollups
so this network effect is actually Pro
potentially strongest uh or like shared
between all Bas rollups so the
individual rollups don't actually have
much Network effect so Bas
rollups sorry users on Bas rollups
actually have B basically not much
switching cost between Bas rollups so in
this setting the the provider profits so
the providers I mentioned were those the
the provs the sequencers and the D in
this setting the the hypothesis that I'm
that I'm claiming is that these profits
of all these people must tend to zero
because it's easy for another base
rollup to come along replicate all of
the functionality that exist in that
base rup um and and basically just
remove some of those overheads that that
the previous one was that the profits
are the overheads uh that that base rup
was trying to generate um but this zero
profit Paradigm is far away uh there's
still a lot because because of all this
haziness because of this wild west that
we're in uh it's still possible that
provs and sequence users can actually be
making money um but again we this is
going to be sort of a long a long road
and we're going to get there uh
incrementally uh and again depending on
how you look at the
road uh like income income is tending
towards expenditure you can see that as
a bad thing um but you can also see it
as a good thing right especially in the
case of Tao uh Tao when they initially
launched where the expenditure was
really uh greater than income getting it
close to income and and maybe even
getting a true past income uh uh is is
definitely a good thing so how you look
at these things is very important okay
so on this path to the end game this
zero profit endgame uh there is going to
be increases in income and there's going
to be decreases in expenditure the
format supposed to be decreases in
expenditure uh a little bit on a theme
with Kevin's talk earlier on uh but not
like HD video so uh with music so anyway
we have as as we shed some of the the
technical dat or set some of the sort of
inefficiencies of early stage based rups
we're going to decrease the expenditure
um and we're also going to come up with
new ways to increase the income um and
yeah basically that that that's the
summary of what the sentence at the
bottom okay so uh here's the lists right
so there's no real model as as such
right it's just just a list uh you have
to basically sum up all of these Peak
components that you have in your base
rollup and check is the left hand side
greater than the right hand side and
again there's five there's like multiple
players in the system so when we're
thinking about base roll up Revenue we
have to look at it but uh player by
player
so the users have this warm fuzzy ux or
utility that's hard to quantify but they
pay like very quantifiable fees uh but
we just need to make sure that there is
still some utility that these users are
getting and if they stop paying uh fees
then we probably have to question are we
charging too much or are we actually
generating any uh benefit to the users
uh proposers the proposers have
relatively straightforward costs as well
uh fee well sorry as well they have they
collect fees uh they generate me or I
they execute me uh they also potentially
collect issuance issuance is a
contentious debate uh like in terms of
who's paying and who's receiving uh but
l2s can base rups can create a token and
uh and issue it to the to proposers and
they their costs are L1 posting and
running costs provs again they can
collect fees as well issuance as well um
but they have another cost which is the
setup which is quite a little bit more
significant than a proposer uh because
again ZK approvers are are sign pretty
significant pieces of Machinery uh the
Dow uh the Dow sort of actually does
have a sort of unique income source
which is investors uh so when Bas R up
launches uh you'll see that there might
be a seed round or multiple seed rounds
uh and and that Revenue that that
investment does pay for a lot of The
Upfront costs which again you see the
approvers and potentially the the
proposers when you don't when you don't
know what the fees are going to be you
do need some some money in the bank to
sort of get things rolling and and
that's what sort of Tao we're doing at
the start right and that makes sense you
need to get the users make create the
utility make sure that the ux isn't too
bad and then you start to generate the
fees and potentially the Dow can
recuperate those for the those losses
for the uh investors uh but the da also
has significant uh I also mentioned
proposal fee proposal fee is sort of
more of a complex topic but uh it is
possible that the Dow can be collecting
money from actually charging proposers
on L1 for the right to be a proposer but
that's not going to be a focus to
H they also have to pay so the Dow is
important though because the D does have
to pay for things like R&D we can't keep
depending on ethereum Foundation uh for
for funding uh we have to sort of go
beyond that especially when we're trying
to create base rollups at sort of
parallel to the ethereum ecosystem uh so
some R&D money does need to be generated
uh and that comes out of the D and
there's also governance running costs of
the D um and then we have this all these
all chains and rollups so what do they
actually mean so when the these all
rollups comp compos with the base rollup
that could be seen as income right
you're creating ux you're creating
improved utility for users um and that
can allow you to charge more fees but
similarly they also create competition
and and with competition comes uh sort
of tighter profit margins uh so is
income greater than expenditure I've
already sort of touched on why it should
be uh but in general if it's not you can
pack your suitcase uh and you can go to
the some other ecosystem some other
rollup um the proposers is an expectancy
yes it should be right but uh we can see
that there is new technology coming
along there's probably going to be more
where proposers may not actually H be
profitable in the short term because
they may commit to offering pre-
confirmations for example and if you
offer a pre-confirmation too cheaply uh
it may be significantly more expensive
to reneg on that pre-confirmation than
just posting it at a small loss on the
L1 the approver in expectancy in long
term yes but again it may be a
substantial cost to to pay for proving
uh proving Hardware so the appr must
invest and see that there is a
substantial chance of of return uh and
the Dow again I mentioned this
investment model uh longterm is not
sustainable so they need to be investing
in I guess sustainable infrastructure
for for for these fee mechanisms these
proposer fees these uh uh sequencer fees
and we're yet to see what that's going
to look like uh but it's definitely
going to be very interesting if if the
if the de can actually recuperate those
uh costs
uh okay
so the the costs right now are
relatively straightforward uh but our
hope considering the sort of the the
type profit margin from Tao uh is that
these will change right so I I quote
this uh sort of ancient philosopher or
alter eego philosopher uh who says based
income and expenditure is always in flux
you can't step into the same B based
Revenue model twice uh what that means
is that depending on the day like as
obviously today every when I go to the
toilet I hear people talking about how
what the markets are doing like revenue
is changing all the time right the fees
are changing all the time uh but also
the technology changing all the time so
when we think about the based Revenue
model we need to have a Dynamics way a
framework for thinking about these
things uh and that's what sort of be the
focus next uh so here are some of the
big big changes that base Revenue that I
expect to see in the future in the near
future uh we're going to see cheaper L1
costs uh we're going to see proven
becoming more efficient we're going to
see Pro and Builder markets m in uh so a
lot of l2s Bas rops uh will have run
their own PR uh but we are there there's
Whisperers about Prov markets uh and and
potentially also Builder markets right
so Builders and L1 are generating
generating revenue for the uh for the
proposers and that's probably going to
happen as well on Bas rollups as well uh
so that's going to be an income source
for proposers uh and shared everything
okay so I mentioned this composition but
it's it's definitely going to be a
significant area H for income and
reduced expenditure so with a Shar with
with shared uh resources or shared like
shared blog space shared proving we're
going to get bigger Network effects
we're going to get better utilization of
of of the resources that we're using um
but we may also have higher costs right
so how are we going to balance these
things it's going to be very interesting
so let's go through each one in a little
bit of detail I'm I'm running out of
time uh okay so cheaper L1 costs right
so EAP 4844 was relatively
straightforward you just have this sort
of uh sort of temporary data that's
being posted to L1 and it makes it
cheaper for l2s to post uh data to data
to L one and then we're seeing proposals
like pieras I don't really know what it
is uh but I hear it's going to reduce
cost significantly uh but it's uses some
pretty significant sampling or pretty
pretty high-tech sampling uh procedures
you can check out balic recent blog post
for more information um zika proofs
becoming more efficient this is a bet uh
I I can't speak for uh from personal
experience with e proofs I don't have
any uh
but again we're constantly seeing
cheaper uh improved uh cheaper proof
generation and cheaper proof
verification uh we're also seeing
increasingly bad naming terminology but
again it looks like they're getting
better so the worse the names get the
better we're going to see these proofs
uh becoming and we're seeing also more
and more investment more and more teams
at deploying people to ZK so I expect
this to to continue uh a mark a marker
that I saw this morning but again it's
been it's been taken down no one's
trading on this thing um so the prover
and Builder Market maturing I mentioned
this already um so Uncle Ben mentions
that with gra competition comes
efficient pricing and
Innovation and again that's just what
we're seeing on L1 and that we expect
that to see that in L2 as well uh so
proof of competition user and sequencers
have to pay less less fees um and
Builder competition we're going to get
better ux through more efficient block
building and sequencers are going to get
higher
fees um and then shared everything right
so with shared sequencing comes more mbv
more users we're going to get uh better
higher fees we're going to be able to
charge higher fees right so this is
again increasing the income of of the
the providers in our system uh share
blobs so right now Tao is is creating
their own blobs what if you can share
your blobs you can get approximately
100% blob blob utilization so you're no
longer paying a you're paying a fixed
cost but you're now getting 100%
utilization you're able to claw back
some of the costs that you're paying um
shared proving we're going to get
economies of scale uh and cheaper L1
verification so again these are all sort
of things that you're trying to do as a
provider to uh increase your bottom line
or improve your bottom line uh and
composability
uh so less risk complexity for proposers
you don't you no longer have to use
someone like a cross you can just
basically uh sign a smart or sign a
transaction that interacts with a a
shared smart contract and pre-comp
that's that's a it's a big area of of uh
efficiency and reduce the cost that we
expect to see and improved ux that will
will definitely improve uh the revenue
model for base rollups uh but it's also
going to increase expenses right uh so
we're going to get there there's
definitely a great greater cost for
sequencing two rollups together than
sequencing them in E both of them
independently uh just because of the
increased search base uh the the more
the greater amount of MV MV
opportunities that exist um Shar proving
again similar similar concept as far as
I understand and if proving two states
uh together uh is more is more expensive
than proving two
individually uh but the big question
will be are the some of the benefits
greater than the increase improving
costs we're only going to see that uh
when we see what the results of the of
of this R&D are but we definitely are
optimistic that we can get the Z ZK
proving costs low and the the utility
from shared sequencing high and
centralization I guess that's sort of a
that's sort of a tougher one to to uh
quantify but it's definitely a
significant risk and risks are affect
risks are costs in our Revenue model uh
so centralization poses a risk uh and we
need to be conscious that all of these
shared things will add to centralization
risks uh so conclusion when you're
thinking about the revenue model for
your based rollup you want you want to
basically get CAU up all of your incomes
take away all of your expenditures and
ask yourself why am I playing this if
I'm losing and how can I play more of
this if I'm winning
uh basic here is assemble so again do
your own
calculations uh and innovate on
increasing income and reducing expenses
so remember heroical strick you can't
step into the same base Revenue model
twice so we want to see less trickles uh
and and more waves crashing all right so
thanks very much and uh yeah appre
appreciate your
[Applause]
time all right great talk Conor I'm just
going to direct you to stand over here
for the
QA yeah this one will be good all right
so we do have a few questions let's go
from the most voted question how can we
reconciliate Revenue models with the
decentralization of zkp rollups where
multiple sequencers and validators will
need to be
[Music]
compensated uh the the person who write
this question could they explain what
they mean by
reconciliate yeah oh sorry I I yeah can
we get can we get a mic to that person
or okay uh maybe we can go to the next
question while we're waiting
uh well maybe I can I can touch on on my
interpretation of the of the of the
question so maybe when in the case of
current current rollups where we have a
centralized sequencer and a centralized
prover it's it's still not clear if the
incomes are greater than the
expenditures okay but yeah we have the
mic now let's go uh essentially how do
we is as there's a risk of um fees
increasing with um higher number of uh
validators uh in l2z k um
rollups how what what are the risks of
that making the situation like more
unsustainable and what are ways in which
we can address that well the good thing
about Bas up specifically uh is that we
we don't have any validators to pay
right it's just the L1 proposer uh now
in terms of the multiple provs that may
exist uh
we we're basically going to be creating
a market right and it's it's a bit like
Bitcoin and the some of the old
Arguments for Bitcoin where you're like
okay well I have uh my hash rate I have
the expected Bitcoin rewards and if it's
if it's uh if I'm losing money there I
can go to bitcoin cash or I can go to an
alternative uh blockchain that's the the
same applies to any these Prov markets
so if it becomes too expensive user user
will stop uh users will stop paying for
it and basically you're going to have to
spread out your spread out your costs or
just wait until uh Things become cheap
again uh so it's definitely a risk um in
a fully decentralized system yes we're
going to be exposed to these things
being too expensive uh so so the only
thing we can do is try and make sure
that we have uh fallbacks like maybe
cheaper fallbacks in the case that that
those thing we are Expo very exposed to
fluctuations uh but I think pre-
confirmations and things like this that
allow us to wait maybe 16 blocks or or
32 32 blocks L1 blocks uh where we get
to sort of pick and choose where we
include things and maybe pick and choose
which provs to pay uh that can maybe
helped to reduce the risk to maybe
spikes let's say um but not sure if that
answered your question sorry great uh we
do have around two minutes for another
question um which one would you like to
take Conor um well I'll go for the
shorter one first uh if Bas has a
sustainable and positive Revenue can it
become a defacto design for the layer
one uh
well I I guess so right like at some
point if if there is one base rup that
is taking up all of the all of the L1
blocks base uh is in that that is a
theoretical possibility with uh base
wups uh that all the computation is
being done off chain in on the Bas
rollup uh so in that
sense it could be doing all of the
execution for the for the L1 but I'm not
sure if we can actually replace the L1
because it is it is being still being
sequenced by the L1 uh so
yeah all right do you want to answer
another another one okay uh I'll go for
short one uh just uh what is the the
plan to increase the income but with the
scale and expenditure uh with SC with
scale the expenditure also increases uh
yeah that is a tricky one so it's like
again we have to take a BET right um and
we're looking in the fact that a lot of
people like flash Bots uh like all of
the ZK teams that I mentioned they're
plowing ahead with improved mechanism
design or improved proving systems
improved mechanism design regardless of
let's say like any specific end game
that that that may be likely uh they're
they're trying to get make things
cheaper um and if things do become
incredibly expensive with scale we can
always scale back right will definitely
be a limit to the amount of things that
we can merge the amount of state that we
can merge uh but right now we can see
that single rollups can survive and then
it's just the case of how can we
actually just scale up that uh the
merging of all this state and that's
definitely going to be a really
interesting question but we can always
scale back that's that's the key all
right cool so we're right on time thank
you so much hunor