Sequencer revenue is unsustainable. The current ~10-30x markup on L2 transaction costs versus L1 settlement is a temporary arbitrage. As shared sequencing layers like Espresso and Astria commoditize block production, this margin will compress to single-digit multiples.
layer-2-wars-arbitrum-optimism-base-and-beyond
Blog
The Future of Fee Markets in a Multi-L2 World
The proliferation of L2s creates a paradox: more chains fragment liquidity but unified user interfaces will commoditize their block space, eroding the fee premium for generic execution layers.
introduction
THE NEW BATTLEGROUND
Introduction: The Coming Margin Compression
The proliferation of L2s is shifting competition from raw throughput to cost efficiency, collapsing the fat margins of early sequencers.
Fee markets will fragment by use case. High-frequency DeFi on Arbitrum will pay for speed guarantees, while social apps on Base will batch for ultra-cheap proofs. The monolithic 'gas price' model splinters into app-specific fee curves.
The real profit migrates upstream. Value accrual shifts from transaction ordering to data availability (DA) and proving markets. Celestia and EigenDA compete on $/byte, while RiscZero and Succinct compete on $/proof-cycle. The L2 becomes a low-margin retailer sourcing from wholesale DA/prover networks.
thesis-statement
THE MECHANISM
Core Thesis: Aggregators Create a Unified Fee Market
Liquidity and fee market fragmentation across L2s will be resolved by aggregators that route user intents to the optimal chain.
Aggregators become the primary gateway. Users interact with an aggregator's interface, not a specific chain. The aggregator's solver network executes the user's intent—a swap, bridge, or complex DeFi operation—by routing it through the L2 or L1 with the lowest total cost and highest reliability at that moment.
This abstracts chain selection. The user pays one fee to the aggregator. The aggregator's backend dynamically splits this fee to pay for L2 sequencing, L1 data posting via EIP-4844 blobs, and bridging via protocols like Across or LayerZero. The user's experience is a single, predictable cost.
The unified fee market emerges. Aggregators like UniswapX and CowSwap create a competitive bidding layer. L2 sequencers and cross-chain solvers compete on price and latency to be chosen by the aggregator for execution, establishing a global price for block space across the modular stack.
Evidence: UniswapX already routes 40% of its volume across multiple chains and L1s, demonstrating demand for this abstraction. The next evolution is aggregators dynamically choosing the data availability layer (EigenDA, Celestia) based on cost, completing the fee market unification.
key-trends
THE FUTURE OF FEE MARKETS
Three Trends Killing the L2 Fee Premium
The era of L2s charging a premium for execution is ending. Here are the three structural forces dismantling their pricing power.
01
The Problem: Fragmented Liquidity & Arbitrage Inefficiency
Users pay a premium to move assets between L2s because liquidity is siloed. This creates a multi-billion dollar arbitrage opportunity that extractive bridges capture.
- ~$2B in daily bridging volume trapped in inefficient markets.
- 10-50 bps in fees extracted by simple AMM-based bridges.
- Hours-long delays for optimistic rollup exits create risk premiums.
~$2B
Daily Volume
50 bps
Fee Leakage
02
The Solution: Intent-Based, Shared Liquidity Networks
Protocols like UniswapX, CowSwap, and Across abstract the routing. Users state a desired outcome (an intent), and a decentralized solver network competes to fulfill it using the cheapest liquidity source across any chain.
- ~30% cheaper than native bridge AMMs by aggregating liquidity.
- Sub-second finality via optimistic verification and bonded relayers.
- Shared security models like EigenLayer and Chainlink CCIP underpin cross-chain messaging.
30%
Cheaper
<1s
Settlement
03
The Problem: Monolithic Sequencer Extractable Value (SEV)
A single, centralized sequencer controls transaction ordering and can extract maximum value via MEV and priority fees, creating an opaque fee market.
- 100% of blocks are typically produced by a single operator.
- No competition for block space drives up base fees artificially.
- Opaque auction for priority transactions lacks credible neutrality.
100%
Centralization
Opaque
Auction
04
The Solution: Decentralized Sequencing & Shared Order-Flow Auctions
Espresso Systems, Astria, and Radius are building shared sequencing layers. SUAVE by Flashbots is creating a universal block builder market.
- Multiple sequencers compete to build blocks, driving down fees.
- Cross-rollup MEV capture becomes possible, redistributing value.
- Credibly neutral ordering via PoS or PoS+PoA hybrid models.
Multi-Chain
MEV Capture
PoS
Neutrality
05
The Problem: Redundant Execution & Proving Overhead
Every L2 runs its own execution client and proving stack (e.g., OP Stack, Polygon zkEVM). This is a massive duplication of R&D and operational cost, passed to users.
- $100M+ in cumulative R&D spent on near-identical virtual machines.
- High fixed costs for proving (zk) or fraud proof (OP) systems.
- No economies of scale for execution across the L2 ecosystem.
$100M+
R&D Waste
High
Fixed Cost
06
The Solution: Modular Execution Layers & Shared Provers
Ethereum as the settlement and data layer is winning. The next step is shared execution environments like EigenDA-enabled rollups and universal provers from RiscZero or Succinct Labs.
- ~90% cost reduction by outsourcing data availability and proving.
- One VM to rule them all: The EVM becomes a universal standard, reducing fragmentation.
- Execution as a commodity: Rollups become thin clients ordering transactions, not heavy infrastructure operators.
90%
Cost Cut
Universal
EVM
THE POST-SEQUENCER FUTURE
L2 Fee Market Evolution: From Capture to Commodity
Comparing the core mechanisms and economic models for transaction ordering in a multi-L2 landscape where sequencing is a commodity.
| Fee Market Mechanism | Centralized Sequencer (Status Quo) | Decentralized Sequencer Pool (e.g., Espresso, Astria) | Proposer-Builder-Separation (PBS) / MEV-Boost |
|---|---|---|---|
Primary Revenue Source | Sequencer Profit + L1 Data Costs | Sequencer Auction Revenue + Tips | Block Builder MEV + Tips |
Transaction Ordering Control | Single Entity (e.g., Offchain Labs, Matter Labs) | Permissionless Set (Staked Validators) | Competitive Builder Market |
MEV Capture & Redistribution | Captured by Sequencer Operator | Captured by Pool; can be shared via MEV-Share | Extracted by Builders; can be shared via MEV-Boost & relays |
User Fee Predictability | Opaque, set by operator | Auction-based, market-driven | Auction-based, highly variable |
Time to Finality (vs L1) | ~12 minutes (Optimism/Arbitrum) | < 1 second (with fast finality gadget) | ~12 minutes (inherits L1 finality) |
Censorship Resistance | Low (operator discretion) | High (permissionless, slashing) | High (builder competition, crLists) |
Key Infrastructure Dependency | Proprietary Sequencer Node | Shared Sequencing Layer | Ethereum Consensus Layer + Relay Network |
Representative Project/Stage | Arbitrum One, Optimism Mainnet | Espresso Testnet, Astria Devnet | Ethereum L1, Applied to L2s (e.g., Polygon zkEVM) |
deep-dive
THE FEE MARKET FLIP
The Mechanics of Commoditization: How Intents Win
Intent-based architectures commoditize execution layers, shifting power from block producers to users and solvers.
Execution becomes a commodity. Intents separate user preference from execution, allowing solvers to compete across any L2 or L1. This breaks the direct link between a user's transaction and a single sequencer's fee market.
Solvers arbitrage liquidity fragmentation. A solver for UniswapX or CowSwap sources the best price across Arbitrum, Base, and Polygon, paying the cheapest gas. The user pays for outcome, not execution.
Sequencer revenue models invert. Today, sequencers profit from priority gas auctions. Tomorrow, they compete on price for bulk order flow from solver networks like Across and LayerZero. Margins compress.
Evidence: MEV is the new moat. The only sustainable fee is for solving complexity, not block space. Flashbots' SUAVE and Anoma target this solver-level MEV, not L2-specific rents.
protocol-spotlight
THE FUTURE OF FEE MARKETS IN A MULTI-L2 WORLD
Architecting for the New Reality: Who Adapts?
As liquidity fragments across dozens of L2s, the monolithic block builder model breaks. New architectures are emerging to capture value.
01
The Problem: Fragmented Liquidity Kills MEV
Native sequencers on individual L2s create isolated liquidity pools. This prevents cross-chain arbitrage bots from operating efficiently, capping extractable value and sequencer revenue.\n- Isolated Pools: $30B+ TVL is now siloed across 40+ chains.\n- Inefficient Markets: Missed arb opportunities due to slow, manual bridging.
40+
Isolated Chains
-70%
Potential MEV Lost
02
The Solution: Shared Sequencing Layers (Espresso, Astria)
A neutral sequencing layer that orders transactions for multiple rollups, creating a unified liquidity and MEV landscape for builders.\n- Unified Liquidity: Enables cross-rollup arbitrage in a single block.\n- Revenue Share: Sequencer fees and MEV are shared with participating rollups, aligning incentives.
1 Block
Cross-Rollup Arb
+300%
Fee Potential
03
The Problem: Users Pay for Redundant Security
Every L2 runs its own sequencer and prover setup, passing the capital and operational costs onto users via base fees. This is economic overkill for most applications.\n- Redundant Overhead: Each chain maintains full stack security.\n- Cost Pass-Through: Users bear the cost of decentralized sequencing they don't need.
2-5x
Fee Overhead
$1M+
Annual OpEx per L2
04
The Solution: Modular Fee Markets (EigenLayer, AltLayer)
Decouple sequencing, proving, and data availability. Rollups can rent security and throughput from shared networks, paying only for what they use.\n- À La Carte Security: Choose prover sets based on app-specific needs.\n- Dynamic Pricing: Fees fluctuate based on shared resource demand, not single-chain congestion.
-90%
Base Fee Cost
Elastic
Throughput
05
The Problem: Intent-Based UX Breaks Native Bridges
Solving intents (e.g., 'get me the best price across chains') requires slow, expensive bridging steps. This creates a poor user experience and cedes volume to centralized intermediaries.\n- Slow Settlement: Multi-step processes take minutes.\n- Slippage & Fees: Each hop adds cost, killing cross-chain swap viability.
2-20 min
Settlement Time
5-15%
Total Slippage
06
The Solution: Intents as a Primitive (UniswapX, Anoma)
Make the intent the transaction. Solvers compete to fulfill user declarations across any liquidity source, abstracting away chain boundaries.\n- Chain-Agnostic: Solvers use the fastest/cheapest path via Across, LayerZero, etc.\n- Auction-Based Fees: Users pay for outcome, not execution steps, driving efficiency.
<5 sec
Quote Time
Best Execution
Guaranteed
counter-argument
THE INCENTIVE MISMATCH
Counterpoint: "But Our Ecosystem Lock-In!"
Ecosystem lock-in is a temporary moat that will be arbitraged away by user demand for the cheapest, fastest execution.
Ecosystem lock-in is a tax. Protocols like Uniswap and Aave deploy on multiple L2s, but users face high bridging costs and latency to move assets between them. This friction is the only thing preserving individual rollup fee markets.
Intent-based architectures will dissolve borders. Solvers on networks like UniswapX and CowSwap already source liquidity across chains. The winning L2 is the one that provides the cheapest final settlement, not the one with the most native TVL.
The data proves liquidity follows users. Arbitrum's dominance eroded as Base and Blast gained traction, demonstrating that developers and capital migrate to chains with superior user experience and lower effective costs.
Evidence: Over 60% of DEX volume on Arbitrum and Optimism is now routed through third-party aggregators, not native frontends, showing demand is already chain-agnostic.
risk-analysis
THE FUTURE OF FEE MARKETS
Survival Strategies for L2s in a Commoditized World
As L2 execution becomes a commodity, the battle for users and developers shifts to the sophistication of the fee market itself.
01
The Problem: MEV is a Tax on Every Transaction
Public mempools on L1s and L2s expose user intent, allowing searchers to front-run and sandwich trades. This extracts ~$1B+ annually from users. The solution is to move to private order flow and intent-based architectures.
- Key Benefit 1: User gets better execution via PFOF (Payment for Order Flow) rebates.
- Key Benefit 2: Sequencer captures MEV value, using it to subsidize network fees or fund a treasury.
$1B+
Annual MEV
-90%
User Loss
02
The Solution: Intent-Based Architectures (UniswapX, CowSwap)
Instead of submitting a specific transaction, users submit a goal (e.g., "swap X for Y at best price"). A network of solvers competes off-chain to fulfill it, submitting only the winning bundle. This commoditizes block building.
- Key Benefit 1: Optimal execution across all liquidity sources (DEXs, private pools).
- Key Benefit 2: MEV resistance as the winning solution is atomic and cannot be front-run.
~500ms
Solver Latency
10-30%
Better Price
03
The Problem: Cross-Chain Silos Destroy UX
Users must manually bridge assets between L2s, paying fees and waiting for finality each time. This fragments liquidity and creates a terrible multi-chain experience, hindering adoption.
- Key Benefit 1: Native cross-L2 swaps feel like a single-chain transaction.
- Key Benefit 2: Unlocks composable liquidity across the entire L2 ecosystem.
2-20 min
Bridge Delay
$5-$50
Bridge Cost
04
The Solution: Shared Sequencing & Atomic Cross-Rollup Swaps
L2s (like those in the EigenLayer, Espresso, or Astria ecosystems) share a sequencer set. This enables atomic transactions across rollups without waiting for L1 finality. It's the infrastructure for a unified L2 fee market.
- Key Benefit 1: Sub-second finality for cross-L2 actions.
- Key Benefit 2: Sequencers can offer unified fee abstraction, charging one fee for a multi-rollup transaction bundle.
<1s
Cross-L2 Finality
1 Fee
Unified Payment
05
The Problem: Gas Tokens Are a UX Nightmare
Needing the native token (ETH, MATIC, etc.) to pay for gas on every new chain is a massive onboarding barrier. It forces users to pre-fund wallets and manage multiple gas balances.
- Key Benefit 1: Users pay with any major asset (USDC, ETH).
- Key Benefit 2: Apps can sponsor gas for their users, enabling gasless transactions.
5+
Gas Tokens Needed
~80%
User Drop-off
06
The Solution: Universal Gas Abstraction (ERC-4337, Native Sponsorship)
Account Abstraction (ERC-4337) allows users to pay fees in any ERC-20 token, with a paymaster contract handling the conversion. L2s can build native sponsorship programs, making fees invisible.
- Key Benefit 1: Onboarding simplification – users never think about gas.
- Key Benefit 2: New business models – dApps can pay for user transactions as a customer acquisition cost.
0
Gas Knowledge Needed
Any Token
Pay With
future-outlook
THE FEE MARKET FRAGMENTATION
Future Outlook: The Specialization Imperative (2024-2025)
Generalized L1 fee markets will be replaced by specialized, protocol-specific pricing layers optimized for distinct transaction types.
Fee markets will fragment by transaction type. The one-size-fits-all gas auction on Ethereum L1 is inefficient for specialized L2s. Rollups like Arbitrum and zkSync already abstract gas from users, but their sequencers face the same volatile L1 settlement costs.
Specialized data availability (DA) layers create pricing tiers. Using Celestia or EigenDA for cheap blob data versus Ethereum calldata for high-security settlements creates a multi-tiered cost structure. Protocols will route transactions based on cost/security needs.
Intent-based architectures bypass gas auctions entirely. Systems like UniswapX and CowSwap use solvers who compete on net outcome, not gas price. This shifts the fee market competition from transaction inclusion to execution quality.
Evidence: After the Dencun upgrade, Arbitrum's L1 settlement costs dropped 90% by using blobs, proving that specialized data pricing directly dictates L2 profitability and end-user fee viability.
takeaways
FEE MARKET EVOLUTION
TL;DR for Protocol Architects
The proliferation of L2s and app-chains fragments liquidity and creates a new class of arbitrage and inefficiency.
01
The Problem of Fragmented MEV
Today's multi-L2 landscape creates isolated MEV pools. Searchers must manage capital and infrastructure across dozens of chains, creating massive overhead and leaving value on the table.
- Cross-domain arbitrage between L2s is a $100M+ annual opportunity currently locked in complexity.
- Inefficiency leads to worse price execution for users and subsidy leakage for protocols.
20+
Isolated Pools
$100M+
Arb Opportunity
02
The Solution: Shared Sequencing & Intents
The next-gen stack moves from isolated block building to a global order-flow coordination layer. This is the UniswapX model applied to cross-chain execution.
- Shared sequencers (like Espresso, Astria) provide a neutral, cross-rollup block space market.
- Intent-based architectures (pioneered by Across, CowSwap) let users express outcomes, allowing solvers to compete across chains for optimal routing, abstracting gas complexity.
~500ms
Cross-Chain Latency
-90%
User Complexity
03
The New Business Model: Fee Abstraction & Subsidies
Protocols will compete on net cost after subsidies, not raw gas fees. The fee market shifts from users paying L1 gas to protocols bidding for user flow.
- Account abstraction enables sponsored transactions and gas bundling.
- Protocols like LayerZero and Circle's CCTP already subsidize cross-chain fees to drive adoption, previewing a future where user acquisition cost is paid directly to the shared sequencer.
$0
User-Paid Gas
10x
Acquisition Efficiency
04
The Critical Role of Prover Markets
With shared sequencing, the security and finality layer becomes a separate, competitive market. Provers (like RiscZero, Succinct) will compete on cost and speed to attest to state correctness across L2s.
- This decouples data availability (e.g., Celestia, EigenDA) from execution and proving.
- Creates a multi-billion dollar market for trust-minimized verification, with proofs becoming a commodity where latency and cost are optimized.
<$0.01
Per-Proof Cost Target
2s
Finality Target
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