Governance Risks Inside Rollup Teams

The upgrade keys for the core smart contracts are often held by a 3-of-5 or 5-of-9 multi-sig controlled by the founding team. This creates a single point of failure and censorship.\n- Risk: A compromised or malicious signer can freeze or drain the entire chain.\n- Reality: Most major L2s, including Arbitrum, Optimism, and Base, started with this model, controlling $30B+ in TVL.

The sole, exclusive sequencer is a centralized server run by the team. It controls transaction ordering, censorship, and MEV extraction.\n- Risk: The team can front-run users, censor transactions, or halt the chain.\n- Mitigation: Proposals like shared sequencer sets (Espresso, Astria) and decentralized sequencing (Fuel, Dymension) aim to solve this, but adoption is low.

Even with decentralized sequencing, the role of proposer (who submits batches to L1) is often a permissioned role held by the team. This creates a final veto point.\n- Risk: The team can refuse to include certain transactions in the canonical L1 state, even after they are sequenced.\n- Example: zkSync Era and Starknet have historically maintained tight control over their provers and proposers.

Tokens are launched with no initial on-chain governance power over core protocol parameters. Voting is often a signaling exercise.\n- Risk: Token holders have no direct mechanism to force a protocol upgrade or change sequencer logic.\n- Tactic: Teams use long, multi-year roadmaps to decentralization, maintaining operational control indefinitely (see Arbitrum's multi-stage rollout).

The Arbitrum Foundation attempted to pass AIP-1, granting itself $1B in ARB tokens without explicit DAO approval. This exposed the flaw of a foundation holding administrative keys over a $15B+ ecosystem. The solution was a forced retreat and the establishment of a hard-forking Security Council with multi-sig controls, proving that on-chain governance must have real teeth to check off-chain power.

• Key Lesson: Token-holder votes are meaningless if a foundation can unilaterally control the treasury and upgrade keys.
• Outcome: The DAO successfully revolted, forcing a new, more constrained governance framework.

Optimism's "Law of Chains" constitutionally enshrines that upgrades must follow a public, multi-stage process culminating in a DAO vote. However, the Optimism Foundation retained a veto power for security emergencies. This creates a governance risk: the line between "emergency" and "convenience" is blurry. The solution is progressive decentralization, moving the veto power to a technically constrained Security Council (like Arbitrum), making the emergency brake transparent and multi-sig governed, not foundation-controlled.

• Key Lesson: Emergency powers must be technically constrained and held by a diverse set of entities, not a single legal wrapper.
• Mechanism: Time-locked, multi-sig actions replace unilateral foundation control.

Base (by Coinbase) operates as an "OP Stack" L2 but its governance is fully centralized within Coinbase. Users and developers have zero say over sequencer censorship, fee markets, or protocol upgrades. This is the ultimate governance risk: a rollup as a product, not a commons. The theoretical solution is a credible, binding commitment to decentralize the sequencer and upgrade keys via the Superchain vision shared with Optimism and other chains, moving control to a collective security model.

• Key Risk: A corporate entity can freeze assets or alter rules to comply with regulations, impacting a $5B+ TVL chain.
• Mitigation: Future integration into the Optimism Superchain's shared sequencing layer.

While StarkNet has a token and a DAO, the core risk lies in proposer centralization. StarkWare, the developer, controls the sole prover and holds the upgrade keys for the $1.3B STRK treasury. The DAO currently governs only peripheral parameters. The solution is the planned decentralization of the prover network and the transfer of upgrade authority to a time-locked, multi-sig governed by the DAO, moving beyond symbolic governance to actual control over the state transition function.

• Core Issue: DAO controls the purse but not the protocol's core mechanics or security.
• Path Forward: Technical decentralization of the proof generation layer to enable permissionless proposing.

Most rollups launch with a 5-of-9 multi-sig council controlling the upgrade keys. This is a single point of failure, often with opaque member selection and off-chain governance. The risk isn't just theft, but censorship or protocol capture by a subset of signers.

• Assess: Who are the signers? Is there a clear, on-chain path to decentralization?
• Mitigate: Favor teams with sunset clauses or verifiable timelocks (e.g., Arbitrum's Security Council model).

A single, centralized sequencer controls transaction ordering and can extract maximum value. This creates toxic MEV and undermines the rollup's credibly neutral base layer promise. The lack of force-inclusion mechanisms allows for censorship.

• Assess: Is there a committed roadmap to permissionless proposers or shared sequencer networks (e.g., Espresso, Astria)?
• Mitigate: Build on chains actively implementing based rollup designs or decentralized sequencing.

Massive, centrally controlled treasuries (often billions in native tokens) create misaligned incentives. Governance becomes a fight over the treasury, not protocol improvement. This leads to value extraction via grants and stifles organic development.

• Assess: How is the treasury governed? Is there a transparent, on-chain process for allocations?
• Mitigate: Support protocols with streaming vesting for grants and community-driven allocation tools like Llama.

The ability to perform unaudited, arbitrary upgrades via multi-sig undermines the "immutable smart contract" premise. This creates legal and regulatory uncertainty, as the chain's rules can change overnight, violating user expectations.

• Assess: Is the upgrade mechanism transparent and delay-enforced? Are there veto safeguards?
• Mitigate: Prioritize Ethereum's enshrined rollups or projects with robust, community-challenged timelocks.

Many rollups tout "DAO governance" while retaining foundation veto power or limiting votes to symbolic parameters. This creates a facade of decentralization that concentrates real power. Token-weighted voting often leads to whale capture.

• Assess: Does the DAO control the multi-sig keys or the sequencer? Are critical upgrades subject to vote?
• Mitigate: Look for dual-governance models (like Optimism's Citizen House) or conviction voting to dilute whale power.

Rollup security is only as strong as its weakest bridge. Centralized teams often control the canonical bridge, creating a single point of failure for billions in locked assets. This risk is compounded by reliance on external messaging layers like LayerZero or Axelar.

• Assess: Is the bridge upgradeable by the same multi-sig? Is there a fraud-proof or escape hatch system?
• Mitigate: Favor native burn/mint bridges with decentralized verification or light-client based bridges.