Sequencer Incentives Shape Rollup Behavior

Sequencer revenue is MEV: The primary profit for centralized sequencers like Arbitrum and Optimism is Maximal Extractable Value (MEV) from transaction ordering, not base fees. This creates an incentive to maximize private order flow.

User experience degrades: This MEV focus leads to latency arbitrage and frontrunning within the rollup, as seen in early Arbitrum DEX activity. Users pay for security but receive a manipulated execution environment.

Decentralization is penalized: A decentralized sequencer set, like Espresso or Astria proposes, splits MEV revenue and increases operational cost. The economic model for a pure L2-native token without MEV capture is unproven.

Evidence: Over 90% of Arbitrum and Optimism sequencer revenue historically came from MEV, not transaction fees, creating a multi-million dollar per year business dependent on opaque ordering.

Sequencer profitability dictates behavior. A sequencer's primary revenue is transaction ordering fees and captured MEV. This creates a direct financial incentive to maximize extractable value, often at the expense of user execution.

MEV is the dominant force. Protocols like Flashbots' SUAVE aim to democratize MEV extraction, but in a rollup, the sequencer holds a monopoly. This centralizes the most lucrative MEV opportunities, creating a single point of failure for value capture.

Censorship is a profit calculation. A sequencer refusing OFAC-sanctioned transactions forgoes fee revenue but avoids regulatory risk. The economic tipping point determines if the chain is credibly neutral. Networks like Arbitrum and Optimism face this exact pressure.

Evidence: Over 50% of Ethereum blocks are OFAC-compliant, demonstrating that profit motives override neutrality when stakes are high. Rollup sequencers follow the same logic.

Sequencer profitability dictates decentralization. A centralized sequencer is a high-margin business; decentralization fragments this revenue. Teams delay until forced by users or credible forks.

Proof-of-Stake is the default path. It replicates L1 validator economics but creates a new staking token, which introduces its own bootstrapping and liquidity challenges.

Shared sequencing layers like Espresso offer a technical shortcut. They outsource the problem but create protocol-level dependencies and may not solve long-term value capture.

Evidence: Arbitrum's initial sequencer generated ~$90M in annualized profit. Its decentralization roadmap accelerated only after community pressure and the emergence of competitor networks.