Layer 2 Governance

The process of distributing the role of transaction ordering and block production away from a single operator to a permissionless set of validators. This is critical for achieving censorship resistance and liveness guarantees. Methods include:

• Proof-of-Stake (PoS) validator sets
• Sequencer auctions
• Dual staking with the L1

Example: Optimism's initial security council model and its roadmap to a decentralized, multi-sequencer future.

The formal process for implementing changes to the L2 protocol's smart contracts. This typically involves a governance vote followed by a timelock delay before execution, allowing users time to exit if they disagree with the upgrade. The security model depends on whether upgrades are:

• Sovereign: Self-governed, with the L1 only providing data availability.
• Settlement-coupled: Require L1 finalization, as seen in optimistic rollups and zk-rollups.

The frameworks that allow token holders or delegated representatives to submit and vote on governance proposals. Common models include:

• Token-weighted voting: One token, one vote (e.g., $OP for Optimism).
• Multisig councils: A small group of elected or appointed signers for rapid emergency response.
• Futarchy: Using prediction markets to decide policy outcomes.

Proposals can cover protocol parameters (e.g., sequencer fees), grant funding, and technical upgrades.

The use of cryptoeconomic incentives and penalties to ensure honest behavior from network participants like sequencers and provers. Staked assets act as collateral that can be slashed (partially burned) for provable malicious acts, such as:

• Data withholding
• Invalid state transitions
• Censorship

This creates a bonded trust model that aligns operator incentives with network security.

The interaction between the L2's governance system and the underlying Layer 1 (L1) blockchain (e.g., Ethereum). This defines the L2's degree of autonomy. Key considerations:

• Escape hatches: User ability to force withdrawals directly via L1 contracts, bypassing a malicious L2 sequencer.
• L1 Finality: For rollups, the L1 ultimately settles disputes and verifies proofs, acting as a supreme court.
• Shared Security: Leveraging the L1's validator set and economic security, as seen in validiums and certain zk-rollup designs.

The stewardship and allocation of the protocol's native token treasury to fund ecosystem growth, public goods, and core development. This involves:

• Grant programs (e.g., Optimism's Retroactive Public Goods Funding)
• Developer incentives and bug bounties
• Liquidity mining and user incentives

Effective treasury governance requires transparent budgeting, proposal evaluation, and on-chain payment execution to ensure sustainable ecosystem development.

A primary motivation is shifting control of the sequencer—the entity that orders transactions—from a single operator to a decentralized set. This prevents censorship and reduces the risk of maximal extractable value (MEV) abuse. Methods include:

• Proof-of-Stake (PoS) validator sets
• Sequencer auctions or rotation
• Shared sequencer networks like Espresso or Astria

Adopters seek governance that ensures safe upgrades and user sovereignty. This involves:

• Timelocks on upgrade proposals for user review.
• Multisig or on-chain voting for protocol changes.
• A robust escape hatch or force withdrawal mechanism, allowing users to withdraw assets directly to L1 if the L2 halts or acts maliciously, independent of L2 governance.

Governance determines how transaction fees and MEV revenue are distributed, creating economic alignment. Models include:

• Fee burn or redistribution to L2 token stakers.
• Treasury funding for protocol development.
• Sustained incentives for sequencers and provers. Transparent, community-directed fee models attract users and builders seeking long-term ecosystem viability.

A key adoption driver is a governance model that preserves the security guarantees of the underlying L1 (e.g., Ethereum). This is achieved through:

• Verifiable rollup contracts on L1 that are immutable or only upgradable via L1 governance.
• Minimizing admin keys that could alter core security parameters.
• Ensuring data availability remains securely posted to L1, making the system trust-minimized.

Predictable, credible governance attracts developers. Teams require assurance that:

• Protocol rules won't change arbitrarily, protecting their applications.
• Grant programs and treasury funds are managed transparently to support ecosystem growth.
• There is a clear, fair process for proposing and implementing technical improvements, such as new precompiles or virtual machine upgrades.

Real-world examples highlight governance as a key differentiator:

• Optimism's OP Stack uses the Optimism Collective and Citizens' House for tokenholder-driven, off-chain governance of protocol upgrades and treasury.
• Arbitrum employs a Security Council multisig for emergency actions, with long-term plans for ArbitrumDAO to govern via ARB token votes. These models illustrate the spectrum from progressive decentralization to structured emergency control.

A model where proposed upgrades are executed first and contested later. A new software version is deployed after a vote, but enters a challenge period (e.g., 7 days) where token holders can dispute its correctness. If a challenge succeeds, the upgrade is rolled back. This "approve-by-default" approach, inspired by optimistic rollup design, reduces coordination overhead for non-controversial upgrades while maintaining a safety net through economic staking and slashing.

Governance decisions are coordinated through off-chain forums (e.g., Discord, governance forums) and snapshot votes, with on-chain execution handled by a trusted technical team or multi-sig. This is common in early-stage L2s and application-specific rollups where development is centralized but community sentiment guides direction. The final authority often rests with the core developers, making it a more foundation-led or corporate-governed model, though it can evolve into more decentralized structures over time.

A critical sub-domain of L2 governance focused on who controls the sequencer—the node that orders transactions. Models range from a single permissioned sequencer (common initially) to decentralized sequencer sets governed by token staking. Governance defines rules for:

• Transaction ordering and Maximum Extractable Value (MEV) redistribution
• Sequencer slashing for liveness failures
• Permissionless inclusion of transactions

The ultimate governance fallback mechanism where disputes are settled on the Layer 1 (L1) base chain, such as Ethereum. This is a core feature of optimistic rollups (via fraud proofs) and zk-rollups (via validity proofs). L1 acts as a constitutional court, ensuring the L2 cannot violate its own rules without L1 consensus. Governance defines the parameters for initiating and funding these escalation games or proof verification.

The process of distributing the role of the sequencer—the node responsible for ordering transactions—away from a single operator to a permissionless set of validators or a decentralized network. This is a core governance challenge for optimistic rollups and ZK-rollups, as it directly impacts censorship resistance and liveness. Methods include proof-of-stake validator sets, sequencer auctions, and shared sequencer networks like Espresso or Astria.

The formalized process for modifying a Layer 2's protocol, typically involving smart contracts on the Layer 1. Key models include:

• Multisig Governance: A small set of trusted signers controls upgrade keys (common in early stages).
• Timelocks: Enforce a mandatory delay between a governance vote and execution, allowing users to exit.
• Security Councils: A specialized, elected body with veto or emergency powers over upgrades.
• L1 Settlement Contract Upgrades: The most critical governance action, as it can change the core rules of the rollup.

A model where voting power for protocol decisions is proportional to ownership of the Layer 2's native governance token. This often governs treasury funds, sequencer fee distribution, and grant programs. It is implemented via governance smart contracts (e.g., based on Compound's Governor pattern) and delegates, separating token ownership from voting activity. Examples include Optimism's OP Token and Arbitrum's ARB Token governing their respective Optimism Collective and Arbitrum DAO.

A unique governance vector for ZK-rollups concerning the cryptographic proof system (e.g., SNARKs, STARKs). Upgrading this system is highly technical and carries significant security implications. Governance must manage:

• Trusted setup ceremonies for new SNARK circuits.
• Verifier contract upgrades on Layer 1.
• Proof recursion and aggregation schemes.
• Transitioning to quantum-resistant proof systems in the future.

The control over the Layer 2's economic policy, primarily the fee market and revenue distribution. This includes:

• Setting parameters for base fees and priority fees (tips).
• Determining the split of sequencer fees between burning, treasury funding, and staking rewards.
• Managing gas token acceptance (e.g., ETH vs. native L2 token).
• Implementing EIP-4844 blob fee market adjustments for rollup data availability costs.

Governance actions that require coordination or are executed across multiple blockchain layers. Key examples are:

• Bridging Governance: Managing the canonical bridge smart contracts that lock assets on L1 and mint representations on L2.
• L1 Finality as Governance: Relying on the underlying Layer 1's (e.g., Ethereum's) social consensus and fork choice rule as the ultimate arbiter for L2 state, especially during fraud proofs or ZK-proof verification disputes.
• Superchain Governance: Coordinating upgrades and standards across a family of L2s sharing a tech stack, as seen in the OP Stack and Arbitrum Orbit ecosystems.