Cero-charged Business Model for Rollups

Motivation

The Cero ecosystem allows Rollups & App-chains from various other ecosystems to particpate under the umbrella of shared sequencing. For example, OpStack Superchains, Polygon CDK chains, Arbitrum Orbits, ZkSync Elastic Chains & perhaps Avalanche L1s jointly would use the same sequencing services to form a larger connected ecosystem. Apart from some other benefits like composability, it is interesting to observe some behaviours of how economies of scale can have an impact in this 'Super Ecosystem' of chains. For easier references ahead we'll refer to this Super Ecosystem as Super-system. We'll propose more based on this a little later in this section.

To design a viable economical structure we list certain objectives based on the pain points described here which should be targetted by this Super-system,

• No Cost Overheads - Rollups struggle to justify their base costs, which includes their L1 gas costs, DA costs, machine costs(especially in ZK rollup), and also other operational & mangerial costs. Similarly side chains struggle to justify their machine infrastructure costs as well. Hence, while the rollups/app-chains would want to benefit from a decentralized(or more decentralized) transaction ordering system like Cero, they should not experience any additional cost overheads which are not balanced by additional revenue.

• Strong Sequencers Incentive - A network dedicated for sequencing needs to gather enough incentives that makes it worthwhile for the system to be healthily operational; i.e. (a) always serving sequencing functions, (b) although the fairness doesn't need rely upon economically disincentivising misbehaviour among sequencers, it is still important.

• Democratizing Revenue, Not Diminshing It - With decentralized sequencing, the transaction fee could be imagined to go towards the distributed sequencers. This would result in diminishing of revenue for Rollup operators. We don't want to cut down existing revenue amounts.

• Add Additional Revenue Streams - The business model of most rollups as described here relies upon the native token(ETH or custom token) based transaction fee only. We would ideally want to add more channels to the revenue in exchange to service that the Rollup operator can extend to other Rollups as well.

• Stabalize Revenue - As described in the traditional business model, the revenue majorly relies upon transaction volumes and the native token's market value, both of which are dangerously volatile. It is in our mind to minimise this risk, perhaps with some diversification.

• No Additional User Facing Token - It is important that we do not increase the burden of maintaining balances in additional tokens for the end users of the Rollup.

Cero-charged Economics

Motivated by the above objectives, Cero derives Super-system's economic design that can described in following characterisitcs.

• Cero defines its service model where a single Rollup can increase their participation across other Rollups across the entire Super-system by becoming a validator. Ensuring Rollup operators particpation along with external parties ensures there isn't leakage of value within the Super-system and a Rollup's sequencer can be made multi-purpose to serve other Rollups, thereby increasing the efficiency of resources.

• The transaction fee would remain in native token of the Rollup where it is to be executed. The user should not require maintaining balances in additional tokens apart from the one natively supported by the target Rolllup.

• A Rollup would need to subscribe to Cero's services by paying a monthly subscription fee in CERO tokens. This flat fee would be again routed to the validators, which would again be the mix of Rollups and external parties. This subscritption amount further stabalizes the circulation within the Super-system.

• Regardles of who ends up sequencing the transactions, the majority of transaction fee is captured by Rollup operator still. While a small percentage of the transaction fee is shared with the other validators/sequencers. This would lead to a validator aquiring the revenue in multiple yeilds of tokens. This along with the subscription costs which remains in CERO tokens further diversifies the revenue for Rollup operators, diminishing there dependency on value of single token. The amount of tokens aquired in different yields by a Rollup, depends upon the amount of contribution to the fee pool of the entire Super-system. This also means validators which do not contribute to the fee pool, including external validators would not be benefitting from additional Rollup tokens yields.

• Validators get block rewards in CERO tokens in exchange to their commitment of servicing the Super-system for sequencing, propotional to their staked amount. This also creates additional revenue opportunity for Rollup operators while further diverisifying the dependency from a single token.

• There is also a point to be made in benefit to the end users which are utilising a Cero-charged Rollup, which is that it derisks loss of funds due to any bad MEV activity or censorship.

• Due to the nature of aggregating transactions for DA and L1 operations, while at the same time including external parties in validator sets, the L1 & DA costs are improved for the Rollups.

Above points explain how Rollups unifying to form a larger function to each other can increase their own sustainability. It should be noted however that the implementation of such a model has a large amount of complexity associated with it. Hence, we have identified to mitigate mitigate a number of risks. There are following measures taken for the same,

• There is a distinction between the external validators and Rollup validators. An external validator would only benefit from block rewards and subscription fee revenue pool, while a Rollup validator would benefit from the same but also with additional yields coming in form of other tokens.

• There is a careful propotion of external validators and Rollup validators that shall exist in the Super-system. This is again to incentivise and encourage the Rollup operators to create real value within the Super-system by providing them enough security and stability.

• While there would be no restrictions for a Rollup to subscribe and benefit from the shared sequencing, there onboarding would be done after a curation process to become an external validator at which point the Rollup may apply for upgrading to a Rollup validator so to start benefitting from diverse yields. To upgrade to a Rollup validator another curation process would be in place to observe the token price stability and user adoption on the Rollup. It is important to note that the governing process holds the rights to reject validator onboarding & upgrades for Rollups. These are steps that the governance takes to protect the Super-system from any Rollups that may contribute to the instability or damage revenue streams.

• The governance in place would be diversified to include more parties in the operational process. We imagine that Cero network would function as a fully democratic governance for the Rollups, by the Rollups and of the Rollups.

We continue to identify more safeguards in our journey to improve the experience for our partners for this purpose.

Future Scope

We continue to identify additional ways of making Rollups sustainable and a few directions we are working at include the following,

• Good MEV based opportunities for Defi powered Rollups.

• Extending to wider ecosystems for more value capture and further adoption.

• Composability which opens path ways to new modern Dapps on Super-system's Rollups.