Understanding Layer 1 (L1) Sequencer Fees

• Sequencers are responsible for aggregating, ordering, and executing transactions in Layer 2 (L2) rollups. They function as the heart of a rollup by ensuring efficient transaction processing and finality from the L1 blockchain. Sequencer fees are paid by users to compensate for these functions 12.
• Sequencer fees are typically paid in the network's native token and can vary based on gas prices set by users. These fees are essential for incentivizing the operations of the sequencers 34.

• The profitability of rollups is significantly affected by sequencer fees. As L1 fees increase the costs for processing transactions, higher fees could result in decreased overall profitability of the rollup if not balanced by higher transaction volumes or efficient transaction batching that reduces per-transaction costs 56.
• Shared sequencer networks can enhance profitability by offering composability and liquidity benefits due to interconnecting multiple rollups, allowing them to share transaction loads and reduce fees through economies of scale 7.

• For example, on the Optimism network, revenue from sequencer fees fluctuated due to other factors such as gas costs and upgrade implementations like the Ecotone upgrade, which reduced L1 submission costs. However, challenges such as reduced transaction volumes or competition can still affect profitability 58.
• On the Boba Network, despite high transaction volumes increasing L2 fees, revenue dipped due to the impact of consistent L1 sequencer fees, underscoring the importance of balancing these fees to maintain profitability 6.