Why Ethereum Layer-2 Network Taiko Is Spending $100K Daily On Blobs

Republished By Plato

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An Ethereum layer-2 network named Taiko is dominating the market for so-called blobs, or dedicated data storage for Ethereum scalers—but those endeavors are resulting in tens of thousands of dollars worth of costs for the little-known scaling solution each and every day, even topping the $100,000 mark multiple times this week.

The Taiko protocol, which went live in late May, seeks to offer users cheaper and faster transactions than on Ethereum’s mainnet, while borrowing elements of the network’s security. Since going live, Taiko has spent a whopping $900,000 on blobs in less than two weeks to funnel users’ transactions over to Ethereum’s network.

Meanwhile, Taiko’s competitors, such as the Optimism network, rarely spend more than $1,000 per day on Blob-related fees. Introduced in March as part of an Ethereum upgrade, blobs were billed as a new resource for layer-2 scaling networks to post Ethereum transactions more cheaply.

The protocol’s maker Taiko Labs announced in March that it had raised $15 million in a Series A funding round. Leveraging “zero-knowledge” cryptography in its design, Taiko is striving to differentiate its scaling design in an increasingly competitive field that includes dozens of different scaling networks.

“Taiko just launched its mainnet, and there’s a lot to be figured out before it becomes stable,” Taiko Labs CEO Daniel Wang told Decrypt in a written statement. “We knew that we will use more blobs than other layer-2s. This is a design decision, not a bug.”

Layer-2 networks often work by bundling batches of transactions together and processing them on a separate chain before posting receipts back to Ethereum. However, Taiko’s design differs from that formula, where lots of transactions are rolled up into batches elsewhere.

Instead, the process of ordering transactions, known as sequencing, takes place on Ethereum itself. In a blog post, Taiko Labs said this process, dubbed “base sequencing,” is more decentralized than that of other layer-2s that rely on centralized sequencers—which are controlled by a network’s development team and collect a small portion of users’ fees.

“That sounds expensive,” Alexei Zamyatin, the co-founder of Bitcoin layer-2 network BOB, told Decrypt in an interview. “It makes it more secure, but not as secure as [Ethereum], and you’re also much more expensive than most layer-2s.”

A game of tradeoffs

Still, Wang stated that the costs associated with Taiko’s functionality could easily reach the point of break-even if “Taiko is fully utilized by users,” providing a sustainable amount of gas fees.

Wang added that Taiko is fully aware of the pros and cons associated with its sequencing method, and he hopes that Ethereum researchers will study Taiko’s on-chain data to explore improvements that could allow Ethereum to better support similar scaling networks.

Some Ethereum researchers, including Justin Drake, believe that Taiko’s team is trailblazing a new form of decentralized sequencing that could solve key hurdles in Ethereum’s ecosystem.

“It is making a leap forward in the decentralization, credible neutrality, and composability of rollups,” he told Decrypt in a written statement.

If more layer-2 networks shifted the sequencing of their transactions to Ethereum itself, then fragmentation issues holding the entire space back could be solved, he stated. As of now, liquidity and assets are largely spread out across different layer-2s, effectively siloing users and applications within a given scaling solution while all being tied to Ethereum.

When it comes to layer-2 networks on Ethereum, the introduction of blobs represented a significant shift in how those protocols interact with the underlying blockchain. Before blobs were available as a separate fee market, layer-2s could only post bundled transactions in the form of Ethereum “calldata,” a space for data to be contained within transactions.

Instead of trafficking users’ transactions in bulk alongside regular Ethereum activity, blobs serve almost as a dedicated lane on a highway, where less congestion can reduce costs. However, the best way to package those transactions before they’re shipped is still up for debate.

Blobs blobs blobs

In some cases, centralized sequencers can be leveraged to grind a network to a halt, puncturing the veil of permissionless activity that is synonymous with crypto. Sometimes, centralized sequencers can be abused to delay transactions too. However, Taiko’s commitment to decentralization may not be the most efficient, according to one of its community advocates.

“Sadly, it’s kind of expensive,” the pseudonymous crypto researcher arixon.eth said on Twitter (aka X). “Because of based sequencing, we need to post a blob every 12 [seconds], and if there aren’t enough [transactions], then we just won’t fill the blobs.”

Because of based sequencing, we need to post a blob every 12s and if there aren’t enough txs then we just won’t fill the blobs

Sadly it’s kinda expensive, so we really need based preconfs

— arixon.eth (@arixoneth) June 1, 2024

Wang of Taiko Labs said changing this pace could be a potential solution enacted soon, stating that Taiko’s community is “considering lowering the block proposing frequency a bit.”

The constant stream of blobs, regardless of how full they are, has made Taiko a top user of them. On Sunday, for example, Taiko posted 25% of all blobs on Ethereum, according to a popular Dune dashboard. That day, Taiko spent nearly $63,000 on blob-related fees.

On Thursday, Taiko paid $123,000 in fees for blobs—representing 73% of all costs paid for them across layer-2s—which was its second straight day with a six-figure fee tally. And while most layer-2s pass cost savings onto their users through lower fees, the premium Taiko is paying for decentralization, as of now, isn’t a bill that users need to foot.

“For now, it’s partially subsidized by the team,” arixon.eth said, adding that the process could be modified in the future so that “blocks are missed until there are enough [transactions] in the mempool for a proposer to push a block to [Ethereum] profitably.”

Amid the network’s first airdrop on Wednesday of TAIKO tokens, the network’s native cryptocurrency, the layer-2 averaged around 6.42 transactions per second, according to L2BEAT. Meanwhile, Ethereum registered around 13.6 transactions per second itself.

So far, the performance of Taiko’s token has been turbulent. After crashing 40% an hour after it launched, to $2.27 from $3.80, the token’s price had recovered to $2.45, as of this writing, showing a nearly 3% decrease over the past day, according to CoinGecko.

Edited by Andrew Hayward