Why Taiko Spends $100,000 a Day on Blob

Author: Andrew Hayward Source: decrypt Translation: Shan Ouba, Golden Finance

Taiko, an Ethereum layer 2 expansion network, spends a lot of money on blobs compared to competitors - but this is intentional.

An Ethereum layer 2 network called Taiko dominates the market for so-called blobs, data storage dedicated to Ethereum extenders - but the efforts have cost the little-known expansion solution tens of thousands of dollars a day, and even broke the $100,000 mark several times this week.

The Taiko protocol went live in late May, aiming to provide users with cheaper and faster transactions than the Ethereum mainnet while borrowing the security of the network. Since its launch, Taiko has spent a staggering $900,000 on blobs in less than two weeks to direct users' transactions to the Ethereum network. Meanwhile, Taiko’s competitors, such as the Optimism Network, spend no more than $1,000 a day on Blob-related fees. Blobs were introduced as part of an ethereum upgrade in March and are described as a new resource for layer-2 scaling networks to issue ethereum transactions at a lower cost. Taiko Labs, the creator of the Taiko protocol, announced in March that it had closed a $15 million Series A round. Designed using “zero-knowledge” cryptography, Taiko aims to stand out with its scaling design in a competitive field that includes dozens of different scaling networks. “Taiko has just launched its mainnet and there are still many issues that need to be resolved before it can reach stability,” said Daniel Wang, CEO of Taiko Labs, in a written statement to Decrypt. “We knew we would use more blobs than other layer 2s. This was a design decision, not a mistake.”

Layer 2 networks typically work by bundling batches of transactions together and processing them on a separate chain, then publishing the receipts back to Ethereum. Taiko’s design, however, deviates from this formula, with many transactions batched elsewhere.

Instead, the process of ordering transactions, known as sequencing, is done on Ethereum itself. Taiko Labs said in a blog post that this process, called “base sequencing,” is more decentralized than other layer 2 networks that rely on centralized sequencers — which are controlled by the network’s development team and take a small fraction of user fees.

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

A Game of Tradeoffs

However, Wang said that if “Taiko is fully utilized by users,” the costs associated with its features could easily reach a break-even point, providing sustainable gas fee revenue.

Wang added that Taiko fully understands the strengths and weaknesses of its ordering approach, and he hopes that ethereum researchers will study Taiko’s on-chain data to explore improvements that would allow ethereum to better support similarly scaled networks.

Some ethereum researchers, including Justin Drake, believe the Taiko team is pioneering a new form of decentralized ordering that could solve key challenges in the ethereum ecosystem. “It’s a major step forward in decentralization, trusted neutrality, and composability of rollups,” he said in a written statement to Decrypt.

He noted that if more layer 2 networks moved transaction ordering to Ethereum itself, the fragmentation problem that has hampered the development of the entire space could be solved. Currently, liquidity and assets are widely distributed between different layer 2 networks, effectively isolating users and applications to specific scaling solutions while all relying on Ethereum.

For Ethereum's layer 2 networks, the introduction of blobs represents a major shift in the way these protocols interact with the underlying blockchain. Before the emergence of blobs as a separate fee market, layer 2s could only issue packaged transactions in the form of Ethereum "calldata," a space containing transaction data.

Unlike batching user transactions along with regular Ethereum activity, blobs are almost like dedicated lanes on a highway, reducing congestion and thus reducing costs. However, the best way to package these transactions before sending is still up for debate.

Blobs

In some cases, centralized sorters can be exploited to bring the network to a standstill, undermining the veil of permissionless activity that cryptocurrencies tout. Sometimes, centralized sorters can also be abused to delay transactions. However, Taiko’s commitment to decentralization may not be the most effective, according to one of its community supporters. “Sadly, it’s a bit expensive,” the crypto researcher who goes by the pseudonym arixon.eth (now known as X) said on Twitter. “Because we need to publish a blob every 12 seconds for sorting purposes, if there aren’t enough [transactions], then we don’t fill up the blobs.” Taiko Labs’ Wang said changing that frequency could be a potential solution on the horizon, saying Taiko’s community is “looking at reducing the block proposal frequency a little bit.”

The constant flow of blobs, no matter how full they are, makes Taiko one of its biggest users. For example, according to a popular Dune dashboard, Taiko published 25% of all ethereum blobs on Sunday. That day, Taiko spent nearly $63,000 on blob-related fees.

On Thursday, Taiko’s fees on blobs hit $123,000, accounting for 73% of all Layer 2 network-related fees, marking the second consecutive day that its fees hit six figures. While most Layer 2 networks pass on cost savings to users by reducing fees, the high fees Taiko pays for decentralization are not currently a bill that users need to bear. “Currently, this fee is partially subsidized by the team,” arixon.eth said, adding that this process may be modified in the future “until there are enough [transactions] in the memory pool for a proposer to push a block to [Ethereum] for profit.”

During the network’s first airdrop of TAIKO tokens (the network’s native cryptocurrency) on Wednesday, the network processed an average of about 6.42 transactions per second, according to L2BEAT data. Meanwhile, Ethereum itself recorded about 13.6 transactions per second.

The performance of Taiko tokens has been volatile so far. After plunging 40% from $3.80 to $2.27 within an hour of launch, the token price has recovered to $2.45 as of this writing, showing a drop of nearly 3% over the past day, according to Coingecko data.