Introduction

As Web3 applications become more diverse, the demand for automatically executing smart contracts is increasing. This includes regular reinvestment of earnings, periodic salary payments, and liquidity rebalancing. Designing and executing monitoring, computing, and running programs can be time-consuming and labor-intensive for developers, especially for repetitive tasks. To address this, developers can outsource their Web3 DevOps needs, enabling them to focus on building their core products. Gelato Network was created to meet this need, with the main idea of automating smart contract operations following specific events, thus offering services to new users at a minimal additional cost.

Gelato Network launched early and has spent many years focusing on developer services, resulting in a comprehensive suite of developer tools. In September of last year, the team announced a shift in their business strategy, introducing Rollup as a Service (RaaS). RaaS is a new and emerging field, currently in its early stages of development.

The need for scaling solutions has always been present, and Layer 2 (L2) solutions are experiencing rapid growth. The scalability issues that Ethereum faced have been significantly addressed by Rollup technology. Among the various public blockchain architectures, Rollup has emerged as one of the core choices after market validation. The main demand for L2 now lies in business applications rather than innovations in the public chain itself, as the development process is no longer critical. Leading L2 projects have introduced open-source frameworks to help developers quickly deploy a Rollup. For example, Optimism has released the OP stack, Arbitrum has introduced Arbitrum Orbit, and Polygon has launched Polygon CDK. Gelato Network offers developers a comprehensive service integrating SDK frameworks and infrastructure services. This article will delve into Gelato Network’s old and new businesses, focusing on the Rollup as a Service (RaaS) business, and analyzing its token economics.

Source: messari.io

Overview of Gelato

Gelato was founded in 2019, and it quickly gained funding from Gnosis and MetaCartel upon its launch. Initially, the protocol was designed to provide automation services for smart contracts (Automate), enabling Web3 developers to create automated, gas-free smart contracts that could execute on EVM-compatible blockchains. For over three years, Gelato has maintained a leading position in this niche market. In September 2023, Gelato shifted its focus to a new business model, introducing Rollup as a Service (RaaS), and expanded its support to include Arbitrum, Optimism, Polygon, ZkSync, Celestia, Avail, and EigenLayer.

RaaS is designed to help developers select the right technology stack to easily deploy a Rollup and is currently Gelato’s primary business. The team’s L2 framework initially utilized Polygon, and by the end of last year, they announced support for the OP Stack, with plans to integrate more frameworks in the future. Presently, RaaS service clients include Astar and Lisk. Gelato’s co-founders, Hilmar Orth and Luis Schliesske, are both developers who participated in numerous hackathons, such as ETHParis, achieving remarkable results and securing funding from Gnosis and MetaCartel, which led to the establishment of Gelato Network.

To date, Gelato has completed four rounds of financing, three of which were private placements. In September 2020, it raised $1.2 million in seed funding from IOSG, Galaxy Digital, and other investors. In September 2021, it secured $11 million in private funding from Dragonfly and Parafi. In November 2021, it raised $5 million through a public offering. By the end of 2023, Gelato completed an expansion round of financing from IOSG.

Gelato has been committed to developing automated smart contracts for four years, working closely with major EVM-compatible blockchains and various DeFi projects. According to an official announcement, on June 30, 2024, Gelato will officially discontinue its old automation (Automate) service and launch Gelato Functions. This new feature is an upgraded version of Automate, written in Typescript, stored on IPFS, and executed by Gelato. It offers seamless integration with off-chain data, enhanced computing capabilities, and customizable logic execution.

Automate Services

Gelato’s initial core business focused on the automated execution of smart contracts, with three main products: AMM limit orders, liquidation-free loan services, and the G-UNI position management tool for Uniswap v3.

The limit order function was Gelato’s first automated feature. The main idea is to buy or sell token A when its price (relative to token B) hits a preset threshold. This service initially supported the Kyber Network and was later integrated into more decentralized exchanges (DEXs).

Gelato’s liquidation-free loan service allows users to set a threshold below the lending protocol’s liquidation threshold. Suppose the user’s collateral/debt ratio drops below this threshold. In that case, a portion of the collateral is sold to repay the debt, thereby retaining as much collateral as possible for the user. The team developed a consumer-facing product called Cono Finance for this feature. It later integrated it into InstaDApp to enhance anti-liquidation measures by managing the flow of assets and debts between protocols.

The G-UNI product functions by rebalancing the liquidity pool (LP) to the current trading price when the token price moves away from the set threshold and periodically reinvesting earnings. In September 2021, MakerDAO supported G-UNI’s DAI-USDC-LP as collateral, marking the first Uniswap V3 LP supported by Maker. The total value locked (TVL) in G-UNI once surged to nearly $2 billion.

The Gelato team is also set to launch Gelato Functions, an enhanced version of Automate. This new feature will support a wider range of trigger conditions, allowing developers to execute on-chain transactions based on any off-chain data calculations. These trigger conditions will be stored on IPFS and ultimately executed by Gelato. According to the official announcement, the Automate service will be officially discontinued on June 30, 2024.

Rollup as a Service

Gelato Network has introduced a comprehensive platform for developers to build and deploy Ethereum Rollups. According to Messari’s classification of the current RaaS ecosystem, there are three types of projects: SDK, Shared Sequencer Set, and No-code Deployment. Gelato Network falls under the No-code Deployment category, offering more services to developers by integrating SDK frameworks and infrastructure services.

Besides the existing support for the Polygon SDK, Gelato announced support for the OP Stack at the end of last year. The OP Stack is the open-source standard that supports the Optimism ecosystem. Through the Gelato platform, developers can deploy their fully serviced OP Chain with just a few clicks, without needing to write any code, enabling them to focus on their core business. In addition to deploying, hosting, and monitoring new L2 chains, the OP Stack now includes native integration of middleware services, such as automation, off-chain data, and account abstraction, to enhance the user experience.

Gelato launched the Deployment Platform in December last year to simplify the development process. This platform allows developers to easily choose the Rollup framework, data availability layer, and middleware integration. By filling in the required information, developers can create a Rollup effortlessly.

Source：share-eu1.hsforms.com

Gelato’s RaaS ecosystem has already integrated various infrastructure service providers. For the execution layer, it includes OP Stack, Polygon CDK, and Arbitrum Orbit. In the data availability (DA) layer, it supports Ethereum, Celestia, and Avail. For oracle services, it has integrated Redstone, Pyth, and API3. For cross-chain solutions, it has integrated LayerZero and Connext.

Source: docs.gelato.network

Gelato’s RaaS business currently serves major clients like Astar Network and Lisk. Astar Network utilizes Gelato’s RaaS service, specifically a Zk Rollup based on Polygon CDK, while Lisk uses the OP Stack.

The primary users of RaaS services are developers and project teams. Therefore, continuously attracting these users is crucial for the protocol’s development. While different RaaS providers offer unique technical features, the services they can provide are largely dependent on the underlying framework. Hence, the frameworks integrated by the project and their influence are key factors.

Additional Infrastructure Services

Beyond contract automation, Gelato offers various other infrastructure services through its Relayer, including low Gas transactions, off-chain data sensing and computing services, and Verifiable Random Function (VRF) services.

Typically, on-chain transactions require users to deposit tokens in their EOA wallet as Gas fees to interact. Gelato’s Relayer reduces these Gas fees by allowing users to sign messages off-chain to interact with Web3 applications. These messages are transmitted via API to the Gelato Relayer, which verifies the signature on-chain. The Relayer’s controlled EOA then sends the transaction to trigger the contract function and pays the Gas fee.

With the upgrade of Gelato’s Automate to Functions, functions written in Typescript are stored on IPFS and run by Gelato. This upgrade overcomes the limitation of smart contracts being unable to connect with off-chain data, enabling developers to perform calculations and execute on-chain transactions based on any off-chain data.

The core function of a Verifiable Random Function (VRF) is to generate random numbers and provide proof of their randomness and correctness. The random numbers generated must be unbiased and unpredictable, and others can verify the generation process to ensure it was not manipulated. The core component of Gelato VRF is Drand, which is composed of a group of decentralized nodes that must reach consensus before generating random numbers.

All of these infrastructure services will be integrated into Gelato’s RaaS components in the future.

Economic Model

The GEL token is the native token of Gelato. Currently, its economic model is primarily focused on automation services, with the new RaaS business yet to be integrated. In the future, it is likely that the token economics will incorporate the RaaS business.

The total supply of GEL tokens is 420.69 million. Of these, 50% are allocated for community development. In the seed round in September 2020, 4% of the tokens were used to raise $1.2 million at a price of $0.019 per token. In September 2021, 21% of the tokens were allocated to private investors who provided $11 million in funding at a price of $0.2971 per token. The remaining 25% are allocated to the team, with 15% for the current team and 10% for future team members. The tokens allocated to the team will be locked for one year, after which 25% will be released, and the remaining tokens will be released linearly over three years.

Source: medium.com

The primary uses of the GEL token are for governance and staking. For staking, only bot operators running the Automate service can participate by staking a certain amount of GEL. Their revenue is generated from transaction fees on each transaction and from arbitrage opportunities by completing back-running transactions. Malicious behavior by bots carries the risk of penalties.

Conclusion

Gelato specializes in the developer service sector, having built a network of infrastructure and middleware partners over four years of providing smart contract automation services. This positions it well to open the market for RaaS services. However, the RaaS sector is still in its early stages, and the key factor will be the protocol’s influence and its ability to continuously attract developers and project teams.