1. Key points of the report

1.1 Core investment logic

• Gelato has been deeply involved in the field of developer services for many years and has formed a relatively complete developer service suite. It is expected to achieve business breakthroughs in combination with the RaaS service they launched at the end of 2023.
• RaaS projects have entered a period of intensive currency issuance. Altlayer, Dymension, and Saga have all issued coins in the near future. In addition, there are also Conduit and Caldera with excellent financing backgrounds in the track. The RaaS track is expected to gain continued attention from the market in the future.

1.2 Main risks

• Difficulty in revenue generation. Gelato’s two main business models, smart contract automation and RaaS, determine the difficulty in generating revenue.
• Strong competition. Competitors in the smart contract automation field, such as Chainlink, and in the RaaS field, such as Altlayer, Conduit, Caldera, and Dymension, form strong competition for Gelato, and Gelato’s competitive advantage is not strong enough.
• Limited token use cases.

1.3 Valuation

Due to the unavailability of revenue data in Gelato’s main business track, we cannot provide an accurate valuation.

Based on the circulating market value and total circulating market value, Gelato’s current market value is relatively attractive compared to its competitors.

2. Overview of the project

2.1 Business scope

2.1.1 Automate

Regarding Gelato, Mint Ventures previously published a research report in December 2021. Interested individuals can visit the link to learn more. \

At that time, Gelato’s main business was “automated execution of smart contracts,” specifically “executing operation B when condition A occurs.” The following are the products/features they launched:

• AMM Limit Orders (A = token price reaches a certain value, B = trade). Gelato’s limit order service was previously launched as a separate product called Sobert Finance and was directly integrated into the official pages of PancakeSwap, QuickSwap (Polygon’s largest Dex), and SpookySwap (Fantom’s largest Dex), demonstrating the recognition of Gelato’s products by their partners.
• Liquidation-Free Borrowing (A = LTV of borrowing reaches a certain value, B = retrieve collateral, swap collateral for debt, repay debt). Gelato’s this feature was previously launched as a product for end-users called Cono Finance and received grants from Aave and integration by Instadapp.
• Position management tool for Uniswap V3 called G-UNI (A = token price reaches a certain value, B = adjust LP market range). In September 2021, MakerDAO added G-UNI’s USDC-DAI LP as collateral for generating DAI, and G-UNI’s TVL (Total Value Locked) reached nearly $2 billion. In 2022, Gelato spun off G-UNI as Arrakis Finance and prepared for a separate token launch. However, as MakerDAO shifted its focus to RWA (Real World Assets) in 2022, Arrakis’ TVL significantly decreased.

Arrakis TVL changes Source:Defillama

In addition to the three typical features mentioned above, Gelato’s Automate also has many other use cases, which have also been adopted by numerous DeFi projects. For example, it helps automate the yield farming protocol to earn profits, update oracles, and more.

source：Gelato official website

Overall, Gelato’s automation services provide many useful products for crypto developers and users, bringing a lot of convenience.

Gelato plans to upgrade its automation service to “Web3 Function” in June 2024, which will support more trigger conditions, allowing developers to execute on-chain transactions based on any off-chain data (API/subgraphs, etc.) and computations. These trigger conditions will be stored on IPFS and ultimately submitted to Gelato for execution.

2.1.2 Rollup as a Service

Gelato officially launched its Rollup as a Service (RaaS) in late 2023. RaaS helps developers choose the appropriate technology stack to easily deploy a Rollup. With the rapid development of ETH L2, leading L2 projects have introduced their own open-source frameworks (Optimism introduced OP stack, Arbitrum introduced Arbitrum Orbit, Polygon introduced Polygon CDK) to assist developers in quickly deploying a Rollup. As a result, a large number of third-party service providers, such as Gelato, have emerged to assist developers in handling “blockchain-related needs”.

Although RaaS is a new emerging track, the current competition is fierce, and we will analyze it in detail in section 3.1 Industry Space and Competitive Landscape.

Gelato’s RaaS service currently integrates with various infrastructure service providers:

• Integrates OP stack, Polygon CDK and Arbitrum Orbit at the execution layer
• Integrated Ethereum, Celestia and Avail at the DA layer
• Integrated Layerzero and Connext in terms of cross-chain integration
• Integrates Redstone, Pyth and API3 on ​​oracles
• Integrated with The Graph and Goldsky for indexing
• Other fiat payments are integrated with Moonpay and Monerium, KYC services are integrated with Fractal ID, wallet services are integrated with Safe, etc.

Basically, Gelato has integrated with the majority of infrastructure service providers, except for Chainlink, which competes with Gelato in some aspects. Gelato provides developers with a comprehensive suite of services.

Gelato’s RaaS currently has 2 users: Astar Network ($ASTR) and Lisk ($LSK), Astar network completed a US$22 million financing led by Polychain in January 22. It is a well-known public chain in Japan. They plan to use Gelato’s RaaS service to launch zk Rollup based on Polygon CDK. Lisk, on the other hand, is a long-established application chain project that recently announced its transition to ETH’s L2.

Another user in the pipeline is Ape. Gelato has proposed to become a RaaS service provider for ApeChain on ApeDAO’s governance forum. Currently, it is in the discussion phase on the governance forum.

2.1.3 Relay

Gelato launched the Relay service in 2021. The Relay service allows protocols to pay gas on behalf of users, thereby lowering the threshold for introducing users to the Web3 world.

Some typical use cases include:

• Helping users of NFT protocols mint NFTs without gas. The NFT creation and collection protocol Zora uses Gelato’s Relay feature.
• Assisting users of cross-chain bridge protocols in making cross-chain transactions without gas. Specific users include Connext Network and Kinetex.

source:Gelato official website

According to the information provided by IOSG, in 2022-2023, nearly half of Gelato’s business volume comes from Relay. The revenue from the Relay network has become a key source for the team to survive the bear market. However, the Gelato team has not disclosed the income from the Relay service.

2.1.4 Other infrastructure services

Gelato also provides many other infrastructure services, such as:

• Verifiable Random Function (VRF) provides verifiable random number services to the cryptographic world and can be used in games, NFT and other projects.
• Account Abstraction, a smart wallet based on the ERC-4337 standard
• Multi-chain payment service 1Balance. 1Balance can help developers handle various payment issues more easily, and also supports payment for all Gelato businesses.

The above infrastructure services have also been integrated into Gelato’s RaaS component. Years of deep work in the web3 developer service industry and the rich development kits they have brought may give them a major advantage over other RaaS competitors.

2.2 Team situation

Hilmar Orth, two co-founders of Gelato (X:@hilmarxo ) and Luis Schliesske (X:@gitpusha ) are both developers, and the initial core functions of the Gelato product were written by them. The two have been close friends since college and have been working together since then. Before Gelato, they had co-founded a start-up company focused on helping large European companies explore new business models using smart contracts. Later, they participated in a series of hackathons such as ETHParis, ETHBerlin, ETHCapetetown, and Kyber Defi Hackathon, and achieved good results and influence. It was also because of this that they were able to obtain the Grants from Gnosis and MetaCartel and create Gelato Network.

According to Linkedin information, the Gelato team has a total of 29 people and is a medium-sized crypto team. Judging from the recruitment situation on the official website, the team has a strong desire to continue to expand in BD and the market.

From the perspective of past development, Gelato has been able to provide useful products, but there has not been much investment in BD. According to a post on the governance forum, their total budget for marketing and BD in 2022 is only $103,600.

The importance of investment in BD and marketing for infrastructure projects is evident from the development process of Chainlink and Polygon. Whether Gelato can effectively increase investment in BD and marketing may be a key point for its future development.。

2.3 Funding and important partners

Gelato has had a total of 4 rounds of fundraising, including 3 rounds of private placement and 1 round of public placement. The details are as follows:

• The seed round took place in September 2020, raising US$1.2 million from investors: IOSG, Galaxy Digital, D1 VC, The LAO, Ming Ng, MetaCartel, Christopher Jentzsch. The cost of $GEL corresponding to this round of financing is US$0.019.
• In September 2021, Gelato announced a fundraising of US$11 million from investors: Dragonfly, Parafi, IDEO, Nascent, Stani Kulechov (founder of Aave). The cost of $GEL corresponding to this round of fundraising is US$0.2971.
• The public offering will also be held in September 2021, raising US$5 million. The cost of $GEL corresponding to this round of financing is also US$0.2971.
• In the past December, Gelato completed an expansion round of financing, led by IOSG. The amount and method of financing were not disclosed.

In addition, when the project was first established, they received Grants from Gnosis and MetaCartel.

As for partners, Gelato has a wide range of partners due to its presence in the developer services industry and its RaaS (Robots-as-a-Service) offering to external clients. We have already listed most of their partners in the previous text.

In addition, Gelato was crowned the winner of BNB Chain’s Most Valuable Builders iii in 2021.

3.Business analysis

3.1 Industry space and competition landscape

We will mainly analyze the smart contract automation service and RaaS market.

3.1.1 Smart contract automation service

Regarding the market space and competitive landscape of smart contract automation services, we have provided a detailed analysis in our previous article. Our viewpoint has not changed since then. Here, we only extract the key points:

There is a wide range of scenarios in the Web3 world that require the automatic execution of smart contracts, such as recurring investment returns, regular salary payments, liquidity rebalancing, and more. For developers, designing and executing a complete set of monitoring, calculation, and execution programs themselves requires a significant amount of manpower and time costs. Automation service providers can help developers avoid “reinventing the wheel.” For service providers like Gelato, the marginal cost of providing services to new users is low. There is no difference between limit orders on Uniswap and Quickswap. Therefore, the cooperation between the two parties is more “economical” for both sides, with a solid business logic.

However, the problem may lie in the fact that the services provided by Gelato are not highly demanding. Developers may be unwilling to pay a significant amount for these services. In practice, they may encounter similar difficulties as the web2 automation service provider IFTTT: “They can provide useful products, but there are not many people willing to pay for them.”

In the field of smart contract automation, the two main players that are currently widely used are Chainlink and Gelato. Although Keeper Network ($KP3R), created by Andre Cronje, also focused on this market at one point, over time, Keeper Network has largely exited this field, and the main use case for the KP3R token has become generating income through the Fixed Forex protocol.

According to IOSG’s disclosure, Gelato currently holds an 80% market share in the smart contract automation market, which is quite impressive considering its involvement in the Web3 infrastructure market where Chainlink is a dominant player. However, unfortunately, having a high market share has not brought stable income, and the product is currently in a “good reception but low adoption” state, making commercialization somewhat challenging.

In terms of competition, although Gelato entered this market earlier than Chainlink and currently holds a leading position, in the medium to long term, Chainlink has a stronger brand, a more significant reach to developers, a more abundant team funding reserve, and the ability to cross-sell with other in-house services. It is not easy for Gelato to maintain its lead in the competition with Chainlink.

3.1.2 RaaS

RaaS has been a popular sub-track in the infrastructure field for the past 23 years, and recently it has gained market attention with the launch of Altlayer’s Binance Launch Pool.

With the rapid development of ETH L2, the scalability issues that ETH once faced seem to have been largely solved through Rollup. Especially after the upcoming Dencun upgrade is completed, the cost of Rollup will be significantly reduced by an order of magnitude, which provides a solid foundation for the large-scale commercial promotion of Rollup.

The Ethereum ecosystem currently has the most comprehensive infrastructure in the web3 field (including wallets, browsers, oracles, indexes, etc.), and the user experience within the EVM system is widely accepted among current web3 users. For application developers, becoming an ETH Rollup, instead of creating their own chain and dealing with many “miscellaneous matters” related to the operation of the chain, allows them to focus on the application itself, which is a good choice.

On one hand, we see teams such as Coinbase, Consensys, Mantle, and Blur, who have already achieved excellent results in other areas of web3, choosing L2 when building a chain in 2023 (correspondingly, Binance and OKX built L1 chains in 2020).

On the other hand, we can also see more and more L1 projects deciding to transition to Rollup, including:

• Celo, a stablecoin project that is somewhat similar to Luna, proposed in July 23 that they would transition to ETH’s L2
• Lisk, which was established in 2016, announced in December 23 that it would use the Gelato service to transform into ETH’s L2

We expect this trend to continue in the future. However, during the process of developing Rollup, developers still need to consider a series of issues and trade-offs, such as how to choose a Rollup that suits their own characteristics, how to build and operate a Sequencer, how to solve MEV issues, and which oracle and index to choose. RaaS service providers, as “integrated service providers” directly targeting developers, clearly have relatively stable demand in this context.

In November 2023, Binance released a research report on the RaaS sub-track, which mainly mentioned five projects: Conduit, Altlayer, Caldera, Gelato, and Lumoz. The other four projects can be considered direct competitors to Gelato.

source:Binance RaaS research

The above agreements can all be seen as part of the Ethereum ecosystem. In fact, for developers, their goal is to create an application chain that better suits their needs, and whether this chain is Rollup or Cosmos’ IBC chain is not particularly important to them. Although the infrastructure of the Ethereum system is relatively complete, the Ethereum system is not the only choice.

For the above reasons, we consider the “one-click chain deployment” service providers in the Cosmos ecosystem as competitors to Gelato. Gelato’s competitors in the RaaS or AppChain as a service field are as follows:

(In fact, there are other participants in the RaaS field such as Astria, Gateway.fm, Karnot, Snapchain, Vistara, Zeeve, etc. Due to space limitations, we will not introduce them in detail.)

From the above project information, we can see that although the RaaS track is an emerging track, there are already many players in the field, and the leading VCs have already participated in the RaaS project. The competition is fierce. Since the second half of 2023, there have been more and more protocols using RaaS to deploy Rollup, and in addition to Altlayer, there are also Cosmos-based Dymension and Saga that are about to issue coins, and the entire track has entered a small climax.

Judging from the current several actual online RaaS rollups, it seems that there is no charge for providing the RaaS service itself. Several RaaS service providers hope to capture more value from future derivative services.

In order to explore how the RaaS track obtains revenue, we take Optimism as an example to understand Rollup’s revenue and cost structure:

The Gas paid by Rollup users is generally paid to the following three layers:

• Execution layer. The execution layer directly faces users, collects Gas fees paid by users, and pays fees to the DA and settlement layer.
• DA layer. The DA layer ensures data availability for Rollup. This part is the main place where users pay for gas, and it is also the bulk of the L2 project cost. In addition to Ethereum, DA is also provided by the recently popular Celestia, Polygon’s independent Avail, and Eigenlayer.
• Settlement layer. The problem with the settlement layer is that there are relatively few fees that can be captured. Optimism currently only pays about 0.05ETH in settlement fees to Ethereum per day (source）

For Optimism and any other Rollup, its income = execution layer income, expenditure = DA expenditure + settlement layer expenditure, and gross profit = execution layer income - DA expenditure - settlement layer expenditure.

• First of all, from the perspective of cost items, the expenditure on the settlement layer is very small. Optimism currently only pays about 0.05ETH in settlement fees to Ethereum every day.

The fees Optimism pays to the DA layer (dark blue) and the settlement layer (largely invisible orange) (source）

• Then from the perspective of total revenue, due to the high DA cost, Optimism’s “gross profit” space is not large.

The absolute value of Optimism execution layer gross profit (gray) and DA layer expenditure (blue) (Source: same as above）

The proportion of Optimism execution layer gross profit (gray) and DA layer expenditure (blue) (Source: same as above）

We can see that in the entire Rollup ecosystem, DA has captured the greatest profits. As RaaS service providers, if they want to obtain income, they need to take another 10% from the “gross profit” of Optimism (= execution layer income - DA cost - settlement layer cost), which is generally difficult.

Judging from the current comprehensive information, possible ways for RaaS to obtain revenue/capture value include:

• Obtain more benefits at the execution layer by hosting sequencer, MEV, etc. This is also the most reasonable and possible source of income.
• Earn revenue by becoming a settlement layer for Rollup/Appchain (e.g. Dymension)
• Fees are not collected through user transactions, but through other infrastructure such as integrated wallets, browsers, or other technical consulting services.
• Similar to traditional SaaS subscription fees

Of course, there is also the Restaked rollup that Altlayer has recently collaborated with Eigenlayer to achieve. They see $ALT as more of an economic bandwidth, capturing value through its integration with Restking. However, this value capture is not directly related to the RaaS (Rollup as a Service) itself.

Generally speaking, because there are fewer RaaS projects actually online, the revenue acquisition method has not yet been determined. butThrough the analysis of Rollup’s revenue and cost structure, it is difficult to obtain revenue from RaaS.

In terms of competition, since the users of RaaS providers are developers/project teams, the main focus for RaaS providers is how to attract these developers/project teams. Although different RaaS providers have different technical features, the services they can provide are largely determined by the underlying framework. Therefore, we believe that RaaS services, in general, exhibit significant homogeneity.

Under the relatively homogeneous service offerings, the influence of the project itself may be a determining factor.

For projects that have not yet issued tokens, the main factor is the lead investor. On one hand, the endorsement of a lead investor can greatly reduce the psychological barrier for developers/project teams to use the service, increasing the likelihood of their adoption. On the other hand, lead investors have abundant resources in terms of developers/project teams within the industry, which can bring a natural customer base for RaaS providers. We can see that Conduit’s users clearly exhibit Paradigm-like characteristics.

For already tokenized RaaS projects, the market value of the project serves as a simple quantifiable indicator of its influence.

For RaaS projects with good influence,The team’s own BD capabilitiesIt is the key factor that determines the ceiling of RaaS projects in the long run.

In the RaaS market, which may seem like a blue ocean but is actually approaching a red ocean, Gelato does not have an advantage in terms of influence and BD capabilities compared to its competitors. Its advantage lies more in the team’s years of focus on developer services, allowing them to provide a more comprehensive suite of development tools.

3.2 Tokenomic model analysis

The total supply of Gelato Network’s governance token $GEL is 420,690,000, and its distribution is as follows:

• 50% is allocated to community development (later, through a governance vote in March last year, 20% was kept for further financing).
• 4% is allocated to the public offering in September 21
• 21% is allocated to private investors, and their tokens will be released in halves in September 2022 and September 2023, respectively (later, through a governance vote, the tokens initially scheduled for release in September 2023 were moved forward to February 2023).
• 25% is allocated to the team, with 15% allocated to the current team and 10% allocated to future team members. The team tokens are subject to a one-year lock-up period, after which 25% will be released, and the remaining portion will be released linearly over three years.

According to the lock-up terms, the portions of tokens held by public and private investors are already in circulation. The community portion has 27% of the tokens locked up, and the team’s tokens have 15% remaining in a locked state. The overall circulation ratio is 58%.

Through analysis of on-chain data, we have found that among the private investors, four addresses belonging to IOSG and Dragonfly have not sold any of their $GEL tokens. These four addresses collectively hold 12.4% of $GEL tokens.

Currently, GEL has a circulating market value of US$164 million and a full circulating market value of US$282 million.

According to the official documentation, the use cases for $GEL are governance and staking.

But in fact, since its launch, Gelato has not had many matters that need to be managed. There are only 10 votes in total on Snapshot; $GEL has no real online staking function (except for pledging $GEL in 22 years to obtain Arrakis’ governance tokens) .

Overall, $GEL’s token use cases are limited.

3.3 Risks

The risks faced by Gelato are as follows:

• Difficulty in obtaining income: Whether it is smart contract automation or RaaS business, its business model determines that it is difficult to obtain income.
• Strong competitors: Chainlink in the field of smart contract automation, Altlayer, Conduit, Caldera and Dymension in the RaaS field all constitute Gelato’s competitors. Compared with its competitors, Gelato’s competitive advantage is not strong enough.

4 Valuation levels

Regardless of whether it is smart contract automation or RaaS, we currently cannot obtain accurate revenue data from projects within the industry, so we are unable to make accurate valuations. Here, we mainly list the circulating market value and total circulating market value of several projects that compete with Gelato for everyone’s reference.

Disclaimer：

1. This article is reprinted from [Mint Ventures]. All copyrights belong to the original author [Lawrence Lee]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.