Ethereum Layer2 networks, with their efficiency and scalability, have become an important underlying infrastructure in the Web3 world. On the other hand, another group of Layer1/Layer2 networks, which provide scalability solutions through modular architecture, are occupying another corner of the Web3 infrastructure and experiencing a burst of vitality.

Modular blockchain aims to achieve decentralized scalability in blockchain networks without compromising network security. This is done by outsourcing at least one of the four components - execution layer, settlement layer, consensus layer, and data availability layer - to external chains.

The first modular blockchain network, Celestia, has seen its native gas token TIA rise from around $2 to around $16 on January 22nd since its mainnet launch on October 31st last year. In less than six months, it has experienced a stable increase of 717%. With a market capitalization of $2.5 billion, Celestia has climbed to the 37th position on the cryptocurrency market cap rankings, becoming the only modular blockchain to make it into the top 50 and attracting attention from investors who recognize the potential of this sector.

In 2023, multiple modular blockchain projects received new investment, including Eclipse, AltLayer, Sovereign, Dymension, etc. Today, we will introduce you to the concept and application scenarios of modular blockchain, and sort out high-profile potential projects.

Modularization solves the “impossible triangle” dilemma

If we look at the initial design of the blockchain, both the Bitcoin blockchain and Ethereum are single blockchains, that is, each transaction is used as a carrier, legal and effective transaction records are stored through blocks, and through a specific consensus The mechanism realizes a decentralized, trustless, and tamper-proof distributed ledger network.

A single blockchain can be divided into the following four functional layers:

• Consensus: Content and order of approved transactions
• Execution: Supports the execution of transactions and implements deployment and interaction with smart contracts
• Settlement: Used to complete transactions, resolve disputes, verify proofs, and bridge different execution layers
• Data Availability (DA): Guarantee the availability of transaction data

Modular blockchain solves functional requirements in layers

For a monolithic blockchain, all four functional layers are on one chain, and the network must bear all tasks alone. This creates the “Impossible triangle” of a monolithic blockchain, that is, scalability, decentralization and security can only satisfy at most two properties on the chain. Most of the current Layer 1 networks sacrifice decentralization features to ensure the security and scalability of the network, while Ethereum insists on decentralization and security, leaving the scalability to Layer 2 that is compatible with the network.

However, as blockchain transaction volume increases and decentralized applications increase, the frequency of transaction congestion in these individual blockchains is still very high, which leads to an increase in transaction costs, which is not conducive to the operation of the application and also affects the user experience.

To solve the “Impossible Triangle” problem, developers have proposed a solution called “modular blockchain.” This solution involves re-layering and expanding the blockchain architecture in a modular manner through aggregation and combination. By combining the four functional layers, the performance can be safely improved and the network can be expanded to accommodate various application scenarios, all while maintaining the fundamental principle of “decentralization.”

The concept of modular blockchain can be traced back to the 2018 white paper titled “Data Availability Sampling and Fraud Proofs” co-authored by Mustafa Albasan and Vitalik. This article discusses a solution to the blockchain scalability problem that maintains security and decentralization. It enables light clients to receive and verify fraud evidence from full nodes and introduces a data availability proof system to reduce on-chain capacity and security trade-offs.

Currently, Rollups and sharding technology are also examples of the transition of the Ethereum ecosystem to modular blockchains.

Rollups provide a separate layer for execution that extends Ethereum’s single-layer architecture. Rollups can package and execute multiple transactions using powerful computers before regularly sending compressed data back to the Ethereum mainnet for verification.

Sharding is a scalability solution implemented at Layer 1 using sharding technology. The core idea of this approach is to decompose the Ethereum main chain into different shards and randomly rotate validators among these shards. Each shard essentially functions as its own mini blockchain and runs in parallel with the beacon chain. Through sharding technology, Ethereum is able to significantly increase transaction throughput and scalability to meet the growing user demands.

What are the “potential stocks” of modular blockchain?

Up to now, the Web3 asset data platform RootData has included 36 modular blockchain projects. Except for Cube and Assembly, which are in a “dead” state, the rest of the modular blockchain networks are under steady construction.

There are already 5 modular blockchain projects that have been validated in the circulating market and ecosystem.

• Celestia (TIA)

Celestia is the first modular blockchain network project focused on data availability. Celestia believes that an Ethereum scaling network similar to Layer 2 can publish newly generated data to the Celestia chain instead of directly to Ethereum, thus saving more than 90% of handling fees.

Data Availability Sampling (DAS) is an important feature of Celestia that allows users to confirm the existence of large data blocks without downloading the entire blockchain. This technology greatly improves scalability and security.

Additionally, Celestia facilitates the creation of independent, self-managed blockchains, known as sovereign rollups, that benefit from the security provided by the Celestia network.

The Blobstream feature integrates Celestia’s modular data availability layer with Ethereum. This integration enables Ethereum developers to build efficient, high-throughput Layer 2 solutions.

Circulating supply: 159,016,130 TIA

Total supply: 1,017,972,603 ​​TIA

Current price: $15

All-time high: $20.26

All-time low: $2.03

• Mantle Network（MNT）

Mantle Network is an L2 scaling solution based on Optimistic Rollup technology, which provides EVM compatibility and modular design. Incubated by BitDAO, it utilizes roll-up technology and a decentralized data availability layer (Mantle DA) to provide high-throughput, low-fee, and fast deterministic services while ensuring Ethereum-level security.

Circulating supply: 3,162,441,863 MNT

Total supply: 6,219,316,795 MNT

Current price: $0.64

All-time high: $0.8488

All-time low: $0.3136

• SKALE Network（SKL）

SKALE Network is a layer 2 scaling solution that uses a sidechain environment to improve the performance of decentralized applications (dApps) on the Ethereum network. SKALE enables developers to run smart contracts at high speed, high throughput and extremely low cost.

SKALE Network is deeply compatible with Ethereum and is not subject to the storage and computing limitations of Ethereum. In addition to supporting thousands of independent blockchains that grow linearly, it also supports various elastic side chains, storage chains and other types of sub-chains.

Circulating supply: 5,134,227,671 SKL

Total supply: 5,447,166,667 SKL

Current price: $0.06

All-time high: $1.22

All-time low: $0.01

The economic models and tokens of more modular blockchains are still in the testing stage. These projects are either preparing to go online on the main network, or are beginning to attract ecological applications. Below is information about active modular blockchain networks:

It is not difficult to notice that highly popular modular blockchain projects have attracted investments from CEXs. In addition, some modular blockchain projects have gained attention and even investments from mainstream blockchain network ecosystems. There are also some networks that have already launched their mainnet and generated a significant number of applications.

For example, recently Binance Lauchpool has launched AltLayer, which is a highly scalable application-specific execution layer system. It has multiple execution layers (called flash layers) similar to optimistic rollup, and all transactions are secured by the underlying L1/L2. It is designed as a modular and pluggable framework for the multi-chain and multi-VM world, enhancing the scalability of the network.

And Fuel is the earliest Optimistic Rollup deployed on the Ethereum mainnet. In late 2020, it launched its V1 version. It is a blockchain based on the UTXO model and its biggest advantage lies in its ability to execute transactions in parallel. It provides scalability by using a different execution model than the EVM. It has a highly parallelized minimal execution system based on UTXO and supports ETH and all ERC-20 standard tokens. Currently, there are 36 applications that have become top players within its ecosystem, including DeFi, DEX, stablecoins, games, NFTs, Web3 domains, and more.

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