Celestia’s ‘Modular Blockchain’ attracts investors looking for scaling breakthroughs

Last week, a blockchain called Aptos launched its mainnet, only to be slammed with withering criticism from a crypto audience weary of promises of decentralization for the masses.

Two days later, a similar project called Celestia announced a $55 million raise to noticeably less groans and even a hearty dose of enthusiasm.

The main difference: Celestia uses a new design called “modular blockchain architecture,” while Aptos is considered a “monolithic blockchain.”

Investors and developers seem to be far more excited about the former rather than the latter.

Design philosophy

Under a monolithic approach, the four main functions of networks – executing and settling transactions, agreeing the order and making their data available – are performed by the same system.

This contrasts with the design philosophy used by Celestia, which counts Bain Capital and Polychain Capital among its top investors. Modular blockchain architecture is based on the idea that the four functions do not necessarily need to be handled by the same system. They can operate interdependently.

Celestia aims to manage the data availability and consensus layers in the blockchain ecosystem, Ekram Ahmenhead of marketing and communications at Celestia, told The Defiant.

“Data availability is essentially making sure that the data behind certain transactions has been published to the world,” John Adler, Celestia’s co-founder, said at ETHDenver in February. “You need this because if you don’t have this data, you don’t actually know what’s going on in the blockchain.”

Execution layer

Celestia aims to provide both consensus and data availability to projects that act as settlements, and especially execution layers.

First among potential Celestia users are rollups, technologies that help Ethereum scale by performing transactions on a separate chain. Rollups then post their transactions to Ethereum’s main chain to be settled.

Right now, rollups use Ethereum for data availability, but fueled by the $55 million raise, Celestia is trying to take over that role.

Celestia listed three blockchain projects as users of the data availability layer in its announcement of its latest increase. The project is also giving 26 of what it called the “Modular Fellows Cohort,” a stipend of $3,000 a month for three months. Recipients include Scott Sunarto, who has worked for both the Ethereum Foundation and Uniswap Labs.

At a high level, modular blockchain architecture can allow different blockchains to address what blockchains like Aptos are trying to do at once. Adler believes that this will allow specialization in each of these layers which will lead to better performance.

It could also put an end to what the crypto community may be tired of – the constant launches of new blockchains with parameters tweaked to increase transaction capacity but without real innovation.

Blockchain Stack

For example, the Binance Smart Chain was given from Geth, an implementation of the Ethereum protocol. A few changes were made to increase transaction throughput, but this represented nothing beyond a linear improvement with the added disadvantage of increased computational power required to be a node in the network.

This increase in requirements for nodes reduces the possibility of decentralization because it requires more advanced hardware. This represents a potential race to the bottom that has new monolithic blockchains continuously launching higher scalability and lower fees, but at the expense of decentralization.

Modularization is intended to allow projects to address and specialize in different layers of the blockchain stack.

For those betting on the modular blockchain future, Celestia says it will distribute a token to secure its Proof of Stake network on its FAQ page. The token will also be used to pay transaction fees.

“The thesis of modular blockchains is that a single blockchain doesn’t have to handle all these components on its own,” Ahmen said. “Instead, by disaggregating these core components, individual blockchains can focus on specializing in a specific area, leading to significant optimizations.”

Endless cycle

Mustafa Al-Bassam, co-founder and CEO of Celestia Labs, the main company behind the Celestia protocol, saw Aptos as yet another Tier 1 that is not pushing crypto forward.

“Crypto has a serious problem,” he tweeted. “We are stuck in an endless cycle of new [Layer 1] smart contract platforms. Each claims to fix the problems with the Layer 1s in the previous cycles.”

The negative reaction to Aptos supports Al-Bassam’s point. Crypto can seem permanently stuck in an infrastructure-building stage, with project after project selling picks and shovels to people who would rather turn around and sell those tools than use them to build something useful.

“Aptos was a tipping point,” added Ahmen.

Tom Dunleavy, senior research analyst at crypto information provider Messari, thinking success for blockchain networks lies more in the application layer. To that end, he doesn’t think a Solana or Aptos can be ruled out from becoming the home of apps that attract hundreds of millions of long-term users.

Eshita Nandini, another research analyst at Messari, also sees potential pitfalls of the modular model. “Modular blockchains may have to go through things like starting up a new validation set, which sets something as an established one [Layer 1] front,” she told The Defiant.

A blockchain’s security generally depends on how easily its validators can coordinate, so starting with a small set of validators in a blockchain’s early stages can leave it extremely vulnerable.

A modular world

Still, Nandini definitely sees movement towards a more modular world. “When we look at Ethereum, which was initiated as a monolithic chain, it has now swung the entire roadmap to support rollup activity,” Nandini said. “Rollups are essentially modular execution layers.”

With consensus and data availability separated from settlement and execution, a large number of different configurations between blockchains can emerge.

Maven 11, one of the investment firms that backed Celestia, posted a diagram of the many ways the different layers of blockchains can come together under the modular paradigm.

“With modular architectures like Celestia, collations can use it for data availability and consensus, while you choose to settle yourself — this would be considered a supreme collation,” Nandini said in an email. “It can also choose to settle on a monolithic L1.”

Looking ahead, projects like Fuel, which bills itself as a modular execution layer, are building for a future where the components of blockchains are compartmentalized.

Scaling solutions

“Modular execution layers are execution systems designed for modular blockchains,” Nick Dodson, the CEO of Fuel Labs, the company that develops Fuel, told The Defiant. “This means we calibrate all our designs for a much higher bandwidth than what Ethereum L1 and L2 or monolithic chains typically provide in their current instances.”

Fuel can take what Dodson called a “rollup configuration,” though the design means it can also take the form of a Layer 1, or other non-rollup scaling solutions like sidechains or state channels, the CEO said.

Maven 11, Bain Capital Ventures and others have invested in both Celestia and Fuel, indicating a growing group of investors betting on a modular future.

Dodson sees a modular blockchain world as one where developers and users will have more choices over using blockchains with more monolithic blockchain designs. “The modular paradigm is incredibly flexible, which will allow the market to choose how they want things to be arranged or what kind of performance guarantees they’re looking for,” he said.

With this week’s reaction to the launch of yet another Monolithic Layer 1 in Aptos, the crypto community at large may have definitely signaled that it’s time for something new.