A Brief Discussion on Celestia's Business Model: Is Driving Traffic to Ethereum Layer 2 Viable?

Author: Faust, Geek Web3

This article does not involve much technical interpretation, but rather focuses on analyzing Celestia's current business thinking and its situation.

Celestia positions itself as the "best DA layer" under the narrative of modular blockchains. Celestia has created a public chain specifically for providing data publication services for Rollup projects, which is referred to as Data Publication. "Data publication" must ensure one thing: individuals who need to access the latest data can quickly obtain the data they need. In the past, many people referred to data publication as data availability, confusing it with historical data retrieval, which is a conceptual misuse. This is being continuously corrected by the Ethereum Foundation and Celestia officials.

If you have a basic understanding of Rollups, the following content will be easy to understand: Celestia believes that Ethereum's Layer2 scaling networks can publish newly generated data to the Celestia chain instead of directly to Ethereum, thus saving over 90% in transaction fees.

Taking Arbitrum Orbit as an example, the Sequencer of Orbit can publish the latest Layer2 data to the blocks of Celestia. Then, nodes that need to access this data (such as Orbit full nodes) can run Celestia's light nodes to obtain the data published by the Sequencer from Celestia's full nodes.

As for Celestia's token TIA, its main application scenarios are data publication fees + POS node staking. If a Rollup project chooses Celestia as its DA layer, it must pay transaction fees for each data publication; at the same time, the Celestia main chain, which is specifically designed to carry the data published by Rollups, has a maximum of over 200 Validator nodes, and the TIA token is the asset that Validators need to stake in advance.

Although Celestia's official documentation mentions that the TIA token can also be used as a gas payment token for Rollup projects within the Celestia ecosystem, this proposal is not mandatory. Additionally, TIA will also be used for governance in the future, such as voting on adjustments to certain parameters of the Celestia network.

Comparing TIA with ARB and OP, it is not difficult to see that the former has an additional seemingly high-frequency application scenario: as a transaction fee for data publication. If many scaling projects indeed adopt Celestia as their DA layer in the future, and these projects have ample liquidity and users, continuously creating application conditions for the TIA token, then it could indeed strengthen TIA. Conversely, as long as Celestia is fully recognized by the industry and the market, and its ecosystem construction is sufficiently successful, even if TIA serves purely as a governance token like ARB, it can still be fully valued by the market.

However, the viewpoint this article wishes to propose is precisely the opposite: Celestia may not be fully recognized by the market or the industry, and its attempt to attract liquidity from the Ethereum Layer2 ecosystem is likely to encounter resistance, and its situation may resemble that of EigenLayer.

Image from TokenInsight's article ------ "The King of Restaking: Is EigenLayer's Business Model a Golden Idea or Rubbish?"

The success of a project depends not on technology/narrative, but on the ability to assess the situation

If we are to discuss whether Celestia can be fully recognized by the market and the industry in the future, it is essentially a philosophical question: What are the most important factors for a project's success? Does Celestia possess these elements?

Here, the author will briefly explore the first point. If we look back at history, examining public chains like Polygon, Flow, Avalanche, Dfinity, Solana, and Nervos, which were launched around the same time, it is clear that the most successful among them is Polygon. Although many consider it to be the weakest in terms of technology among the aforementioned public chains, it is undoubtedly the most successful.

Polygon's ecosystem construction is more successful than the other examined projects, with its token market capitalization, the DAPPs it hosts, and various data all ranking at the forefront. Previously, Trump even chose to issue exclusive NFTs on Polygon. Its "full stack" encompasses a series of diverse offerings, including Ethereum Layer2 (Polygon zkEVM), independent public chains (Matic), and DA networks (Avail), along with teams related to ZK such as Polygon Zero, Polygon Miden, and Polygon Nightfall, each exploring different technological directions. Additionally, Polygon has an open-source modular blockchain suite, Polygon CDK, which seems to have a more complete modular blockchain stack than Celestia.

(Image source: Messari)

Polygon is very good at "riding the big trends," especially in 2020 when it branded itself as Plasma to cater to the needs of the Ethereum Foundation, attracting a large amount of liquidity and acquiring considerable resources. In the eyes of many technological purists, Polygon, which originally had weak technology, quickly elevated its "status" by aligning with the Ethereum Foundation, and then spent heavily to acquire multiple technology teams related to ZK and modular blockchains, gradually building its business empire.

In contrast, projects like Flow, Avalanche, Dfinity, and Solana have stronger technology than the original Polygon, but currently, they are weaker in overall strength compared to Polygon. Among them, Solana has also been quite successful thanks to the long-term support of the FTX exchange (Anatoly made great efforts to persuade SBF to support his project); Avalanche has been successful with the backing of overseas capital, EVM compatibility, and significant efforts in business development. However, these two do not seem particularly optimistic about the Layer2 narrative and have not made substantial investments in this area, to some extent not being as adept at "going with the flow" as Polygon.

Lastly, Dfinity, Flow, and Nervos have weakened for various reasons and have not become as popular as the aforementioned projects:

Dfinity positions itself as a decentralized AWS, aiming to bring practical application scenarios to blockchain, and even launched a "reverse gas" feature allowing users to transact without gas fees, but ultimately failed due to the limitations of the era (from 2021 to today, blockchain has not been a suitable field for mass adoption due to extremely inadequate upstream supporting infrastructure, which has restricted user entry).

As for Flow, it has long achieved native account abstraction and has a simple layered design similar to modular blockchains; Nervos, since 2018, has positioned itself around layered scaling and Layer2 as its core narrative, attempting to brand itself as a "Layer1 designed specifically for Layer2," but ultimately faced a Waterloo (Layer2 only makes sense when Layer1 carries excess liquidity; merely aligning with the technical needs of Layer2 is not the optimal solution).

Ultimately, for a project, the most important factor has never been whether the technology is impressive or the narrative is attractive, but whether it can assess the situation in the context of the times and find the most appropriate business operation path. However, this is precisely the shortcoming of many academic teams; in a business world filled with deceit, there is no emphasis on "technology first" or "honor and ethics first," only "winners and losers." Many teams with unique technologies or advanced concepts have not achieved the status they deserve because they were not flexible enough in their business operations, ultimately facing failure.

What issues exist in Celestia's business operation thinking

Looking back at Celestia: does it have issues in its business operation path? Or does it have a good sense of "assessing the situation"? It is important to emphasize that Celestia's modular blockchain and DA layer narrative require a public chain with ample liquidity and overflow phenomena as the corresponding settlement layer, which is actually Ethereum. If Celestia completely severs ties with the Ethereum ecosystem, its modular blockchain narrative loses much of its significance, as the situation of Nervos mentioned above has already revealed.

However, attracting liquidity from Ethereum while not directly empowering Ethereum itself does not seem to be a sensible approach. If we carefully observe the changes in the Ethereum Foundation's attitude towards Layer2, this point becomes clear.

In previous articles from "Geek Web3," we have repeatedly emphasized that the Ethereum Foundation and L2BEAT have clearly stated that projects that do not use Ethereum as a DA layer for scaling are not Ethereum Layer2, because off-chain DA layers cannot achieve the same level of availability assurance as Ethereum, which involves a certain degree of trust assumptions (Celestia needs to assume that the main chain will not experience downtime, but its Validators number around 200, which differs from the availability of the Ethereum main chain; EigenDA is essentially independent of Ethereum's native DA).

In other words, apart from true Rollups, other scaling projects are not Ethereum Layer2 (we can ignore Plasma and state channels, as these two technical solutions have almost disappeared from the Ethereum ecosystem).

(Image source: L2BEAT)

Regarding the intentions behind the Ethereum Foundation's actions, many believe that it is actually maintaining its own commercial interests under the guise of distinguishing technical solutions; the reasoning is self-evident: if DA layers like Celestia and EigenDA outside of Ethereum are widely adopted, Ethereum's position will inevitably be weakened, and the significance of EIP-4844 and Danksharding, which the Ethereum Foundation has invested considerable effort to achieve, will also disappear. Moreover, these independent DA layers cannot empower Ethereum; instead, they may introduce systemic risks.

Although there are indeed some Ethereum ecosystem projects like Arbitrum Orbit that have announced integration with Celestia, this does not mean that Celestia will be "fully recognized," but rather that it increases the competitive pressure felt by the Ethereum Foundation. For the Ethereum Foundation, which holds supreme authority, it is actually simple to use its advantages to consolidate its position (similar to how Jewish elders easily caused the death of Jesus). As long as Ethereum Layer2 values the title of Layer2, it will not consider things like Celestia and EigenDA. Therefore, Celestia is essentially "going against the current," rather than "going with the flow" like Polygon.

Currently, the vast majority of liquidity in Ethereum Layer2 is concentrated in traditional Rollup projects like Arbitrum and Optimism, and the main versions of these projects will not integrate with Celestia. Moreover, Arbitrum Orbit is merely a secondary version similar to Arbitrum Nova, which is unlikely to compete with the major "traditional Layer2." Even if Celestia can attract such "secondary Layer2," it seems it will not bring much value capture. (Arbitrum Nova currently has only about $22 million in TVL)

Additionally, as a DA layer project with a purely ToB scenario, Celestia cannot attract a large amount of liquidity like Solana by bringing in DAPPs from ToC scenarios. If it cannot successfully attract the adoption of many Rollup projects, its ecosystem construction will weaken. Furthermore, Celestia seems to lack a very strong capital driver; although its technical narrative makes sense, if it cannot take root well within the Ethereum ecosystem, its grand blueprint may turn into a castle in the air (without FTX's support, Sui, relying solely on technical narrative, has not made significant progress to date).

Here, the author would like to share two interesting anecdotes:

First, according to an insider, at an offline event at Stanford, after Dankrad from the Ethereum Foundation stated, "Projects that do not use Ethereum as a DA layer for scaling are not Layer2," shortly thereafter, a Celestia representative claimed, "xxx project is an Ethereum Layer2 using Celestia as the DA layer," which drew laughter from some attendees;

Second, Eclipse, which claims to be the "fastest Ethereum Layer2" and is supported by Celestia, has yet to be listed on the L2beat website (it cannot be found in either the Active Projects or Upcoming Projects sections). This project uses Solana VM as its execution layer, Celestia as its DA layer, and Ethereum as its settlement layer (Layer1).

These two anecdotes reflect Celestia's current situation to some extent. Although from an idealistic perspective, the modular blockchain technology narrative created by Celestia is beneficial for the long-term development of Web3, the reality seems less optimistic due to various limiting factors.

Intent may lead to different outcomes

But this is only regarding the current situation; in the future, in a Web3 world centered around Intent, everything may change. In a narrative context where Intent, chain abstraction, and full-chain operations are central, the resistance Celestia faces in ecosystem construction can be resolved.

The current popularity of Ethereum Layer2 is essentially because everyone recognizes Ethereum as a chain, and this recognition brings abundant and even excessive liquidity. Why do people recognize Ethereum? Because they have a general understanding of it. But if the Intent solution obscures the underlying infrastructure, will new users in the future have no understanding of what Ethereum and Solana are? At that point, will the distribution of liquidity be primarily based on the DAPP itself rather than the underlying protocol?

In other words, our current understanding of the development of the blockchain landscape is predicated on "fat protocols and thin applications," but this rule may change in the future.

We can imagine this: in a future blockchain world where Intent and full-chain operations are the mainstream narrative, people do not need to be aware of the existence of Ethereum or Layer2; they only need to perceive the DAPP itself or even its frontend, and then everything may change: at that time, the key points guiding liquidity will no longer be public chains like Ethereum, but rather the various DAPPs. As long as major DAPPs are willing to base themselves on a modular blockchain with Celestia as the DA layer, Celestia's ecosystem construction will not have to rely on the current path of attracting Ethereum Layer2. At that time, not only Celestia but the entire Web3 landscape will undergo tremendous changes.

Perhaps, as someone said: the success of a person (or project) certainly relies on their own efforts, but it also needs to consider the course of history.