Hotcoin Research | Modularity will be the trend: Analyzing the current state and future of modular blockchains
The discussion about modular blockchain narratives stems from the impressive performance of Celestia and its token TIA. In fact, modularity is the main development direction and trend for future blockchain design. Modular blockchains are like Lego blocks, breaking down blockchain systems into reusable modules that can be customized and combined to create blockchain networks with different functionalities. This flexibility and customizability provide a new perspective and solutions for the development and deployment of blockchain applications.
I. Overview of Modular Blockchains
Traditional monolithic blockchains integrate core functions (execution, settlement, consensus, data availability) within the same network, leading to system non-scalability. For example, in Ethereum and Solana, each node must store the complete blockchain data and validate and record every transaction. While this design ensures the security and decentralization of the network, it also results in performance bottlenecks. Over time, the size of the blockchain continues to grow, and the amount of data that nodes need to process is rapidly expanding, causing many blockchain networks to face insufficient processing capacity, thereby affecting their scalability and performance.
Introduction of Modular Blockchains
The initial concept of modular blockchains was based on research and exploration of the Ethereum network. In 2018, Celestia co-founder Mustafa Albasan and Ethereum founder Vitalik jointly authored a paper titled "Data Availability Sampling and Fraud Proofs," which provided a new perspective on solving blockchain scalability issues through modular blockchains. The paper primarily focused on how to improve the scalability of the Ethereum network without sacrificing its security and decentralization.
Definition of Modular Blockchains
A modular blockchain is a design paradigm that decomposes a blockchain system into multiple independent modules, enabling communication and collaboration between modules through well-defined interfaces and protocols. Modular blockchains adopt a separation strategy, breaking down core functions such as execution, settlement, consensus, and data availability into independent modules, each responsible for handling specific functions or business needs. Through modular design, a stack structure can be built that allows for selective deployment and updating of different modules based on actual needs, thereby enhancing system flexibility and customizability.
Characteristics of Modular Blockchains
Scalability: Modular blockchains use a distributed architecture, breaking the system into multiple modules that can be independently deployed and scaled, achieving horizontal scalability. When the system needs to handle more transactions or data, it can increase the corresponding modules to enhance throughput and performance without requiring a comprehensive upgrade of the entire system.
Flexibility: Modular blockchains allow for selective deployment and updating of different modules based on actual needs, enabling flexible system configuration. For example, in the financial sector, a module specifically for processing payments can be deployed, while in the supply chain sector, a module for handling logistics can be chosen, allowing for customized blockchain systems based on different business needs.
Composability: Modular blockchains achieve efficient communication and collaboration between modules through well-defined interfaces and protocols, allowing different modules to combine and interact with each other, thus enabling more complex business logic and functionalities. For instance, an identity verification module can be combined with a smart contract execution module to implement identity-based permission management, enhancing system security and credibility.
Ease of Maintenance: Since modular blockchains decompose the system into multiple independent modules, each responsible for specific functions or business needs, it becomes easier to maintain and update modules, reducing maintenance costs and risks for the system.
II. Classification and Principles of Modular Blockchains
Modular blockchains focus on handling a few responsibilities while outsourcing the rest to one or more independent layers. The core of modular blockchains lies in the modular design philosophy, which decomposes the blockchain system into multiple independent modules, each responsible for specific functions, and combines and extends functionalities through interfaces between modules. To understand how modular blockchains work, one must first understand the functional layering structure of blockchain systems, including the consensus layer, data availability layer, execution layer, and settlement layer.
Consensus Layer
The consensus layer is one of the foundational layers of modular blockchains, responsible for ensuring consistency among all nodes, effectively adding new blocks, and determining transaction order. In the consensus layer, different consensus algorithms are designed to address double-spending issues and ensure consistency within the network. For example, Syscoin has a unique ecosystem design that uses Bitcoin's PoW as a consensus method while being fully compatible with the Ethereum Virtual Machine (EVM).
Data Availability Layer (DA Layer)
The data availability layer ensures the availability of data, allowing the execution layer and settlement layer to operate independently. In this layer, all raw transactions from the execution layer must be stored, while the settlement layer verifies the validity of transactions through the data availability layer. Projects like Celestia, Avail, and EigenDA are representative modular blockchains focused on data availability, ensuring data availability and integrity within the network through various technical means.
Execution Layer
The execution layer is responsible for executing smart contracts and processing transactions within modular blockchains, and it is also where various user applications are deployed. In the execution layer, the results of smart contract executions are provided to the settlement layer as proofs, updating user states and the state of the chain itself. For example, the modular Rollup solution Manta Pacific addresses data availability issues through modular infrastructure design, allowing seamless integration of modular DA and zkEVM. Mantle, as an Ethereum Layer 2, is built on a modular architecture and collaborates with EigenDA to provide low fees and high security while relying on Ethereum's security.
Settlement Layer
The settlement layer is responsible for providing global consensus and security within modular blockchains, verifying the correctness of execution results from the execution layer and updating user states and the state of the chain itself. Different consensus mechanisms ensure the security and reliability of the entire blockchain network. An increase in the number of nodes can enhance the security of the settlement layer. For instance, dYmension is a modular platform for the settlement layer, providing all the necessary tools and infrastructure for Rollups in the Cosmos ecosystem.
III. Current Development Status and Representative Projects of Modular Blockchains
As of May 8, RootData has recorded a total of 50 modular blockchain projects, of which 10 have issued tokens. According to publicly available financing data, the funding amount for modular blockchain projects has exceeded $350 million in 2024 so far.
Additionally, according to CoinGecko data, as of May 8, the market capitalization of modular blockchain project tokens has surpassed $3 billion, with a 24-hour trading volume exceeding $230 million.
Top 10 Modular Blockchain Tokens by Market Capitalization:
Moreover, notable unissued modular blockchain projects include Fuel, Avail, and Eclipse.
Fuel: is a UTXO-based modular execution layer that brings globally accessible scalability to Ethereum. As a modular execution layer, Fuel can achieve global throughput in ways that a monolithic chain cannot, while inheriting Ethereum's security. John Adler, co-founder and Chief Research Officer of Celestia, is also a co-founder and former CTO of Fuel. According to official announcements, the mainnet of the modular execution layer Fuel is expected to launch in the third quarter of 2024. In the coming weeks, the Fuel team will share more details about Fuel's unique architecture, product roadmap, and release plans.
Avail: is a modular blockchain focused on data availability, sorting and recording blockchain transactions without needing to download the entire block to prove block data availability. This allows it to scale in ways that a monolithic blockchain cannot. Avail was spun out of Polygon in March 2023, led by Polygon co-founder Anurag Arjun. On February 26, 2024, Avail announced the completion of a $27 million seed round of financing, led by Founders Fund and Dragonfly, with participation from SevenX Ventures, Figment, Nomad Capital, and angel investors including former Coinbase CTO Balaji Srinivasan, Osmosis co-founder Sunny Aggarwal, Polygon Chief Information Security Officer Mudit Gupta, and AltLayer COO Amrit Kumar.
Eclipse: is a customizable rollup provider compatible with multiple Layer 1 blockchains. The platform enables developers to deploy their own rollups powered by the Solana operating system, using any chain for security or data storage. Neel Somani is the founder of Eclipse, having previously worked at Airbnb, Two Sigma, and Oasis Labs. Neel Somani graduated from the University of California, Berkeley. In March 2024, Eclipse completed a $50 million Series A financing round, co-led by Placeholder and Hack VC, bringing its total funding to $65 million. Additionally, Polychain Capital, Delphi Digital, Maven 11, DBA, and Fenbushi Capital also participated in this round of financing. Eclipse has announced that its mainnet will launch in the second quarter of 2024, and it has already released the development and testnet versions of its protocol.
IV. Risk and Challenge Analysis of Modular Blockchains
As a new architectural design concept, modular blockchains are still in the early stages of development and face a series of risks and challenges.
1. Lack of Unified Standards Affecting Compatibility and Interoperability
The development of modular blockchains lacks unified standards, which may affect compatibility and interoperability between different platforms. Due to the absence of unified standards, the interactivity between different platforms may be insufficient, limiting the overall efficiency and scalability of the system. Moreover, the lack of unified standards may also lead developers to face more technical challenges and obstacles.
2. Functional Fragmentation Increasing Systemic Risks
Modular blockchains layer various functional modules within the blockchain network, giving each module independent functions and responsibilities. However, this functional independence may increase systemic and security risks. The independence of each module means that they may have single points of failure; if one module encounters issues, the stability and security of the entire system will be affected.
3. Updates and Maintenance May Introduce New Risk Issues
Modular blockchain systems require continuous updates and maintenance to adapt to changing market demands and technological advancements. However, the update and maintenance processes may introduce new risks and issues that affect the normal operation of the system. For example, updates may lead to system instability or introduce new security vulnerabilities and privacy protection issues, posing risks and challenges to the blockchain network.
4. Conflicts of Interest with Monolithic Blockchains
Modular blockchains may have conflicts of interest with monolithic blockchain networks like Ethereum. For instance, as one of the most influential public chains with a large user base, the emergence of modular blockchains may impact Ethereum's ecosystem, leading to conflicts of interest and intensified competition.
V. Prospects for the Development of Modular Blockchains
As a new architectural design concept, modular blockchains are expected to achieve breakthroughs and progress in multiple areas, holding significant meaning and broad development prospects.
1. Enhancing Flexibility and Scalability of Blockchain Networks
Modular blockchains decompose the various functional modules within blockchain networks, making them more flexible and scalable. In the future, as modular blockchain technology continues to improve and be applied, we can foresee that blockchain networks will become more flexible, allowing for customized configurations based on different needs and scenarios, thereby better meeting the demands of various application scenarios and enabling larger-scale application deployments.
2. Reducing Barriers and Costs for Application Development
The development of modular blockchains will promote the vigorous growth of the blockchain ecosystem. Through modular design, blockchain networks can better support developers in application development and deployment, lowering the barriers and costs of application development, thus attracting more developers and innovators to join the blockchain ecosystem. In the future, as the blockchain ecosystem continues to grow, we can anticipate the emergence of more innovative applications, providing users with richer and more convenient blockchain services and experiences.
3. Accelerating Standardization and Normalization Processes
With the development of modular blockchains, we can foresee that the standardization and normalization processes of blockchain will be promoted and accelerated. By establishing unified standards and norms, not only can compatibility and interoperability between different platforms be improved, but the costs of system development and maintenance can also be reduced, facilitating the widespread application and promotion of blockchain technology.
4. Promoting Cross-Industry Integration and Innovation
The development of modular blockchains will promote the cross-industry integration and innovation of blockchain technology with other cutting-edge technologies. Through modular design, blockchain networks can better integrate with technologies such as artificial intelligence, the Internet of Things, and big data, forming more powerful and complex application scenarios. In the future, with the cross-industry integration and innovation of blockchain technology, we can foresee the emergence of more new application scenarios.
As an emerging design paradigm, modular blockchains expand new possibilities for the further development and application of blockchain technology by enhancing system scalability, flexibility, composability, and ease of maintenance. This will provide a more robust and flexible infrastructure for the construction of the digital economy and blockchain networks, bringing new possibilities for future innovations and demonstrating their immense potential in a broader range of fields.
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