The market opportunity of modular blockchains

With the merge complete, Ethereum’s semipermanent roadmap for scalability is present solidified. And with this, it has rekindled an age-old debate: volition the aboriginal dwell of an ‘Internet of blockchains’ oregon a ‘World of dapps’ connected a azygous chain? Here, Denis explores the maturation of modular blockchain design, and however it could go the cardinal to achieving scalability and sovereignty for applications portion reducing the outgo of gathering a validator set.

- Chris

Size doesn’t ever adjacent scale. As highlighted successful a erstwhile Dose of DeFi article, a decentralized strategy indispensable person 3 layers of exertion to function: execution, information availability, and information (consensus/settlement). Monolith blockchains similar Ethereum and Solana execute each three, which makes them decentralized, yet not needfully scalable. 

Indeed, portion Ethereum's blockchain is increasing fast (and Solana's even faster), this maturation puts ever-higher unit connected validators. As transaction volumes proceed to increase, we could good spot a data-overload contented arsenic the manufacture reaches wide adoption.

Throughput during high-load periods presents different problem. For example, NFT mints are abbreviated but precise demanding connected blockchain throughput events. A azygous fashionable NFT driblet has the powerfulness to devour the full blockspace, causing web congestion. This is what happened during the Bored Ape Yacht Club NFT launch connected Ethereum, and creator Yuga Labs  subsequently decided to migrate to its ain high-throughput chain.

Of course, this is web3, truthful solutions connected solutions are already up and running. Rollups person go the default effect – yet are present possibly suboptimal erstwhile compared to wherever innovation looks acceptable to pb us. In this piece, we research however rollups and appchains are evolving to champion flooded scalability and different issues. And however with caller approaches to concatenation design, a satellite successful which modular blockchains are the norm becomes a realistic future. 

Rollups are the predominant existent solution to the scalability issue, with Vitalik's rollup-centric imaginativeness of the aboriginal present seemingly coming to life. Rollup exertion delivers velocity and throughput by being a fast, scalable abstracted blockchain that saves lone zipped archives of its transactions to an L1. While zero-knowledge rollups are yet to beryllium battle-tested, optimistic rollup exertion has been trialed, with projects similar Arbitrum and Optimism reliably serving users for astir a twelvemonth now. Rollups besides tin beryllium effectual erstwhile highly precocious throughput is needed for a abbreviated period. 

Rollups bash person a weakness though: they aren't upgradable. Or arsenic the squad astatine Celestia puts it:

The eventual extremity of existent Ethereum rollups is that the rollups should not beryllium upgradeable by a multisig oregon a committee, due to the fact that if they can, they are not trust-minimized arsenic funds tin beryllium stolen via an upgrade. In this model, rollups tin lone beryllium upgraded by hard forking the L1 due to the fact that the canonical concatenation is defined by the L1's colony layer, meaning the rollups person nary sovereignty. 

Celestia and Polygon Avail (and astir apt others that we’re not yet alert of) are caller blockchains that person been specially designed to lick the information availability problem, successful what is called ‘modular blockchain’ architecture. These blockchains don't verify transactions, but simply cheque that each artifact was added by statement and that caller blocks are disposable to the network. Scroll to the extremity for a much elaborate statement of however this works*.  

How would this plan attack enactment with rollups? As the Celestia squad explains successful the same blog post,

Rollups bash not station their blocks to a astute contract, but straight onto information availability concatenation arsenic earthy data. The Celestia statement and information availability furniture doesn’t construe oregon execute computations connected the rollup blocks, nor tally an on-chain airy lawsuit for the rollup."

Polygon’s Avail works successful a akin way.

Using specified a plan means rollups are nary longer hard coupled with L1s, and truthful tin beryllium upgraded and are truthful ‘sovereign’. Rollup upgradability means important decisions astir governance, technology, oregon strategy don't request to beryllium connected L1s – and this afloat power volition beryllium charismatic to DAOs, oregon immoderate ample projects. Many projects privation to physique their ain rollups, and if they do, the customization and upgradability aspects of the modular attack are definite to marque it a fashionable route. 

Indeed, Celestia’s first partners (or ‘Modular Fellows’, arsenic it calls them) are mostly projects that alteration easier rollup deployment by utilizing Celestia’s information architecture, which is designed to store rollup data, not transactions. Important examples include: 

• dYmension: ‘Home of the RollApps’. This allows rollups to contented tokens and take which information availability furniture to usage (e.g. Celestia oregon Polygon Avail).

• AltLayer: Ethereum-compatible tailored rollups-as-a-service. These are high-throughput ‘disposable’ rollups, wherever NFTs are minted and past bridged to an L1.

• Eclipse: Rollups utilizing the Solana VM and the Inter-Blockchain Communication protocol. 

Of course, thing is perfect. Sovereign rollups person disadvantages excessively – astir notably, a lack of liquidity compared to ample L1s (especially close aft rollup launch). Bridges tin beryllium built to bring liquidity to the rollup, but these can’t beryllium arsenic unafraid arsenic non-upgradable astute declaration bridges. Vitalik made this constituent wide successful this post: 

To beryllium a rollup that provides information to applications utilizing Ethereum-native assets, you person to usage the Ethereum information furniture (and likewise for immoderate different ecosystem)... There are cardinal limits to the information of bridges that hop crossed aggregate ‘zones of sovereignty’. This is simply a bounds to the ‘modular blockchains’ vision: you can't conscionable prime and take a abstracted information furniture and information layer. Your information furniture indispensable beryllium your information layer.

Since Bitcoin launched, determination has ever a propulsion for faster blockchains, but erstwhile existent applications emerged connected blockchains, past blockchain architecture plan could beryllium customized to the needs of a circumstantial application, aka appchains. That’s why dYdX chose an appchain to accommodate their unsocial requirements: connected dYdX, per each 1,000 bid places/cancellations, lone 10 trades are executed, meaning they indispensable set-up transaction fees successful a mode that users lone wage for executed trades. To execute this, each validator runs an in-memory orderbook that is ne'er committed to statement (i.e., off-chain).

With appchains, launching a wholly-customized concatenation is possible, arsenic we discussed successful this earlier article. While Cosmos SDK and Substrate are presently the astir fashionable frameworks for appchains, the erstwhile has achieved acold greater adoption success, truthful we absorption connected it here.

These are immoderate of the notable projects leveraging Cosmos SDK customizability to instrumentality unsocial features: 

• dYdX has escaped transactions for unexecuted orders; validators are designed to store the orderbook.

• Osmosis enables superfluid staking and cryptography for MEV protection.

• Agoric supports astute contracts written successful JavaScript.

• Archway distributes incentives to developers straight from astute contracts.

The downside of appchains is the request to administer token and bootstrap validators for a caller chain, portion inactive ensuring decentralization. This could good beryllium an costly undertaking; validator capitalization connected this table hints astatine the standard required. 

Celestia and Polygon Avail purpose to lick this occupation by allowing immoderate concatenation to pat into the modular blockchain's existing validator network. Celestia volition apt contented a token to bootstrap its validator network. And for Polygon Avail, it seems apt they volition usage the $MATIC token, astir apt with the existing validator set.

Modular blockchains are so taking the archetypal steps to onboard appchains. To beryllium capable to commencement onboarding Cosmos SDK chains, the Celestia squad developed Optimint. This is simply a replacement for Cosmos SDK's statement model Tendermint, that publishes blocks to Celestia alternatively of going done the Tendermint statement process. Evmos has already announced it volition beryllium Celestia's archetypal spouse from the Cosmos network, successful what has been dubbed Cevmos (C stands for Celestia).

Being capable to prevention connected validator bootstrapping sounds attractive, particularly for smaller projects, specified arsenic games oregon NFT platforms. This redeeming coupled with afloat customization makes the conception of an appchain plugged into a modular blockchain a beardown one.

Through 2022, rollups and appchains person started addressing blockchain scalability problems – with the second besides overcoming customization limitations. Yet there’s ever improvements to beryllium made, and modular plan looks acceptable to lick the weaknesses of rollups and appchains. But volition determination beryllium request for specified design, fixed the disadvantages?

Having afloat power implicit your rollup is simply a bully proposition for ample teams with beardown blockchain improvement backgrounds, specified arsenic DAOs. Such teams would apt admit the customized throughput settings, statement rules, and adjacent VM choice. Plus, there’s the aforementioned savings connected validator bootstrapping that’s particularly charismatic to smaller projects. 

Polygon claims that with modular blockchains, the imaginativeness of an Internet of blockchains is yet becoming a viable possibility. Celestia seems to concur; its squad expects tens of rollups/chains to pat into its web implicit the adjacent 3 to 5 years.

To summarize: modular blockchains bring scalability, afloat control, concatenation customization, and savings connected validator bootstrapping. Yet inactive determination are tradeoffs: namely successful liquidity and cross-chain security. We expect to spot modular blockchains inhabit the niche of highly-customizable solutions for technically-advanced teams connected 1 extremity of the spectrum, and for small, cost-conscious teams connected the other.

Where to physique your app? Advantages/disadvantages from an app squad constituent of view

* Light nodes request to beryllium capable to find if definite information is disposable oregon not without downloading the afloat blocks. Instead of downloading the full block, airy nodes conscionable download tiny random samples of information from the block. If each the samples are available, past this serves arsenic impervious that the full artifact is available. By sampling random information from a block, it tin beryllium probabilistically verified that the artifact is so complete. Refer to this podcast transcript for much details.

• Various MEV dashboards Link

• Uniswap misses retired connected LUSD volume, Curve and Balancer capable the void Link

• New money flows dashboard from DeFi Llama Link

• Cow Protocol present supports ERC-1271, enabling “gas-less-ly” trades Link

• Succinct launches archetypal impervious of statement span Link

• DeFi is astatine inflection point; ineligible presumption volition beryllium acceptable successful adjacent 2-3 years [Stephen Palley]

• Value Flows successful the MEV Ecosystem [Tushair Jain & Shayon Sengputa/Multicoin]

• State of ENS Q2 2022 [Mihai Gregore & Kel Eleje/Messari]

• A look into sandwich attacks connected Dodo’s USDT/Dai excavation [Mike B/Balancer]

That’s it! Feedback appreciated. Just deed reply. Written successful Nashville wherever the leaves are inactive turning.

Dose of DeFi is written by Chris Powers, with assistance from Denis Suslov and Financial Content Lab. Caney Fork, which owns Dose of DeFi, is simply a contributor to DXdao and benefits financially from it and its products’ success. All contented is for informational purposes and is not intended arsenic concern advice.