What exactly does modular money mean? Why are there now hundreds of new “modular” protocols on the market?
Modularity has been a hot topic this year and was kicked off by the launch of Celestia and TIAToken last year. However, it’s not just a buzzword, as modular infrastructure components can solve the scaling bottleneck of blockchains by moving certain components into specialized infrastructure.
It’s important to emphasize that modularity is not a short-term narrative that fades away as we move further into the bull market. Rather, it is a core design principle of blockchain and is likely to play an increasingly important role in the future of cryptocurrency. In this case, it’s important to understand what modularity means and which protocols to focus on. Today’s research report will focus on:
What is Modularity? Here’s a watchlist of modular ecosystems.
1. What is modularity?
What does modularity mean in blockchain architecture? You’ve probably heard of this concept, but as a quick recap, the image below illustrates it well:
At its core, blockchain has four roles, or rather four layers:
Execution Layer – Processes transactions for on-chain DApps and executes smart contracts. The calculation takes place here and the account balance is updated.
SL Layer – Determines the overall state of the blockchain. The status of completing on-chain transactions is determined.
Consensus Layer – Ordering transactions by ensuring that nodes reach consensus on the state of the chain.
Data Availability Layer – Ensures that data (transactions, blocks, etc.) is publicly available to all network participants and is accessible to everyone.
Monolithic chains like Ethereum Mainnet, Solana, Avalanche, Sui, Sei, etc., are monolithic chains that handle all of these components. Optimistic Rollups like Arbitrum and Optimism are part of a modular stack as they serve as execution environments, moving data availability, settlement, and consensus to the Ethereum mainnet.
Rollups like Manta are even more modular, as it’s an execution environment that uses Celestia for cheap data availability and leverages the Ethereum mainnet for consensus and settlement.
Many examples and many different modular infrastructure combinations. By understanding the following, you’ll be on the right track on your journey to modularity.
2. Modular ecosystem (in alphabetical order)
1)Aethos
Decentralized policy engine for smart contracts. Allows embedding requirements in smart contracts, such as completing game milestones to obtain game items, banning users from using smart contracts, integrating identities on Rollups, embedding token policies, and more. Aethos is an AVS that leverages EigenLayer.
2)AltLayer
Rollups and re-staking rollups are provided as services. The re-staking Rollup leverages Eigenlayer’s re-staking feature and further provides decentralized sorting. AltLayer is working with Arbitrum to easily create the Arbitrum Orbit L3 chain, with the option to further use EigenDA or Celestia for data availability. AltLayer closed a $14.4 million funding round led by Polychain and leveraged EigenLayer’s AVS.
3)Astria
A shared sequencer network for rollups. With Astria, Rollups can leverage a unified network of decentralized sequencers for fast, censorship-resistant, and permissionless block confirmations. Astria seems to work closely with the Celestia team.
4)Avail
“The base layer of the blockchain” – Avail recently announced the “Avel Trinity”:1. Data availability, 2. Consensus, 3. Shared security layers for all kinds of rollups (zk, optimistic, sovereign, and application-specific). Avail also closed a $27 million funding round led by Dragonfly and the Founders Fund.
5)Babylon
Provide native, permissionless staking on Bitcoin and earn yield by securing Rollups. Babylon is partnering with AltLayer to build a “decentralized validation layer for Bitcoin-secured rollups.”
6)Blockless
Modular infrastructure for launching net-neutral applications (nnApps). With Blockless, applications can be powered by the use of community devices linked to computing tasks. Blockless is an AVS that leverages EigenLayer.
7)Caldera
Rollup as a service. Easily deploy Rollups with just a few clicks on Arbitrum, Optimism, or Polygon, and choose between a wide range of data availability providers. See the video below.
8)Cartesi
A specific application protocol built using Cartesi virtual machines, which includes the Linux operating system. Linux’s power lies in “giving Web3 developers access to decades of existing codebases, programming languages, and open-source tools.” $CTSI, this local governance token has been around since 2020.
9)Celestia
As a data availability provider built on the Cosmos chain. Celestia has supported projects such as Aevo, Lyra, Manta, Dymension, Arbitrum Orbit, AltLayer, Berachain, Eclipse, and many more. Celestia ushered in the era of modularity, with $TIA valued at more than $15 billion.
10)Conduit
Rollups as a service are offered on Arbitrum and Optimism and offer a variety of data availability solutions. Some of the rollups that have been built with Conduit include Zora, Aevo, Lyra, Mode, Parallel, etc.
11)Drosera
“Decentralized Automated Responders Collective (DARC)”. Drosera provides a permissionless security marketplace for mitigating and containing attacks. Drosera has raised $1.5 million in funding from Arrington Capital, Comfy Capital, and others, and is an AVS powered by EigenLayer.
12)Dymension
The protocol that drives “Rollapps”, a standardized template for modular rollups built on top of the Dymension Central Hub and powered by the Cosmos IBC bridge. “RollApps are like ERC-20Tokens on-chain”. The Dymension central hub handles settlement and consensus for Rollapps while offloading data availability to Celestia.
13)Eclipse
A Rollup that will soon be launched on Ethereum. The Solana virtual machine is used for execution, Ethereum is used for settlement, Celestia provides data availability, and Risc 0 is used for proof. Aims to bring Solana’s dapp to Ethereum.
14)EigenLayer
A permissionless Ethereum restaking marketplace. Ethereum validators can deposit ETH and choose to “restaking” to power Rollups, Bridges, oracles, or other Services (AVS) that want to inherit Ethereum’s native security. These AVSs pay re-stakers. EigenLayer recently announced a $100 million Series B investment led by a16z.
15)EigenDA
The first EigenLayer AVS. EigenDA is an Ethereum-native data availability layer. Once live, EigenDA will provide support for Mantle, Celo, Caldera, some Arbitrum Orbit chains, and several other projects.
16)Express
Provides an “Espresso sequencer” for Rollups. Espresso recently announced the launch of “Based Espresso”, a shared ordering marketplace where different types of rollups can sell block space to block proposers. Espresso raised $32 million in 2022 from Electric Capital, Sequoia, and others, and is powered by EigenLayer for alignment with Ethereum and strong economic security.
17)Ethos
Bringing Ethereum security to the Cosmos ecosystem through integration with EigenLayer and restaking. EigenLayer restakers have the option to provide security for Ethos, an AVS used to power the Ethos L1 chain. Restakers can take advantage of this security and earn additional yield through the Cosmos chain.
18)Fluentxyz
Build Fluent zkWasm L2 on Ethereum, providing a Fluent Virtual Machine (VM) and a modular framework for creating a Wasm execution environment. Wasm, which stands for WebAssembly, is a “platform-oriented, stand-alone and efficient stack-based virtual machine’s binary instruction format”. The Fluent execution environment has multiple data availability layers, as the protocol is integrating EigenDA, Celestia, etc.
19)Fuel
“Ethereum’s Rollup Operating System”. Using the UTXO approach, Fuel is a design framework and SDK for parallel transactions and high-throughput execution environments/rollups on Ethereum. Fuel created his own programming language, called Sway, inspired by Rust and other languages. Fuel raised $80 million in 2022 led by Blockchain Capital.
20)Hyperlane
An interoperability layer designed to connect blockchains. Hyperlane enables modular rollups to integrate Hyperlane’s interoperability with a few clicks to avoid liquidity fragmentation. Hyperlane raised $18.5 million in 2022 led by Variant.
21)Hyperspace AI
A peer-to-peer AI network. Hyperspace AI is a large-scale LLM network project designed to be used by anyone in a permissionless manner. The network runs on community infrastructure and has a low barrier to entry (smartphones, browsers, etc. can run nodes).
22)Initia
“A network of interwoven rollups”. Initia makes it possible to build and scale interconnected blockchains with different modular components. The first rollup to launch on Initia was Blackwing, a modular rollup for margin trading. Initia raised $7.5 million in a funding round led by HackVC and Delphi Ventures.
23)Karak
“A layer-2 blockchain for risk management, powering re-staking, artificial intelligence, and next-generation security applications.” Karak provides support for “rollaps” through its modular, secure, highly customizable, and built-in machine learning tools. Karak recently announced a $48 million Series A funding round from Lightspeed, Pantera, and others.
24)LaGrange
Build a “state committee” for optimistic rollups to generate zero-knowledge proofs. These can be embedded in bridges and other cross-chain messaging protocols, improving security by orders of magnitude. LaGrange operates as an EigenLayer AVS, with the power of restakers driving the LaGrange zk light client. LaGrange raised $4 million from 1kx, Maven11, Lattice Fund and others.
25)Lava Network
A modular data layer for chains and rollups. Lava is essentially the RPC and indexing layer of the chain. In many cases, data access is decentralized, so by using the Lava network, the chain ensures that users and developers can easily and quickly access data. Lava raised $15 million from Hashkey, Jump, Tribe Capital, and others.
26)MegaETH
“Building an EVM-compatible Layer 2 with ultra-high throughput and low latency”. MegaETH focuses on improving the Ethereum execution client, scaling L2 rollups through parallel execution, among other things. Its vision is to provide “MegaRollups” capable of processing 100,000 to 200,000 transactions per second, including zk and optimistic Rollups. MegaETH will use EigenDA for data availability.
27)Mitosis
“Modular Liquidity Protocol”. Mitosis aims to unify the increasingly fragmented DeFi liquidity landscape by building a cross-chain protocol to facilitate the transfer of assets and messages between blockchains. Mitosis enables efficient use of capital by making bridging assets liquid. Mitosis has partnered with Hyperlane to make it easier to deploy Mitosis smart contracts and connect modular chains.
28)Movement labs
Create a modular blockchain network built by the Move programming language. Movement ran the builder program to attract developers and created M2: a MoveEVM zk layer 2 with parallel execution and shared ordering on Ethereum. Movement raised $3.4 million in seed funding to drive adoption of Move.
29)Neutron
A Cosmos appchain for building “integrated applications” that provides a framework for building DeFi applications on Neutron L1, inheriting the characteristics of appchains and smart contracts. Integrated apps can access features like mempools, block automation, custom block spaces, and more. Neutron raised $10 million in 2023 led by BN labs.
30)Omni
By re-staking ETH’s security, Ethereum Rollups are securely connected through a “low-latency interoperable network”. Omni L1 (communication layer) is secured by re-staked ETH and has received $600 million in re-staked ETH as promised by EtherFi. Omni has also partnered with Mantle, Injective, and several other companies, and raised $18 million from Pantera, Two Sigma, Coinbase, and others.
31)Feather
The Plume network is a modular layer 2 designed for RWA (Real World Asset) applications. This means that it focuses on compliance (built-in KYC and AML features), easy onboarding for users, instant settlement, and more. The Plume L2 integrates with Celestia, Hyperlane, EigenLayer, Omni, and more. Learn more.
32)Zero Risk
ZK proofs that can be integrated with modular infrastructure components. Bonsai smart contract SDK, Risc Zero zkVM, and Risc Zero proof system are available. For example, the SVM L2 (Eclipse) described above uses Risc Zero for zero-knowledge proofs. Other protocols built with Risc Zero include Altlayer, Citrea, Drosera, Layer N, Optimism, Avail, and others. Risc Zero raised $40 million in 2023 led by Blockchain Capital.
33)Ritual
A community-owned AI network. Ritual provides an AI coprocessor for blockchains that makes it easy to integrate AI models into crypto applications. The Ritual Superchain is a modular execution layer built around different AI models. To launch the ecosystem, Ritual will use EigenLayer to provide security. Ritual raised $25 million in Series A funding led by Archetype.
34)Ternoa
“A cross-layered, multi-chain technology stack designed to maximize developer accessibility”. Ternoa offers features such as a privacy-focused file system and a layer-1 blockchain. The chain has been running since 2022 and has more than 50 dapps built on it. Ternoa’s Local Governance Token ($CAPS) has been trading since 2021.
35)Taiko
Build a (Type 1) zkEVM equivalent to Ethereum. Taiko also designed a “competitive rollup-based” architecture with a competition-based order and dispute mechanism. Competition-based ordering is a decentralized and permissionless way of ordering L2 transactions. The Taiko stack is unique in that it is equivalent to Ethereum while being highly scalable. Taiko has raised $22 million led by Sequoia China and Generative Ventures.
3. Summary
Note that this is just a few protocols in a rapidly expanding ecosystem. In addition, more familiar names such as Ethereum, Arbitrum, Optimism, zkSync, Polygon, Near, etc., are also building their own modular stacks, including L3 and DA layers.