The discussion around modular blockchains stems from the impressive performance of Celestia and its token TIA. In reality, modularity is a major development direction and trend for future blockchain design. Modular blockchains are akin to LEGO blocks, breaking down blockchain systems into reusable modules that can be customized to build blockchain networks with different functionalities. This flexibility and customizability provide a new approach and solution for the development and deployment of blockchain applications.

I. Overview of Modular Blockchains

Traditional monolithic blockchains integrate core functions (execution, settlement, consensus, data availability) into a single network, leading to system scalability issues. For instance, Ethereum and Solana require each node to store the complete blockchain data and verify and record each transaction. While this design ensures network security and decentralization, it also creates performance bottlenecks. Over time, as the blockchain size grows, the data volume nodes need to handle expands rapidly, resulting in many blockchain networks facing insufficient processing capacity, affecting their scalability and performance.

Introduction of Modular Blockchains

The concept of modular blockchains initially emerged from research and exploration of the Ethereum network. In 2018, Celestia co-founder Mustafa Albasan and Ethereum founder Vitalik co-authored a paper titled "Data Availability Sampling and Fraud Proofs," providing a new approach to solving blockchain scalability issues—modular blockchains. The paper focused on improving Ethereum's scalability without sacrificing security and decentralization.

Definition of Modular Blockchains

A modular blockchain is a design paradigm that decomposes the blockchain system into several independent modules, which communicate and collaborate through well-defined interfaces and protocols. By separating core functions such as execution, settlement, consensus, and data availability into independent modules, each module handles specific functions or business needs. This modular design constructs an interdependent stack structure that can be selectively deployed and updated based on actual requirements, enhancing system flexibility and customizability.

Characteristics of Modular Blockchains

1. Scalability: Modular blockchains use a distributed architecture, dividing 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, additional modules can be added to increase throughput and performance without a complete system upgrade.

2. Flexibility: Modular blockchains allow selective deployment and updates of different modules based on actual needs, achieving flexible system configuration. For example, in the financial sector, specialized payment processing modules can be deployed, while in the supply chain sector, logistics processing modules can be deployed, customizing the blockchain system for different business needs.

3. Composability: Through well-defined interfaces and protocols, modular blockchains enable efficient communication and collaboration between modules. Different modules can be combined and interact to achieve more complex business logic and functions. For example, an identity verification module can be combined with a smart contract execution module to achieve identity-based permission management, enhancing system security and credibility.

4. Ease of Maintenance: Since modular blockchains decompose the system into multiple independent modules, each responsible for specific functions or business needs, maintaining and updating modules is easier, reducing maintenance costs and risks.

II. Classification and Principles of Modular Blockchains

Modular blockchains focus on handling a few responsibilities and outsourcing the rest to one or more independent layers. The core of modular blockchains lies in the modular design concept, which divides the blockchain system into several independent modules, each responsible for specific functions, combining and expanding functionalities through module interfaces. Understanding the working principles of modular blockchains requires knowing the functional layer 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, ensuring node consistency, adding new blocks effectively, and determining transaction order. Various consensus algorithms are designed to resolve double-spending and ensure consistency within the network. For example, Syscoin features a unique ecosystem design using Bitcoin's PoW as the consensus method while being fully compatible with the Ethereum Virtual Machine (EVM).

Data Availability Layer (DA Layer)

The data availability layer ensures data availability, allowing the execution and settlement layers to operate independently. In this layer, all raw transactions from the execution layer are stored, and the settlement layer verifies transaction validity through the data availability layer. Projects like Celestia, Avail, and EigenDA focus on data availability, ensuring data availability and integrity in the network through various technical means.

Execution Layer

The execution layer in modular blockchains handles smart contract execution and transaction processing, where user applications are deployed. The execution results of smart contracts are provided to the settlement layer as proofs, updating user states and the chain's state. For instance, the modular rollup solution Manta Pacific solves data availability issues through modular infrastructure design, enabling seamless integration of modular DA and zkEVM. Mantle, an Ethereum Layer 2, adopts a modular architecture, partnering with EigenDA to offer low fees and high security, relying on Ethereum's security.

Settlement Layer

The settlement layer in modular blockchains provides global consensus and security, verifying the correctness of execution results from the execution layer and updating user and chain states. Different consensus mechanisms ensure the overall security and reliability of the blockchain network. Increasing node numbers can enhance settlement layer security. For example, dYmension is a modular platform for the settlement layer, providing all necessary tools and infrastructure for Cosmos ecosystem rollups.

III. Current Development and Representative Projects of Modular Blockchains

As of May 8, RootData has recorded 50 modular blockchain projects, with 10 having issued tokens. Public financing data indicates that, as of 2024, financing for modular blockchain projects has exceeded $350 million.

According to CoinGecko data, as of May 8, the market capitalization of modular blockchain project tokens exceeds $3 billion, with a 24-hour trading volume exceeding $230 million.

Top 10 Modular Blockchain Tokens by Market Capitalization:

(All the above project tokens are listed on the Hotcoin platform)

Other notable modular blockchain projects without issued tokens include Fuel, Avail, and Eclipse.

Fuel: A UTXO-based modular execution layer bringing globally accessible scale to Ethereum. As a modular execution layer, Fuel achieves global throughput that monolithic chains cannot, while inheriting Ethereum's security. John Adler, co-founder and chief researcher of Celestia, is also the co-founder and former CTO of Fuel. According to official announcements, the Fuel mainnet is expected to launch in Q3 2024. In the coming weeks, the Fuel team will share more details about Fuel's unique architecture, product roadmap, and release plans.

Avail: A modular blockchain focused on data availability, sorting and recording blockchain transactions without downloading the entire block to prove data availability. This allows it to scale in ways monolithic blockchains cannot. Avail was spun off from Polygon in March 2023 and is led by Polygon co-founder Anurag Arjun. On February 26, 2024, Avail announced the completion of a $27 million seed round, 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 CISO Mudit Gupta, and AltLayer COO Amrit Kumar.

Eclipse: A customizable rollup provider compatible with multiple Layer 1 blockchains, enabling developers to deploy their rollups powered by the Solana operating system, using any chain for security or data storage. Founded by Neel Somani, who previously worked at Airbnb, Two Sigma, and Oasis Labs, and is a UC Berkeley graduate. In March 2024, Eclipse completed a $50 million Series A round led by Placeholder and Hack VC, with total funding reaching $65 million. Other investors included Polychain Capital, Delphi Digital, Maven 11, DBA, and Fenbushi Capital. Eclipse plans to launch its mainnet in Q2 2024, having already released its protocol’s devnet and testnet versions.

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 several risks and challenges.

1. Lack of Unified Standards Affecting Compatibility and Interoperability

The development of modular blockchains lacks unified standards, potentially affecting compatibility and interoperability between different platforms. The lack of unified standards may limit interaction between different platforms, restricting system efficiency and scalability. Additionally, the absence of unified standards may pose more technical challenges and obstacles for developers.

2. Functional Fragmentation Increasing Systemic Risk

Modular blockchains divide the various functional modules of the blockchain network into layers, each with independent functions and responsibilities. However, this functional independence may increase systemic and security risks. Each module's independence means they may have single points of failure; if one module fails, the entire system's stability and security could be compromised.

3. Updates and Maintenance May Introduce New Risks

Modular blockchain systems require continuous updates and maintenance to adapt to changing market demands and technological advancements. However, the update and maintenance process may introduce new risks and issues, affecting system operation. Updates might cause 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. As one of the most influential public chains with a large user base, the emergence of modular blockchains could impact Ethereum's ecosystem, leading to intensified competition and interest conflicts.

V. Future Prospects of Modular Blockchains

Modular blockchains, as a new architectural design concept, have the potential to achieve breakthroughs and progress in multiple areas, holding significant importance and broad development prospects.

1. Enhancing Flexibility and Scalability of Blockchain Networks

By decomposing the functional modules of blockchain networks, modular blockchains enhance network flexibility and scalability. As modular blockchain technology continues to improve and be applied, blockchain networks will become more flexible, allowing customized configurations based on different needs and scenarios. This will better meet various application requirements and enable larger-scale application deployments.

2. Lowering Application Development Threshold and Costs

The development of modular blockchains will promote the thriving blockchain ecosystem. Through modular design, blockchain networks can better support developers in application development and deployment, lowering the development threshold and costs, attracting more developers and innovators to join the blockchain ecosystem. As the blockchain ecosystem grows, we can foresee the emergence of more innovative applications, providing users with richer and more convenient blockchain services and experiences.

3. Accelerating Standardization and Regulation

With the development of modular blockchains, the standardization and regulation process of blockchains will be accelerated. Establishing unified standards and regulations will improve compatibility and interoperability between different platforms, reduce system development and maintenance costs, and promote the widespread application and promotion of blockchain technology.

4. Promoting Cross-Domain Integration and Innovation

The development of modular blockchains will drive the cross-domain integration and innovation of blockchain technology with other cutting-edge technologies. Through modular design, blockchain networks can better integrate with AI, IoT, and big data, creating more powerful and complex application scenarios. As blockchain technology continues to integrate and innovate across domains, more new application scenarios will emerge in the future.

As an emerging design paradigm, modular blockchains enhance system scalability, flexibility, composability, and maintainability, expanding new possibilities for blockchain technology's further development and application. They will provide stronger and more flexible infrastructure for digital economy and blockchain network construction, bringing new potential for future innovation and showcasing significant potential in broader fields.

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