The Modular Thesis: Scaling Web3 with Rollups

•

🏰 The Modular Thesis: Scaling Web3 with Rollups 🏰 Why stick to one-size-fits-all? Modular chains are setting the stage for unprecedented innovation. Check out our intro to this new content series... Written by the brilliant @zerokn0wledge_ Full article linked below! 📚👇

🏰 CHECK OUT OUR FULL PUBLICATION BELOW 🏰 chronicle.castlecapital.vc/p/modular-thesis-scaling-web3-rollups

We believe modular blockchain architecture will fundamentally shape the scalable rollup execution layers leading us into the next bullrun! Let's have a look at how we got here! 👇

In monolithic networks (e.g. Ethereum and Solana), the core functions of a blockchain are all unified in one layer. This includes: 🔹 Execution 🔹 Settlement 🔹 Consensus/data availability (DA)

This monolithic design approach has distinct advantages: 🔹 Low complexity 🔹 Simple composability However, scaling monolithic chains without significant trade-offs on security & decentralization is a challenging endeavour.

Simply defined, scalability is the ability of a network to process a large amount of transactions quickly and at a low cost. This consequently means that as more use cases arise and network adoption accelerates, the performance of the blockchain doesn’t suffer.

But let's have a look at Ethereum! 🔍 With increasing activity, gas prices on Ethereum have skyrocketed to unsustainably high levels in the past, effectively pricing out many smaller users from interacting with decentralized applications entirely.

Examples include: 🔹 BAYC land mint (leading to a surge of gas fees up to 8000 gwei) 🔹 Artblocks NFT drop (leading to a surge of gas fees to over 1000 gwei) As a reference, gas sits at 13 gwei at the time of writing.

This lack of scalability gave alternative, more “scalable” L1 blockchains (i.e. Solana) a chance to eat into Ethereum’s market share. However, this also spurred innovation around increasing the throughput of the Ethereum network.

But how do these Alt-L1 chains improve on scalability? 🤔 Solana for example has chosen to go with a smaller validator set and increase hardware requirements for validators.

But while this improves the network’s ability to verify the chain & hold its state, it reduces how many people can verify the chain themselves & increases barriers to entry in network participation. This impairs decentralization and subsequently security.

This conflict is also referred to as the blockchain trilemma. The concept is based on the idea that a blockchain cannot reach all three core qualities that any blockchain network should strive to have all at once: 🔹 Scalability 🔹 Security 🔹 Decentralization

Since decentralization and inclusion are two core values of the Ethereum community, it is not surprising that running the chain with a small set of high-spec nodes was not a suitable path forward. Hence, other scaling approaches gained traction.

The Ethereum community has experimented with many approaches to solve the scalability problem. This includes: 🔹 Side chains 🔹 Plasma chains 🔹 State channels However, all of these have certain drawbacks that render them sub-optimal solutions.

A scaling approach that many alternative L1 blockchains have chosen to take, is what is referred to as homogenous execution sharding. For quite some time, this also seemed like the most promising solution for Ethereum (in the context of the old ETH 2.0 roadmap).

Homogeneous execution sharding is a scaling approach that seeks to increase the throughput and capacity of a blockchain network by splitting its transaction processing workload among multiple, smaller units (validator sub-sets) called shards.

However, this doesn't fundamentally solve the blockchain trilemma as the fragmentation of the validator set impairs network security.

Heterogeneous execution sharding on the other hand is a scaling approach that connects multiple, independent blockchains with different consensus mechanisms, state models & functionality into a single, interoperable network.

Two networks that have pioneered this approach are: 🔹 Polkadot (v1) 🔹 Cosmos

The main difference between the Cosmos and the Polkadot approach is the security model. 🔹 Cosmos: App-chains (heterogenous shards) have to spin up and maintain their own validator sets. 🔹 Polkadot: Shared security model based on relay chain.

The latter is much closer to the rollup-based scaling approach that Ethereum wants to take to enable scaling in the context of the rollup-centric ETH 2.0 roadmap. But rollups even take sharding within a shared security paradigm to the next level! 🚀

It’s a scaling solution in which transactions are processed off-chain in the rollup’s execution environment and, as the name suggests, rolled up into batches. The transactions are then collectively settled on Ethereum L1.

So now what were essentially shards in the old Ethereum 2.0 roadmap are completely decoupled from the base layer and developers have a wide open space to customize their L2 however they want. This is similar to Polkadot’s parachains or Cosmos’ zones.

However, thanks to the settlement and DA on Ethereum, rollups are still able to rely on L1 security guarantees and don't have to spin up their own validator set.

Generally there are two types of rollups that differ in the way they settle/validate their state on the L1 🔹 Optimistic rollups: Relying on a social-economic fraud proving mechanism. 🔹 Validity rollups: Execution correctness is ensured through mathematical proofs.

As we have seen, building decentralized applications that are sovereign & unconstrained by the limitations of base layers is a complex endeavor. It requires coordinating hundreds of node operators, which is both difficult & costly.

Moreover, it is hard to scale monolithic blockchains without making significant tradeoffs on security and/or decentralization. Rollups can solve this! 🚀

They offer an amazing opportunity to not only remove the difficulty of coordinating hundreds of individuals to operate a decentralized network. They are also a major stepping stone towards significantly reducing the cost & time needed by devs to turn their ideas into reality

The concept of modular chains further simplifies this. Modular blockchain design is an approach that separates the blockchain’s core functions into distinct, interchangeable components.

Within these functional areas, specialized providers arise that jointly facilitate building scalable & secure rollup execution layers. This enables broad app design flexibility & enhanced adaptability for evolving technological demands.

Consequently, the modular design space consists of: 🔹 Execution layers (rollups) 🔹 Settlement layers (e.g. Ethereum) 🔹 Consensus/DA layer (e.g. Celestia)

More broadly, the modular landscape also includes: 🔹 Sequencing solutions, 🔹 Proving solutions, 🔹 Interoperability solutions, 🔹 Projects focused on order flow abstraction 🔹 Various infrastructure providers (rollup frameworks, RaaS solutions & other tooling)

Despite this, rollup-based scaling is still a nascent technology and there are still some obstacles to overcome. The main scalability bottleneck for (Ethereum-based) rollups currently is limited data availability (DA) capacity.

However, the innovation, driven by the modular thesis does have some approaches in store to address this. To learn more about the DA problem & potential solutions, stay tuned for our deep-dive report that will be published next week as we continue this series! 📚🔍

cc'ing modular chads: @VitalikButerin @modularmedia_ @DailyGwei_TV @sassal0x @CelestiaOrg @AvailProject @eigenlayer @jon_charb @jadler0 @3EKV_ @0xDinoEggs @CryptoMaestro @ayyyeandy @TheDeFISaint @0xSalazar @poopmandefi @ShivanshuMadan @MTorygreen @hmalviya9 @DOLAK1NG @kunalgoel

and our frens: @DAdvisoor @ReveloIntel @DegenSensei @0xhuntingalpha @TaikiMaeda2 @0xKepler @0xPrismatic @WinterSoldierxz @CJCJCJCJ_ @DeFiMann @rektdiomedes @thedailydegenhq @VirtualKenji @RiceMaximalist

🏰 Don't forget to subscribe to receive our weekly newsletter and in-depth research articles 🏰 castle-chronicle.beehiiv.com/subscribe