A Brief Discussion on Celestia’s Business Strategy Can Ethereum Layer2 be Effective in Attracting Users?

Exploring Celestia's Business Tactics Can Ethereum Layer2 Effectively Attract Users?

Author: Faust, Geek Web3

This article does not involve much technical interpretation, but analyzes Celestia’s current business strategy and situation.

Celestia’s self-positioning is the “best DA Layer” in modular blockchain storytelling. Celestia has created its own public chain, which specifically provides data publication services for Rollup projects, known as Data Publication. The goal of “data publication” is to ensure that individuals who need to access the latest data can quickly obtain the data they need. In the past, many people mistakenly referred to data publication as data availability and mixed it up with historical data retrievability, but this conceptual misuse is being rectified by the Ethereum Foundation and Celestia.

If you have a basic understanding of Rollup, you will easily grasp the following content: Celestia believes that similar to Layer 2 Ethereum scaling networks, new data can be published to Celestia’s chain instead of directly to Ethereum, saving over 90% of transaction fees.

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Take Arbitrum Orbit as an example, Orbit’s sequencer can publish the latest data from Layer 2 to Celestia’s blocks. Then, nodes that need to access this data (such as Orbit full nodes) can run Celestia’s light nodes to obtain the data published by the sequencer on Celestia’s full nodes.

As for Celestia’s token TIA, its main application scenarios are data publication fees and POS node staking. If a Rollup project chooses Celestia as its DA layer, it must pay a fee each time it publishes data. Meanwhile, Celestia’s main chain, which is dedicated to hosting Rollup data, has a maximum of over 200 validator nodes that need to stake TIA tokens in advance.

Although the Celestia official documentation mentions that TIA tokens can also be used as gas payment tokens for Rollup projects within the Celestia ecosystem, this proposal is not mandatory. In the future, TIA will also be used for Celestia’s governance, such as voting on adjustments to certain parameters of the Celestia network.

Comparing TIA with ARB and OP, it is easy to see that the former has an additional seemingly high-frequency application scenario: as a fee for data publication. If in the future, many scalability projects indeed adopt Celestia as their DA layer, and these projects have ample liquidity and users that continuously create application conditions for TIA tokens, then TIA can indeed gain strength. From another perspective, as long as Celestia is fully recognized by the industry and even the market, and its ecosystem construction is successful enough, TIA can be fully valued by the market, even if it becomes simply a governance token like ARB.

However, the viewpoint that this article wants to propose is exactly the opposite: Celestia may not be fully recognized by the market or even the industry, and its attempt to attract liquidity from the Ethereum Layer 2 system is likely to face resistance, similar to the situation with EigenLayer.

Image from the article by TokenInsight – “Restaking King: Is EigenLayer’s Business Model a Brilliant Idea or a Waste?”

Project success or failure, technology/narrative is not the first, being able to adapt is most important

If we want to discuss whether Celestia can be fully recognized by the market and the industry in the future, it is actually equivalent to discussing a philosophical question: what are the most important factors for the success or failure of a project? Does Celestia possess these elements?

Here, the author first briefly explores the first point. If we look back at the public chains such as Polygon, Flow, Avalanche, Dfinity, Solana, Nervos, etc., which were proposed and launched around the same time as Celestia, it is not difficult to see that the most successful one is Polygon. Although many people consider it to be the technically weakest among these public chains, it is undoubtedly the most successful one.

Polygon’s ecosystem development is more successful than the other investigated projects, with high token market value, hosted DApps, and various data, and even Donald Trump chose to issue exclusive NFTs on Polygon in the past. Its “ecosystem” includes a range of things such as Ethereum Layer 2 (Polygon zkEVM), a standalone public chain (Matic), and DA network (Avail), and has teams related to ZK such as Polygon Zero, Polygon Miden, and Polygon Nightfall, exploring different technical directions. At the same time, Polygon also has an open-source modular blockchain suite called Polygon CDK, which seems to have a more complete modular blockchain stack compared to Celestia.

(Image source: Messari)

Polygon likes to “follow the trend,” especially in 2020 when it positioned itself as Plasma to cater to the needs of the Ethereum Foundation, attracting a large amount of liquidity and gaining considerable resources. In the eyes of many technical purists, Polygon, which originally had weak technology, quickly elevated its “status” by accommodating the Ethereum Foundation. Afterwards, it used a large amount of money to acquire various technology teams related to ZK and modular blockchains, step by step building its own business empire.

In comparison, projects like Flow, Avalanche, Dfinity, Solana have stronger technology than the original Polygon, but they are currently weaker in overall strength compared to Polygon. Among them, Solana, with the long-term support of FTX exchange, has also been quite successful (Anatoly went to great lengths to promote his project to SBF); Avalanche, with the support of overseas capital, EVM compatibility, and a large investment in business development, has also been relatively successful. However, these two projects do not seem particularly optimistic about the narrative of Layer 2 and have not made significant investments in this aspect, to some extent, not as adept at “seizing the opportunity” as Polygon.

The last projects, Dfinity, Flow, and Nervos, have all seen a decrease in popularity for various reasons:

Dfinity positioned itself as the decentralized AWS and aimed to bring real-world use cases to blockchain. It even introduced a “reverse gas” feature that allowed users to transact without paying gas fees. However, due to the limitations of the current era (from 2021 to today, blockchain is not a domain suitable for mass adoption due to the lack of infrastructure), it did not achieve success.

Flow has already implemented native account abstractions and has a simple layered design similar to modular blockchains. Nervos, on the other hand, focused on layer two scaling and positioned itself as a “layer one designed for layer two.” However, it also faced obstacles (layer two only makes sense when layer one provides excess liquidity, and a simple technical fit for layer two is not the optimal solution).

In the end, for any project, the most important aspect is not how impressive the technology is or how appealing the narrative is, but rather, its ability to adapt to the times and find the most suitable business operation path. Unfortunately, this is often the weakness of many academic teams. In a business world full of deceit, there is no emphasis on “technology first” or “honor and ethical priorities,” only “the winner takes all.” Many teams with unique technology or forward-thinking ideas ended up not achieving the recognition they deserved because they lacked flexibility in business operations and ultimately tasted defeat.

What are the problems with Celestia’s business operation strategy?

Let’s take a look at Celestia. Does it have any problems in its business operation strategy? Or does it demonstrate a good sense of adapting to the times? It is important to note that Celestia’s modular blockchain and DA narrative require a public chain with ample liquidity and overflow, and that chain is Ethereum. If Celestia completely isolates itself from the Ethereum ecosystem, the narrative of its modular blockchain loses its significance. Nervos’ situation mentioned above already revealed this.

However, it doesn’t seem like a sensible approach to attract liquidity from Ethereum without directly empowering Ethereum itself. If we carefully observe the changing attitude of the Ethereum Foundation towards layer two solutions, this becomes apparent.

In previous articles, in “Geek Web3,” we have emphasized multiple times that the Ethereum Foundation and L2BEAT have made it clear that projects that do not use Ethereum as the layer one for their scaling projects are not considered Ethereum layer two solutions. This is because the DA layer on Ethereum cannot achieve the same level of usability and relies on a certain level of trust assumption (Celestia needs to assume that the main chain will not experience downtime, but its validator is limited to around 200, which differs from the availability of the Ethereum main chain, while EigenDA is independent of Ethereum’s native DAs).

In other words, besides the real Rollup, other scalability projects are not Ethereum Layer 2 (we can ignore Plasma and state channels because these two technical solutions have almost disappeared from the Ethereum ecosystem).

(Image source: L 2B EAT)

Many people believe that the intention behind the Ethereum Foundation’s actions is to maintain its own commercial interests by distinguishing between technical solutions. The reasoning is clear: if Celestia and EigenDA, along with other DA layers outside of Ethereum, are widely adopted, Ethereum’s position will be weakened, and the significance of the Ethereum Foundation’s efforts to implement EIP-4844 and Danksharding will be lost. Moreover, these independent DA layers cannot empower Ethereum but instead bring about some systemic risks.

Although there are indeed some Ethereum ecosystem projects such as Arbitrum Orbit that have announced integration with Celestia, this does not mean that Celestia will be “fully recognized,” but rather it increases the competitive pressure on the Ethereum Foundation. For the Ethereum Foundation, which has ultimate authority, using its own advantages to consolidate its position is actually a simple matter (just like how the Jewish elders easily caused the death of Jesus). As long as Ethereum Layer 2 focuses on the Title of Layer 2, it will not consider things like Celestia and EigenDA. Therefore, Celestia is essentially “taking the rapids” and not going with the flow like Polygon.

Currently, the majority of liquidity in Ethereum Layer 2 is concentrated on orthodox Rollup projects such as Arbitrum and Optimism, and these projects’ main versions will inevitably not integrate with Celestia. Arbitrum Orbit is just a minor version similar to Arbitrum Nova and is unlikely to compete with the major “orthodox Layer 2.” Even if Celestia can attract such “secondary Layer 2,” it seems unlikely to bring a high level of value capture (Arbitrum Nova currently has a TVL of only about $22 million).

In addition, as a DA layer project with a purely ToB (business-to-business) scenario, Celestia cannot attract a lot of liquidity like Solana does by attracting DApps in the ToC (business-to-consumer) scenario. If it cannot successfully attract the adoption of many Rollup projects, its ecosystem development will weaken. Moreover, Celestia seems to lack a strong capital promoter. Although its technical narrative itself makes sense, if it cannot establish itself well within the Ethereum ecosystem, its grand blueprint may turn into a castle in the air (just like how Sushi, without the support of FTX and relying solely on technical narratives, has not made much progress to this day).

Here the author would like to share two interesting things:

Firstly, according to a knowledgeable source, at an offline event at Stanford, Dankrad from the Ethereum Foundation had just finished saying, “A scaling project that doesn’t use Ethereum as Layer 2 for DA is not a Layer 2”. Shortly after, someone from Celestia said, “xxx project is an Ethereum Layer 2 that uses Celestia as the DA layer,” causing laughter among some people;

Secondly, Eclipse, self-proclaimed as “the fastest Ethereum Layer 2” supported by Celestia, has yet to be included in the L2beat website (it cannot be found in the Active Projects and Upcoming Projects sections). This project uses Solana VM as the execution layer, Celestia as the DA layer, and Ethereum as the settlement layer (Layer 1).

These two anecdotes, to some extent, reflect the current situation of Celestia. Although from an idealistic perspective, Celestia’s modular blockchain technology narrative is beneficial for the long-term development of Web3, everything seems less optimistic under the restrictions of real-world factors.

Intent may bring different results

But this is only in terms of the current situation. In the future Web3 world, centered around Intent, everything can change. In a narrative context where Intent, chain abstraction, and full-chain operations are central, Celestia’s obstacles in ecosystem construction can be resolved when users no longer need to perceive the chain itself.

The current popularity of Ethereum Layer 2 is fundamentally because everyone recognizes Ethereum as a chain, and this recognition has brought it abundant liquidity, even surplus. But why do people recognize Ethereum? Because they have a general understanding of it. However, if the Intent solution shields the underlying infrastructure, future new users will have no knowledge of what Ethereum and Solana are. Will the distribution of liquidity then be based on the DApp itself rather than the underlying protocol?

In other words, our current understanding of the development of the blockchain landscape is based on the premise of “fat protocols, thin applications,” but this rule may change in the future.

We can imagine the following: in the future blockchain world where Intent and full-chain operations are the mainstream narrative, people will not need to be aware of the existence of Ethereum or Layer 2. They only need to perceive the DApp itself or even its frontend. In that case, everything can change: the key point guiding liquidity will no longer be Ethereum and other public chains, but rather the major DApps. As long as major DApps are willing to base themselves on Celestia as the DA layer of the modular blockchain, Celestia’s ecosystem construction will no longer rely on the current path of attracting liquidity to Ethereum Layer 2. At that time, not only Celestia but the entire Web3 landscape will undergo significant changes.

Perhaps as someone said, the success of a person (project) certainly relies on their own efforts, but it also needs to consider the course of history.

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