Can Celestia successfully ‘steal’ Ethereum by exclusively targeting the DA layer business?

Is Celestia capable of 'acquiring' Ethereum through exclusive targeting of the DA layer industry?

Written by: Faust, Geek Web3

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

Celestia’s self-positioning is the “best DA layer” in modular blockchain narratives. Celestia has created its own public chain, which is specifically designed to provide data publication services for Rollup projects, namely Data Publication. The goal of “data publication” is to ensure that individuals in need of the latest data can quickly obtain the data they need. In the past, many people mistakenly equated data publication with data availability and mixed it up with historical data retrieval, but this misconception is being continuously corrected by the Ethereum Foundation and Celestia officials.

If you have a basic understanding of Rollup, then the following content will make sense: Celestia believes that similar to Layer2 Ethereum scalability networks, newly generated data can be published on Celestia’s chain instead of directly on Ethereum, thus saving over 90% of transaction fees.

• Bitcoin mining takes an important step towards clean energy transitioning from air cooling to water cooling.
• Crypto Market Weekly Overview (10.21-10.27) Cryptocurrency Market Cap Soars, Is a Frenzied Bull Market Just Around the Corner?
• Weekly Preview | Celestia may go live on mainnet on October 31; OP will release tokens worth about $33 million on October 30.

Take Arbitrum Orbit as an example. Orbit’s sequencer, called Sequencer, can publish the latest Layer2 data to Celestia’s blocks. Then, nodes that need to obtain this data (such as Orbit full nodes) can run Celestia’s light nodes to obtain the data published by the sequencer from the Celestia full nodes.

As for Celestia’s token TIA, its main application scenarios are data publication fees + POS node staking. If a Rollup project chooses Celestia as the DA layer, a transaction fee must be paid for each data publication. At the same time, Celestia’s main chain, which is specifically used to host the data published by Rollup, has a maximum of over 200 validator nodes. The TIA token is the asset that validators need to stake in advance.

Although Celestia’s official documentation mentions that the TIA token can also be used as the gas payment token 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 resolutions to adjust certain parameters of the Celestia network.

Comparing TIA with ARB and OP, it is easy to see that the former has a seemingly higher-frequency application scenario: as a fee for data publication. If in the future many scalability projects really adopt Celestia as the DA layer, and these projects have ample liquidity and users to continuously create application scenarios for the TIA token, then it can indeed become stronger. On the other hand, as long as Celestia is fully recognized by the industry and even the market, and its ecosystem construction is successful enough, even if TIA is simply used as a governance token like ARB, it can still be fully valued by the market.

But the point of this article is the opposite: Celestia may not be fully recognized by the market or even the industry, and its attempt to attract liquidity from the Ethereum Layer2 system will likely face resistance, and its situation may be similar to EigenLayer.

The picture is from TokenInsight's article - "Restaking King: Is EigenLayer's business model a gem or a waste?"

Project success or failure, technology/narrative is not the most important, being adaptable is crucial.

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 very philosophical question: What are the most important factors for the success of a project? Does Celestia possess these elements?

Here, let’s first briefly discuss the first point. If we look back at the history, considering public chains such as Polygon, Flow, Avalanche, Dfinity, Solana, Nervos, etc., which were proposed and launched around the same period, it is not difficult to see that the most successful among them is Polygon. Although many people consider it to be the weakest in terms of technology compared to the aforementioned public chains, it is undoubtedly the most successful one.

Polygon’s ecological construction is more successful than the other projects being considered, with its token market value, hosted DApps, and various other data ranking at the forefront. Previously, even Trump chose to issue exclusive NFTs on Polygon. Its “toolbox” includes a diverse range of things, such as Ethereum Layer2 (Polygon zkEVM), independent public chains (Matic), DA networks (Avail), and teams related to ZK, including Polygon Zero, Polygon Miden, and Polygon Nightfall, each exploring different technological directions. Moreover, Polygon also has an open-source modular blockchain suite called Polygon CDK, which seems to have a more comprehensive modular blockchain stack than Celestia.

Polygon likes to “follow the trend,” especially in 2020 when it claimed to be Plasma to meet the needs of the Ethereum Foundation, attracting a large amount of liquidity and gaining considerable resources. In the eyes of many technology purists, Polygon, which originally had weak technology, was able to quickly elevate its “status” by catering to the Ethereum Foundation. Subsequently, they invested heavily in acquiring various technical teams related to ZK and modular blockchain, gradually building their own business empire.

In comparison, projects like Flow, Avalanche, Dfinity, Solana, etc., have stronger technological capabilities than the original Polygon, but they are currently weaker in terms of overall strength. Among them, Solana, with the long-term support of FTX exchange, is also quite successful (Anatoly went all out to sell his project to SBF in order to convince him); Avalanche has achieved some success with the support of overseas capital, EVM compatibility, and significant efforts in business development. However, these two projects seem to have less optimism about the narrative of Layer2 and have not made significant investments in this area, to some extent not being as adept at “going with the flow” as Polygon.

The final projects, Dfinity, Flow, and Nervos, have all trended weaker for different reasons and have not gained the same popularity as the previously mentioned projects:

Dfinity positioned itself as the decentralized AWS and aimed to bring practical use cases to blockchain by introducing the “reverse gas” feature that allows users to make gas-free transactions. However, it did not succeed due to the limitations of the current era. (From 2021 until today, blockchain is not a suitable area for mass adoption due to the lack of complete upstream infrastructure, which restricts user access).

As for Flow, it had already achieved native account abstraction and had a simple layered design similar to modular blockchains. Nervos, on the other hand, positioned itself as a “Layer1 designed for Layer2” in 2018, focusing on layered scalability and Layer2 technology, but it also faced setbacks. (Layer2 only makes sense when Layer1 carries excess liquidity; simply meeting the technical needs of Layer2 is not the optimal solution).

In the end, what matters most for a project is not the technical prowess or the captivating narrative, but the ability to adapt to the current era and find the most appropriate business operating path. However, this is precisely the weakness of many academic teams. In a business world filled with deceit, there is no emphasis on “technology first,” “honor and moral priority,” only “winner takes all.” Many teams with unique technology or advanced concepts did not achieve their deserved status because they lacked flexibility in business operations and ultimately suffered a setback.

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

Let’s examine Celestia: Does it have any problems in its business operating strategy? Or does it have a good sense of the times? It’s worth emphasizing that Celestia’s modular blockchain and DA layer narrative require a public chain with ample liquidity and overflow phenomenon as the corresponding settlement layer, which is Ethereum. If Celestia completely separates from the Ethereum ecosystem, the narrative of its modular blockchain loses much of its meaning. Nervos’s situation mentioned earlier has already revealed this.

However, it doesn’t seem to make sense to attract liquidity from Ethereum without directly empowering Ethereum itself. If we carefully observe the Ethereum Foundation’s attitude towards Layer2, it’s not difficult to see this.

In previous articles of “Geek Web3,” we have repeatedly emphasized that the Ethereum Foundation and projects like L2BEAT have made it clear that a scalability project that doesn’t use Ethereum as the DA layer is not an Ethereum Layer2, as the DA layers under Ethereum cannot achieve the same level of usability guarantee as Ethereum and require a certain level of trust assumption (Celestia assumes in advance that the main chain won’t experience downtime, but its validators are limited to around 200, which distinguishes them from the availability of the Ethereum main chain, while EigenDA is fundamentally independent of Ethereum’s native DA).

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

Regarding the intention of the Ethereum Foundation’s actions, many people believe that it is actually using the pretext of distinguishing between technical solutions to maintain its own business interests, which is self-evident: If DA layers outside of Ethereum, such as Celestia and EigenDA, are widely adopted, Ethereum’s position will undoubtedly be weakened, and the significance of the Ethereum Foundation’s efforts to implement EIP-4844 and Danksharding will also be lost. Moreover, these independent DA layers cannot empower Ethereum but instead pose some systemic risks.

Although there are indeed some Ethereum ecosystem projects, such as Arbitrum Orbit, announcing integration with Celestia, this by no means signifies that Celestia will be “fully recognized,” but rather makes the Ethereum Foundation more aware of the competition pressure. For the Ethereum Foundation, which holds the ultimate authority, it is actually simple to consolidate its own position using its advantages (this is like the elders of Judaism easily causing the death of Jesus). As long as Ethereum Layer 2 focuses on the Layer2 title, it will not consider things like Celestia and EigenDA. Therefore, Celestia is essentially “going against the current” rather than “going with the flow” like Polygon.

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

In addition, as a DA layer project with a purely ToB (business-to-business) scenario, Celestia does not have the ability, like Solana, to attract a large amount of liquidity through ToC (business-to-consumer) scenarios by attracting DApps. If it cannot successfully attract the adoption of many Rollup projects, its ecosystem development will weaken. Furthermore, Celestia seems to lack a very strong capital catalyst. Although its technical narrative itself makes sense, if it cannot establish a strong presence within the Ethereum ecosystem, its grand blueprint is likely to become a castle in the air (without the support of FTX, the Sui project, solely relying on technical narratives, has not made much progress so far).

Here the author wants to share two interesting things:

First, according to a knowledgeable source, at a Stanford offline event, Dankrad from the Ethereum Foundation had just finished saying, “Projects that don’t use Ethereum as a Layer2 scaling solution are not Layer2,” when shortly after, someone from Celestia said, “xxx project is an Ethereum Layer2 solution using Celestia as the Layer2 scaling solution,” which caused some laughter;

Second, Eclipse, self-proclaimed as the “fastest Ethereum Layer2” supported by Celestia, has not yet been included in the L2beat website (cannot be found in the Active Projects and Upcoming Projects sections). The project uses Solana VM as the execution layer, Celestia as the Layer2 scaling solution, and Ethereum as the settlement layer (Layer1).

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

Intent may bring different results

But this is only considering the current situation. In the future Web3 world, centered around Intent, chain abstraction, and full-chain operations, everything could change. In a future where users do not need to have awareness of the underlying chain, Celestia’s barriers to ecosystem development can be overcome.

The current popularity of Ethereum Layer2 is essentially because everyone recognizes Ethereum as a chain, and this recognition brings abundant liquidity, even excess liquidity. Why does everyone recognize Ethereum? Because they have some understanding of it. But if the Intent solution shields the underlying infrastructure, future new users will have no knowledge of Ethereum and Solana. At that time, will liquidity distribution be primarily centered around DApps rather than underlying protocols?

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 might change in the future.

We can imagine this: in a future blockchain world where Intent and full-chain operations dominate the narrative, people do not need to have awareness of Ethereum, Layer2, but only need to perceive the DApp itself or even its frontend, and everything could change: at that time, the key point guiding liquidity will no longer be Ethereum and other public chains but the major DApps. As long as major DApps are willing to be based on Celestia as the Layer2 scaling solution for modular blockchain, Celestia’s ecosystem development will not have to rely on the current path of diverting liquidity to Ethereum Layer2. At that time, not only Celestia but the entire Web3 landscape will experience tremendous changes.

Perhaps, as someone said: the success of an individual (project) depends on their own efforts, but it also needs to consider the course of history.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!