Welcome to Elaborate VC! Today, I’m highlighting Celestia, a modular blockchain network focused on scalability by providing an agnostic data availability layer. Celestia has a lot of potential to facilitate the development of new blockchain execution environments and change the current landscape of layer-1 and layer-2 blockchains.
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Statistics:
Total Funding: $1.5M
Stage: Seed
Investors: Interchain Foundation, Binance Labs, Maven 11, KR1, Signature Ventures, Divergence Ventures, Dokia Capital, P2P Capital, Tokonomy, Cryptium Labs, Michael Ng, Simon Johnson, Michael Youssefmir, Ramsey Khoury
Current Team Size: 19
Location: Vaduz, Liechtenstein
Website: celestia.org
Thesis: Ethereum was to Bitcoin as Celestia will be to Ethereum.
Ethereum changed the crypto industry after the inception of Bitcoin by being “programmable” and allowing users to build any decentralized apps (dApps) on top of it. This was a paradigm shift away from Bitcoin and earlier layer-1s because the previous environment required developers to run their own blockchain to support an application. Bitcoin is not a programmable blockchain so developers who created new projects like Litecoin ($LTC) and Dogecoin ($DOGE) had to launch an entirely new blockchain. Ethereum changed this requirement by introducing the Ethereum Virtual Machine (EVM) execution layer. This allowed users to build dApps and deploy them on top of Ethereum instead of needing to create a new blockchain just to run one dApp. Ever since, the Ethereum ecosystem has grown massively with dApps like MakerDAO ($MKR), Lido ($LDO), Uniswap ($UNI), Aave ($AAVE), and Curve ($CRV) that have billions in total value locked.
However, as ecosystems grow and the number of dApps and users increase, existing blockchains continuously experience a scarcer amount of block space. Limited block space have led to expensive transaction fees that have plagued Ethereum over the past few years. Limited block space limits the potential use cases of blockchains like trading or gaming. It will also ultimately limit widespread adoption as more users are onboarded and have to bid against one another to confirm their transactions. As a result, there have been attempts by other layer-1s to take advantage of this problem and develop EVM networks that allow developers to more easily transfer over smart contracts and conduct cheaper and faster transactions on a different blockchain. Today, most layer-1 blockchains today are EVM networks and thus have an EVM-like code execution environment. This includes some of the largest blockchains according to TVL by DefiLlama like Ethereum ($ETH), BNB Smart Chain ($BNB), Avalanche ($AVAX), Polygon ($MATIC), Cronos ($CRO), Fantom ($FTM), Celo ($CELO), Harmony ($ONE), HECO ($HECO), and Klaytn ($KLAY).
Despite the explosion in the number of EVM chains, all these blockchains remain limited by their execution environment in the Ethereum Virtual Machine and their monolithic structures that manage consensus, execution, and data availability all on the same chain. This is where Celestia and their modular blockchain comes in.
Solution: Celestia plans to be the first modular blockchain in comparison to monolithic blockchains like Bitcoin, Solana, and Ethereum (although Ethereum does have some layer-2 chains like Optimism and Arbitrum). In a monolithic blockchain, there is only one state transition function. For example, Bitcoin and Ethereum each couple their execution and consensus layers while also having their own execution functions. By separating consensus and execution, you can have a new blockchain where you can define different execution environments while still taking advantage of the same consensus layer beneath. Celestia also frees developers up by being multilingual and flexible where developers can then, for example, build on an EVM and make their own specific modifications (e.g. removing the “self destruct” function or adjusting the EVM to a more DeFi or NFT friendly execution environment).
Celestia plans to be the base level layer-1 consensus, settlement, and data-availability layer that supports each individual chain and execution layer built on top of Celestia. The rollups can define whatever execution environment they want to use and Celestia provides consensus and receives data from the rollup layer.
This is crucial, especially because Celestia believes innovation in blockchain execution environments has been held back because of the monolithic paradigm. Right now, in order to test a new execution environment, users need to bootstrap an entirely new blockchain, which is extremely time-intensive, difficult, and expensive. As stated before, this is similar to Ethereum’s case before Ethereum was introduced. Although Bitcoin uncovered the possibilities for decentralized dApps, there was no general purpose blockchain to build the dApps on. As a result, users had to create an entirely new blockchain just to test a new dApp. With the introduction of Ethereum, users could now build and run dApps without needing an entirely new blockchain. In the same manner, Celestia allows users to build new blockchains and execution environments without needing a new consensus and data availability layer. The industry is already moving in this direction as we already see the development of new virtual machines like Starkware, LLVM, MoveVM, CosmWasm, FuelVM. With Celestia acting as a base layer to many of these new virtual machines, it will change the paradigm around scaling blockchains and allow for the continued development of new execution layers, all while using the same consensus, settlement, and data-availability layer underneath.
Team: The Celestia team is led by co-founders Mustafa Al-Bassam, Ismail Khoffi, and John Adler with Chief Operating Officer, Nick White.
Mustafa Al-Bassam is the CEO of Celestia Labs and has a background in computer science with a Ph.D. in computer science focusing on scaling blockchains from University College London. He was a co-founder of Chainspace, a blockchain startup focused around scalability that was acquired by Facebook (Meta) in 2019. The successful acquisition ultimately led to him co-founding Celesta in September 2019 and has been the Chief Executive Officer ever since. Mustafa Al-Bassam clearly has a dedicated interest with years of experience in the issue of blockchain scaling and seems like a fitting CEO to be leading Celestia.
Ismali Khoffi is the CTO of Celestia Labs and has a background in mathematics and computer science with significant experience as a researcher and software engineer. He was a software engineer at Ignite (f.k.a. Tendermint), a Cosmos-centric blockchain company, for 15 months and a senior software engineer at Interchain Foundation, an organization that focuses on supporting decentralized networks, for 5 months. Interchain Foundation also eventually became a lead investor in Celestia’s seed round. Ismali clearly has solid experience as a software and blockchain developer and is well-suited to be Celestia’s Chief Technology Officer.
John Adler is the CRO of Celestia Labs and has a background in electrical and computer engineering with experience as a researcher and engineer at ConsenSys, a blockchain infrastructure company and the parent company of MetaMask, Infura, and Truffle. He has recently co-founded Fuel Labs, a company focused on building a modular execution layer that could potentially run on top of Celestia.
Nick White is the COO of Celestia Labs has a background in electrical engineering and has experience co-founding a scalable layer-1 blockchain in Harmony. He was a co-founder and worked on Harmony for over 2.5 years before shifting his focus to Celestia as Chief Operating Officer. His prior experience co-founding and working on Harmony as an Ethereum scalability layer will lend itself well to working on and growing Celestia.
Tokenomics: Celestia’s business model is yet to be announced but there will eventually be a native Celestia token to pay for gas and transaction fees. This was confirmed by Nick White, the COO of Celestia Labs during a podcast. Celestia’s business model will likely emulate other layer-1 blockchains with a native token, node operators, and transaction fees.
Celestia will be a Proof-of-Stake (PoS) network with a fee-burn mechanism similar to EIP-1559 with Ethereum. Thus, Celestia’s token could have a deflationary supply and increasing its intrinsic value.
Risks: Some of the risks of investing in Celestia lie with the broader crypto industry. Currently, the crypto industry remains extremely niche with few serious use cases and few users exist outside of speculators.
With regards to Celestia individually, risks lie with regards to the execution of its platform and the potential future demand of blockchains and block space. Celestia is attempting to bring the first modular blockchain and although it seems like they will provide an essential solution to the persistent issue of scalability but providing block space supply without the growth of demand will ensure its quick demise.
Celestia will also be competing with existing monolithic blockchains that are currently scaling and other modular blockchain solutions. Celestia’s solution may become obsolete if monolithic blockchains like Ethereum are able to scale efficiently with rollups and data sharding.
Use Cases: Celestia’s specific use cases are yet to be explored since as of this writing, mainnet hasn’t been launched. However, I think we can already see demand for independent blockchains with dYdX’s recent announcement. dYdX is a perpetual contracts exchange that ran its V3 exchange on Starkware’s StarkEx layer-2 chain. However, on June 22, 2022, dYdX announced that the next iteration of dYdX, dYdX V4, would be developed as a standalone Cosmos blockchain. dYdX cited reasons like full decentralization, no trading gas fees, and the ability to develop a fully customized blockchain. dYdX has continuously run into scalability issues due to its centralized order book and matching engine and therefore wants to build a fully independent blockchain suited for its own specific needs.
This is a recent example of the demand that dApps and other users will have for running their own blockchain. If Celestia were already live on mainnet, I believe dYdX would’ve been better suited to develop a on new chain on Celestia instead of Cosmos. Cosmos’ layer-1 chains continue to process consensus and execution together while being unable to share full security with each other. Celestia would address these issues while providing the space to construct a fully customized blockchain.
If the crypto industry continues to advance and demand grows, demand for Celestia and its services as a base layer for customizable blockchains will grow along with the industry. Celestia provides a crucial piece of infrastructure that will be as essential to the crypto industry as Ethereum is to it today.
Competition:
@celestiascholar “Celestia's vision is a marriage of Cosmos' sovereign interoperable zones and a rollup-centric Ethereum with shared security.”
Direct Competitors
Polygon Avail ($MATIC): Polygon is an EVM network focused on scaling Ethereum. However, on June 28, 2021, Polygon announced Polygon Avail, a product extremely similar to Celestia. They recently released further details on April 6, 2022. Polygon Avail is a modular blockchain that acts as an underlying data availability layer, similar to how Celestia describes themselves.
zkPorter: zkPorter is an off-chain data availability layer being built by Matter Labs, the creators of zkSync. zkPorter will be a component of zkSync 2.0 along with zkRollup providing on-chain data availability. Both parts aim to be composable and interoperable to to allow for scalability.
Ecosystem Competitors
Cosmos ($ATOM): Cosmos is an ecosystem of different blockchains and dApps with the Cosmos Hub serving as the hub. Users can build customizable blockchains, as discussed with dYdX’s recent announcement, that act as spokes of the Cosmos Hub. All Cosmos apps and services are also connected through the Inter-Blockchain Communication (IBC) protocol.
Ethereum ($ETH): There are many in the industry who believe that crypto’s future lies in a rollup-centric Ethereum world where Ethereum essentially acts as a data availability layer that provides shared security. This is a competing vision to Celestia’s and inferior one where execution is still required on the consensus and data availability layer. However, Celestia stated plans on February 8, 2022, to work with Ethereum layer-2 chains through their Quantum Gravity Bridge. They call them “Celestiums”, which refers to any Ethereum L2 chain that uses Celestia for data availability, but uses Ethereum for settlement and dispute resolution.
Concluding Remarks: An investment in Celestia is an investment in the greater crypto ecosystem as adoption and demand for block space grows. Celestia will be an integral part in a future where the crypto industry requires multiple different blockchains to suit each individual dApp or user’s needs. As the crypto industry continues to mature, Celestia will allow for a new wave of innovation with regards to the execution environment that will unlock new developments that are difficult to imagine right now, just as the development of DeFi and NFT apps were difficult to imagine before the launch of Ethereum. Celestia will be an essential part of crypto’s future; thus I would make an investment in Celestia.
To learn more about Celestia, I’d recommend reading Delphi Digital’s report about Celestia here, listening to Bankless’ podcast about Celestia here, or reading an investment memo here. To understand what a modular blockchain specifically is and the modular spectrum, I’d recommend reading a post by one of Celestia’s team members, Alex Beckett here, or an article by knarb here.
I am not a financial advisor. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.