GM, this is your Daily Bolt briefing
In this edition we’re providing you with two notes breaking down the essential points to keep in mind regarding modular blockchains. Recently, products like Celestia, Mantle, & Eigenlayer have gained traction from users and investors. This is in part due to some advantages they hold that are made possible by modularity.
Keep reading to learn:
What modular blockchains are
The inherent advantages of modularity
How modular and monolithic blockchains compare
Over and out ⬇
1/ Lightspeed - Value Proposition of Modular Blockchains
Preview: Garret, Mert, Neel and Nick discuss modular and monolithic blockchains, the value proposition of layer-2s and more. Click here to listen to the full episode (85 mins).
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Celestia is the first modular blockchain network for anyone to easily launch their own blockchain.
Nick defines a modular blockchain as one where different functions are separated into distinct protocols.
He explains that in a monolithic blockchain, all functions are coupled into a single protocol.
He describes the three most important layers in a modular blockchain: data availability, consensus, and execution.
He clarifies that data availability is not about data storage but about publishing data for network visibility.
Nick highlights that modular blockchains allow for customization of the execution layer.
He points out that users don't have to bootstrap an entirely new consensus network for each new chain in a modular setup.
He adds that modular blockchains use data availability sampling and fraud proofs for scalable, trust-minimized operations.
Nick states that modular blockchains have powerful scaling properties that can be achieved in monolithic blockchains but would have to be implemented in a monolithic way.
Neel emphasizes that breaking the blockchain into separate modules allows for shared infrastructure and security properties.
He notes that it's beneficial for developers as teams can focus on specific parts like sequencing or data availability.
Neel adds that while it's possible to build everything into Solana as a layer-1, separating modules allows for better focus and competition among teams.
Neel discusses the concept of the "Smiling Curve," where value accrues at the top (global state layer-1, settlement layer, top apps) and bottom (modular infrastructure, majority of apps) of the stack.
He questions the economic first principles behind this curve and suggests that it might depend on the application and the stickiness of the given part of the stack.
Nick says that he views block space as a consumable good that gets produced by a protocol.
He argues that there are network effects around choosing a given block space, especially when using a shared data availability layer like Celestia.
He suggests that economies of scale will come into play, making it more cost-effective for users to verify larger block sizes.
Nick discusses the opposing views of the "Fat Protocol" thesis, which suggests that the underlying layer-1 will capture all the value, and the "Fat App" thesis, which argues that applications closest to users will capture the value.
2/ Bell Curve - Ending the Modular vs Monolithic Debate with Kyle Samani
Preview: Seb hosts members from different DeFi protocols to discuss DeFi evolution, insights from PancakeSwap, Rocket Pool, and more! Click here to listen to the full episode (69 mins).
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Kyle Samani is the Co-Founder and Managing Partner at Multicoin Capital, a thesis-driven investment firm that invests in tokens and blockchain companies.
Garret asks about the debate in crypto regarding modular versus monolithic systems, and why monolithic is labeled wrongly.
Kyle explains that the correct term instead of monolithic is "integrated," and this debate has occurred many times in technology history. He highlights the pendulum swing between integration and modularity in various tech layers, highlighting that there isn't a universal answer.
Both configurations often coexist, and the importance lies in understanding the objectives and the complexity that modular systems can bring. He criticizes the Ethereum community's approach and expresses skepticism about roll-ups, but acknowledges that they can exist.
Mert asks Kyle to explain what DePIN are and why they are important.
Kyle explains that DePIN stands for Decentralized Physical Infrastructure Networks and divides them into two classes: GPS-dependent and server networks that are somewhat GPS-dependent. He provides examples like Filecoin and Hivemapper, contrasting their functions.
Kyle highlights Hivemapper's ability to create a global map by capturing road information through dash cams. He highlights the importance of DePIN and mentions that Multicoin is likely the largest investor in both categories of these applications.
Kyle says that he would like to figure out how to incorporate financialization into mainstream consumer behavior or create a decentralized social app that is fundamentally social in nature and embeds financialization. He highlights the importance of having an app that is universally accessible and understandable.
Garret asks about Kyle's take on ZK(Zero-Knowledge proofs) and whether it will be leveraged for the next big app, and asks him to introduce the concept of Fully Homomorphic Encryption (FHE).
Kyle explains that he believes zk is unlikely to be relevant to consumer apps due to its technical complexity.
He says that zk is not the correct answer for privacy on-chain, especially in the context of DeFi. He sees FHE as the right way to achieve privacy in DeFi, as it allows for encrypted state transitions on-chain without changing the core logic of the system.
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