Author: Michael Nadeau, The DeFi Report; Compiled by: Deng Tong, Golden Finance

In this report, we narrowed the scope to compare the construction of today's Ethereum with the construction of the Internet, while introducing Celestia - it attempts to disrupt Ethereum to become the default data availability (DA) solution serving Ethereum L2 and sovereign aggregation.

Ethereum Challenge

Ethereum’s expansion roadmap presents two major obstacles to overcoming this cycle, which did not exist in the 21st century cycle:

The massive influx of L2 tokens over the past few years dilutes the amount of venture capital that can use ETH as a long-term investment inflow.

L2 improves Ethereum’s underlying layer technology from an execution perspective, which leads to a large portion of its economy shifting to L2.

From the investor’s point of view, Standard Chartered’s report this week understands the result—they estimate that Base has taken away $50 billion in market capitalization from Ethereum L1. Therefore, Standard Chartered lowered its year-end price target from $10,000 to $4,000.

Given the lack of scalability in the L1 layer, Ethereum must be able to serve L2, as L2 is its major customer in the future.

Ethereum now owns this market. But looking forward, competitive threats are emerging.

To fully understand what is going on, we want to narrow down and compare the construction of Ethereum with the construction of the Internet itself. Explaining this first will help clarify the current challenges facing Ethereum.

We then introduce Celetia’s value proposition – we will go into more detail later in the report.

Early Internet

In the early days of the development of the network, if you wanted to create a website, you had to host your own physical server—it was expensive and not very scalable.

We solved this problem by creating shared server hosting. By leveraging hosting services like GeoCities, this makes building a website easier and cheaper.

The Internet has begun to expand and entrepreneurs have become cheaper to build websites that provide products and services.

Ultimately, innovation is limited by shared execution provided by GeoCities. The advent of virtual servers – it provides scalability + customization/flexibility of your own server, but with the convenience of using shared hosting. Amazon Web Services are born.

With the advent of AWS, e-commerce, SaaS companies and social media have emerged—all of which were impossible in the early days of the Internet.

Now, the same process is taking place on public blockchains—they introduce a new kind of data to the Internet through global accounting ledgers and digital ownership.structure.

It starts with a bulky, inefficient and expensive user experience and then becomes lean, cheap and fast.

Public blockchain and Ethereum

Bitcoin is the first public blockchain. In the early days of web3, if you want to create new applications with this breakthrough new technology, you have to start with your own blockchain. Bitcoin’s fork coins (peer-to-peer naming system) is an early example. This era of public blockchain was similar to early networks—when you had to host your own servers to build your website.

Ethereum made its mark in 2015. We can think of L1 as “GeoCities for web3”. Why? Ethereum allows developers to launch applications using shared infrastructure. No need to start your own chain and bootstrap validator. This is similar to GeoCities, allowing developers to build websites without having to host on their own servers.

Of course, developers need more throughput and flexibility to build dedicated use cases. Enter Ethereum L2s - an execution environment built on top of L1, Ethereum serves as the infrastructure for data availability and security.

Now, Ethereum is starting to look like a "network of networks"—similar to the construction of the Internet itself.

However, there are still some challenges. In particular, Ethereum's DA costs are still quite high. This opens the door to competitors such as Celestia to serve Ethereum’s L2 customers, similar to how AWS serves web2 applications in the current cloud era.

Now. Given Celestia’s early success, we have to ask a question: Does Celestia pose a threat to Ethereum’s L2 roadmap?

What would happen if Ethereum L2 turned to a solution like Celestia?

Celestia Introduction

Celestia is a proof-of-stake blockchain (currently with 100 validators) designed to solve data availability verification problems - in the past, verification required nodes to download all transactions in the block. They solved this problem through data availability sampling – data availability is guaranteed without node downloading.

Their target customers are other blockchains.

Now, let's say you're Robinhood. More than 20 million users trade stocks and options every month on your platform. Meanwhile, cryptocurrency trading has become a big part of your business (35% of fourth-quarter revenue).

Suppose you decide to further integrate into the cryptocurrency infrastructure as you see that all assets will be tokenized in the future for transactions and settlement/accounting.

Naturally, the best way you decide to get the most value while maintaining control and flexibility is in EtherBuilding L2 on the floor (it has the best network effect in cryptocurrencies).

You need the following components to make it all work:

Execution: Handle transactions, swaps, payments, and other user operations

Consensus: Make sure no one cheats, everyone follows the same rules (consensus is considered secure)

Data Availability: Make the history of what happened (data) available for audit by others or access by other applications

Closedown: Final Accounting/Scoreboard

If you are Robinhood, you will want to build your own sovereign L2, where you have control over execution. However, you may not want to build your own validator network for consensus/security. Maybe you'll use Ethereum for this.

Of course, you need to make all your data available for audit/verification by others and access by other applications. You can also use Ethereum for this. But Celestia is 100 times cheaper + it allows you to integrate with other L2s, even with Solana (future) and provide your data there.

Maybe you choose Celestia as your DA layer.

Finally, you need a place to solve all user activities as the "final scoreboard". Given Ethereum's security, decentralization and lindy, you choose it as your official accounting ledger.

This is your tech stack:

What problems did Celestia solve for Robinhood?

Celestia makes Robinhood easier to do the following:

Have your own execution environment.

Use Ethereum to reach consensus and settlement—This is what Ethereum is good at as the most secure and decentralized L1.

Use Celestia to achieve data availability is much lower than using Ethereum (now 100 times cheaper).

In the future, if Celestia is able to build an L2 network (with local bridges) that leverages it to enable data availability, Robinhood can benefit from providing access to their data to everyone in that network. Additionally, assuming Celestia is able to connect L1 with a native, seamless experience (which is not an easy task), Celestia can even provide access to its data to applications and users on other chains.

Big point:

You may have heard of the term “currency Lego” when it comes to the composability of DeFi applications. Celestia is committed to providing this experience for sovereign summaries that want to customize their technology stack while making data available in a variety of chain/application/and execution environments.

L1 is currently passedSharing standards (tokens, smart contracts, development tools, etc.) realize network effects. Celestia seeks to create network effects between L1 and L2 as a key “middleware” protocol for the web3 technology stack. This is a great idea. Its goal is to create a network effect through 'blob fees' as a "default DA solution" - a criterion that all L2s will choose when using Celestia. This could give it a “moat” due to its composability with other summaries and L1 – addressing the dispersed mobility and user base between L1 and L2. Again, this is a great idea, not an easy task.

To be successful, it needs to get the largest L2 as a customer (it doesn’t currently have one) and become the default choice for all new entrants.

Robinhood (and existing L2) may want to stick with Ethereum instead of Celestia for many reasons.

Security risk. Ethereum assumes that DA and settlement are unified when verifying the summary. If Robinhood publishes data to Celestia but settles to Ethereum, Ethereum cannot natively verify Celestia's DA guarantee. This increases the trust assumption of Ethereum validators who must rely on external monitoring of Celestia.

Extra complexity. Blob is built directly into Ethereum's protocol, making it easier to implement and maintain.

Risk and Reward. Ethereum is the most decentralized and secure smart contract network today. At this emerging stage, choosing an undermature alternative may be seen as high risk, low reward.

Celestia Adoption

As mentioned earlier, Celestia needs to attract the largest and most successful summary + most new entrants. Why? It needs to attract the biggest customers and then connect them all – this will create a seamless user experience for future builders who want to access all of the users and data on the chain while allowing anyone to verify the data.

If this momentum is achieved, Celestia (as a middleware that connects all chains through data availability) may become one of the most important protocols in web3 (similar to Bitcoin, Ethereum, and Solana).

Of course, there is still a long way to go.

Current progress

Celestia has been born less than 1.5 years. But it is already the leading DA solution in the field of encryption, currently accounting for 90% of the market share in terms of the amount of data released.

Top customers

General L2: 86.7% (Eclipse, Solana Virtual Machine (SVM) L2 constitutes the vast majority of released to Celestia today）

Game L2: 2.8%

Financial L2: 1.7%

Social L2: .5%

Consumers L2: .12%

A total of about 30 rollups released data to Celestia today. It secured a value of about $500 million.

As mentioned earlier, Celestia has not yet obtained one of the top Ethereum L2 to leverage it for DA. We think their goal is to get the top L2 moving and then become the “default DA solution” for new entrants. From there, they can achieve network effects and “moat” through new standards around “blob fees”—to achieve cross-chain composability.

With that being said, we think L2s like Base, Arbitrum, and Optimism have little incentive to leave Ethereum today.

Celestia Business Model and Fees

While Celestia accounts for about 90% of the market share in publishing data, it only accounts for 25% of the market share in terms of fees (because the cost is lower than Ethereum). Currently, it costs about $25,000-25,000 per day.

The fee is set as low as possible to prevent spam. The goal is to form a network effect today and control pricing power in the future.

Ultimately, Celestia’s pricing power will come from its network effect as a unified standard for L2 and L1. Without network effects, there is no pricing power.

Addable Market

Everything is related to economies of scale. The Celestia addressable market includes all Ethereum summary, sovereign application chains, and potential L2 settlements to Solana or other L1s.

Ultimately, Celestia believes that the number of chains may be higher than that of the website.

Its goal is to charge about 1/10 cents for large-scale transactions.

Will Celestia become "web3 version of AWS"?

Just as AWS promotes the popularity of web applications by dealing with heavy servers and scalability, Celestia can promote the popularity of customized blockchain applications by dealing with large-scale data availability.

With Celestia, developers can deploy their own chains (summary or sovereign chains) without recruiting hundreds of validators or inventing new consensus protocols. This is similar to startups using AWS to start cloud servers instead of buying physical servers.

The end result of Web2 is a significant reduction in entry barrier. Therefore, Celestia believes that if the web3 use case can achieve network effects as the default solution for developers who need to customize the web3 stack, then itsThe potential market may expand significantly.

AWS has had a huge impact on the popularity of websites and applications on the Internet by eliminating infrastructure barriers and reducing costs.

Celestia is seeking to provide the same support for the popularity of aggregates and sovereign blockchains.

Summary

The Internet consists of a series of decentralized protocols that ultimately enable global information (data) sharing so that a computer can access everything in the world.

But this is not done overnight. This is a process of combining key protocols (such as TCP/IP, HTTP, DNS, etc.) with tools such as AWS, and finally created the Internet today.

In many ways, web3 is being built in a similar decentralized way.

Ultimately, there is a "connective tissue" that crosses chains and data to provide a user experience similar to ours in web2 in web3.

Celestia hopes to be such a “connective tissue.”

They bet on an optimistic future where developers will want to have unbounded flexibility to build web3 applications while giving data access to everyone.

We think they may have found a solution today.

But the technology is not enough. They need to create a huge network effect between L2 and L1 through cross-chain composability to achieve this vision.

This is not easy.

But given the current valuation, potential market, teams, supporters, early leadership, and the lack of competition in today’s market (except Ethereum), we believe Celestia is best suited to address this problem.

Ultimately, we believe that betting on Celestia is a bet on web3 expansion (a blockchain proliferation of website size) and a hedge on Ethereum and its ability to successfully execute the L2 roadmap.