TLDR:

• Building and using crypto remains painful b/c it requires direct interaction with base protocol layers (L1s) that have made technical and UX sacrifices to satisfy a pre-defined ethos (e.g. decentralization, scaling, etc).
• Modular architecture empowers builders to permissionlessly innovate and customize on behalf of users by creating abstractions on top of the base layer.
• The biggest unlock of modular won’t be general-purpose solutions (e.g. roll-ups), but rather use-case specific protocols and networks (AKA vertically-integrated middleware) that compete with their web2 counterparts — which will finally scale crypto to its proverbial “next 1B users”.

1. The Wrong Bottleneck

https://twitter.com/futurenomics/status/1632458029517144064

One of the prevailing sentiments in crypto today is that the lack of cheaper and faster transactions (AKA scaling) is the primary bottleneck for broader adoption. However, the data suggests a different story: Solana’s average TPS hovers around ~4K despite peak capacity of 65K. Rollups (L2s) on ETH on average utilize ~4-5% of available gas. There appears to be plenty of available blockspace and throughput —- but no one to use it.

Moreover, Ethereum (one of the most popular blockchain ecosystem) has ~400K daily active wallets and 7K full-time devs (23K monthly active), both of which represent < .1% of scaled web2 platforms. So what’s really holding us back?

IMO, the answer is clear (albeit not fun to admit): building and using crypto is painful. Why? Because builders and users are still largely required to directly interact with the base protocol layer of crypto ecosystems (L1s). This layer is inherently complex and has made pre-defined technical and UX trade-offs to fulfill the particular ethos across the blockchain trilemma it’s trying to optimize for (e.g. decentralization, scaling, etc). Directly interfacing with this layer isn’t easy — nor is it designed to be.

The lack of abstraction is especially challenging for app builders, who have little choice but to pass on the technical constraints and tradeoffs (decentralization, cost, performance, MEV capture, etc) inherited from the base layer they build on top of on to their users. Because base layers are designed to support a wide array of use cases and total value locked (TVL), they are 1) not incentivized to rapidly innovate at the protocol layer (more downside risk than upside), and 2) general-purpose, requiring builders to implement specific capabilities or customizations required for their use case.

Builders who wish to innovate at the base layer by creating their own sovereign application chain (or “app-chain”) via an ecosystem such as Cosmos face a different but equally challenging uphill battle. Instead of having network security (validators) provided by the base layer (e.g. Ethereum, Solana, etc), app-chain builders have historically had to hand-roll these on their own.

Worse, there are meaningful switching costs (technically and politically), which puts builders in the unenviable position of a) choosing a base layer at the onset before deeply understanding their use case, and b) having little flexibility to adjust after the fact.

So how do we better empower crypto builders with the tools and autonomy to innovate on behalf of users?

2. Modular Architecture & Permissionless Innovation

The core value proposition of modular design to builders is simple: instead of wholly relying on base layer protocols to serve their infra needs, modular enables builders and entrepreneurs to permissionlessly innovate on it themselves. This approach empowers builders to create the tech stack required to create delightful end-user experiences, rather than being artificially constrained by the technical and UX limitations of the base layer. Sreeram Kannan, EigenLayer’s founder, offered a recent example of how modular design facilitates innovation in a recent podcast:

Scaling Ethereum has been a long-standing point of contention within the community, with sharding being the most amenable solution — but was moving slowly given the complexity and blast radius (billions in TVL). EF pivoted to a rollup-centric roadmap which enabled an “open market” approach and led to several teams building solutions (e.g. Optimism, Arbitrum, zkSync) using different techniques to help solve for scaling in a far quicker time than EF could have implemented sharding.

Modular architecture unbundles the core capabilities and responsibilities of monolithic blockchain ecosystems (eg execution, data availability, consensus, sequencing) via an abstraction on top of the base layer, allowing builders to pick, choose, and modify the components that offer the best UX for their users — and “swap” them out as they learn more about user need. While modular is still very much in its infancy, there are exciting tools available* for developers:

• Data Availability (DA) - Celestia and EigenDA offer 10-20X faster throughput via their proprietary solutions than Ethereum (83 KB/s).
• Execution - This can be split up into two categories: 1) General Purpose Rollups or L2s (Optimism, Arbitrum, zkSync, Scroll, Polygon zkEVM, Starknet, Mantle), and 2) Custom Application Rollups (Optimism Bedrock, Arbitrum Orbit, Fuel, Eclipse, Caldera, Sovereign and more) which provide builders increased flexibility and performance via utilizing custom VMs and DA solutions (e.g. rollups as a service)
• Consensus + Settlement - EigenLayer, Celestia, and Cosmos Hub offer the capability for credibly neutral infrastructure or protocols to rent network security from existing L1 validators (e.g. Ethereum or Cosmos), instead of bootstrapping it from scatch.

For example, modular allows builders who want to build on Ethereum but may be willing to sacrifice some decentralization/censorship resistance for performance improvements to utilize off-chain execution (e.g. rollup) and/or off-chain data availability (e.g. validium or IPFS).