Modular Blockchain

A modular blockchain is an architectural paradigm that separates the core functions of a blockchain into independent, specialized layers rather than handling all functions in a single monolithic chain. These functions—execution, settlement, consensus, and data availability—can be provided by different protocols optimized for their specific role, creating a flexible, scalable blockchain stack.

This architecture represents a fundamental shift in blockchain design philosophy, moving from the "do everything in one place" approach of Bitcoin and early Ethereum to a "best tool for each job" approach where execution happens on rollups, data is stored on DA layers, and settlement occurs on a secure base layer like Ethereum.

The modular blockchain thesis, championed by projects like Celestia, Ethereum's rollup-centric roadmap, and the Cosmos ecosystem, argues that specialization enables better performance, security, and innovation than monolithic designs that must make fundamental tradeoffs between these properties.

The Four Core Functions

Modular blockchains separate blockchains into four distinct functions:

1. Execution

Execution is the processing of transactions and execution of smart contracts—the actual computation that changes blockchain state. In modular architecture:

• Specialized Execution Layers: Rollups (Optimistic, ZK) or app-specific chains that execute transactions
• VM Flexibility: Different execution layers can use different virtual machines (EVM, SVM, MoveVM, custom)
• Performance Optimization: Execution layers can optimize for throughput without worrying about data storage or consensus
• Examples: Arbitrum, Optimism, zkSync (rollups); Fuel, Eclipse (execution-focused chains)

2. Settlement

Settlement is the process of verifying execution results and finalizing state transitions. Settlement layers:

• Verify Proofs: Check fraud proofs (Optimistic) or validity proofs (ZK) from execution layers
• Resolve Disputes: Arbitrate disputes about execution correctness
• Maintain Canonical State: Keep track of the "official" state across all execution layers
• Bridge Security: Provide security for asset bridges between execution layers
• Examples: Ethereum L1 (primary settlement layer), Polygon AggLayer, Arbitrum One settling to Ethereum

3. Consensus

Consensus is the mechanism for agreeing on transaction ordering and block production. In modular systems:

• Order Transactions: Determine the canonical order of transactions across the network
• Block Production: Coordinate validators/sequencers to produce blocks
• Finality: Provide guarantees that transactions won't be reversed
• Examples: Ethereum Beacon Chain consensus, Celestia's Tendermint consensus, shared sequencing networks

4. Data Availability (DA)

Data Availability ensures that transaction data is published and remains accessible for verification. DA layers:

• Store Transaction Data: Maintain sufficient data for state reconstruction and fraud proof generation
• Guarantee Availability: Ensure anyone can download the data when needed
• Provide Proofs: Offer cryptographic proofs that data was made available
• Examples: Celestia, EigenDA, Avail, Ethereum calldata/blobs (EIP-4844)

Modular vs Monolithic Blockchains

The distinction between modular and monolithic architectures is fundamental:

| Aspect | Modular Blockchain | Monolithic Blockchain | |--------|-------------------|----------------------| | Architecture | Separate layers for each function | All functions in one layer | | Scalability | High (each layer specialized) | Limited (single-layer bottleneck) | | Flexibility | High (swap layers, multiple options) | Low (tied to L1 design) | | Complexity | Higher (multiple layers to coordinate) | Lower (single protocol) | | Trust Assumptions | Varies by layer combination | Unified (single consensus) | | Upgrade Path | Flexible (upgrade layers independently) | Difficult (coordinate entire network) | | Resource Requirements | Specialized per layer | Homogeneous (all nodes do everything) | | Examples | Ethereum + rollups, Celestia ecosystem | Bitcoin, Solana, Ethereum L1 (pre-rollup era) |

Monolithic Blockchain (Bitcoin):

• Execution: Bitcoin Script (limited)
• Settlement: Bitcoin PoW consensus
• Consensus: Nakamoto consensus
• Data Availability: Full nodes store all data
• All in one protocol, limited flexibility

Modular Stack (Ethereum Rollup):

• Execution: Arbitrum rollup (EVM execution)
• Settlement: Ethereum L1 (fraud proof verification)
• Consensus: Ethereum Beacon Chain (PoS)
• Data Availability: Celestia or EigenDA
• Each layer specialized and optimized

Benefits of Modular Architecture

Modular blockchains offer several advantages:

Scalability: Each layer can be optimized for its function. Execution layers can process thousands of TPS, DA layers can handle gigabytes of data, and settlement layers can focus on security.

Flexibility: Projects can choose the stack that fits their needs—EVM execution with Ethereum settlement, or Move VM with Celestia DA, or custom combinations.

Specialization: Each layer can use the best available technology for its purpose without compromising on other functions.

Resource Efficiency: Nodes don't need to do everything—validators on DA layers don't need to execute transactions, rollup nodes don't need to store all data forever.

Innovation Velocity: Layers can be upgraded independently without coordinating the entire stack, enabling faster innovation.

Sovereignty: Execution layers can maintain their own governance, economics, and community while leveraging shared infrastructure for settlement and DA.

Cost Efficiency: Using cheap DA layers and efficient execution layers dramatically reduces costs compared to doing everything on expensive L1s.

The Modular Stack in Practice

Here's how a typical modular blockchain stack operates:

User Action:

1. User submits transaction to rollup (execution layer)
2. Rollup sequencer executes transaction and updates local state
3. User sees instant confirmation (soft commitment from sequencer)

Batch Posting: 4. Rollup batches many transactions and posts batch data to DA layer (Celestia/EigenDA) 5. DA layer guarantees data availability and returns commitment

Settlement: 6. Rollup submits state root + DA commitment to settlement layer (Ethereum L1) 7. Settlement layer verifies proof (fraud or validity proof) 8. State root is finalized on L1, giving the rollup Ethereum security

Finality: 9. After challenge period (Optimistic) or proof verification (ZK), transaction has L1 finality 10. User funds are secured by Ethereum consensus and can be withdrawn to L1

This entire flow happens transparently—users just see fast, cheap transactions with L1 security.

Modular Blockchain Projects

Several projects exemplify the modular approach:

Ethereum (Rollup-Centric):

• Settlement: Ethereum L1
• Execution: Rollups (Arbitrum, Optimism, zkSync, Scroll, etc.)
• Consensus: Beacon Chain (PoS)
• DA: Ethereum blobs (EIP-4844) or external (Celestia, EigenDA)

Celestia Ecosystem:

• Settlement: Various (Ethereum, or rollups settle internally)
• Execution: Sovereign rollups (custom VMs)
• Consensus: Celestia (Tendermint)
• DA: Celestia

Cosmos Hub (Interchain Security):

• Settlement: Cosmos Hub
• Execution: Consumer chains
• Consensus: Cosmos Hub validators
• DA: Consumer chains post to Hub

Polygon 2.0:

• Settlement: Polygon AggLayer
• Execution: Polygon zkEVM chains
• Consensus: Ethereum
• DA: Celestia or Avail

Fuel:

• Settlement: Ethereum L1
• Execution: Fuel (optimized for parallel execution)
• Consensus: Fuel (specialized for UTXO model)
• DA: Ethereum or Celestia

Challenges and Tradeoffs

Modular architectures introduce new challenges:

Complexity: Coordinating multiple layers adds complexity for developers and users—understanding which layer handles what, how they interact, and where failures can occur.

Composability: Cross-layer and cross-rollup composability is harder than same-chain composability. Atomic transactions across layers require sophisticated protocols like shared sequencing.

Latency: Multi-layer verification introduces latency—transactions are instant on execution layer but may take minutes to hours to finalize on settlement layer.

Trust Assumptions: Each layer introduces trust assumptions. Using an external DA layer means trusting its consensus; using a rollup means trusting its sequencer (though L1 settlement provides ultimate security).

Fragmentation: Many execution layers fragment liquidity, users, and developer mindshare. Standards and bridges help but don't fully solve this.

Security Boundaries: Understanding where security comes from (which layer provides guarantees) is non-obvious for users and requires education.

Economic Sustainability: Each layer needs sustainable economics (fees, incentives) without over-extracting from users.

Philosophical Debates

The modular vs monolithic debate sparks passionate discussions:

Pro-Modular Arguments:

• Specialization beats generalization—best execution ≠ best DA ≠ best settlement
• Scalability is impossible on monolithic chains without sacrificing decentralization
• Flexibility enables innovation—new VMs, new DA techniques, new consensus without forking L1
• Resource efficiency—light clients can verify without running full nodes for everything

Pro-Monolithic Arguments:

• Simplicity is valuable—users and developers understand single-chain models
• Synchronous composability is critical for DeFi—cross-layer async breaks many use cases
• Unified security is clearer—no confusion about which layer provides what guarantees
• Monolithic chains like Solana show high performance is possible without modularization
• Fewer layers = fewer trust assumptions = stronger security

The "right" answer likely depends on use case—high-value DeFi may prefer monolithic security, while gaming/social may prefer modular scalability.

Career Opportunities in Modular Blockchain

The modular blockchain ecosystem creates specialized roles:

Modular Blockchain Architects ($180,000 - $420,000+): Design blockchain stacks combining appropriate execution, settlement, consensus, and DA layers for specific use cases.

Cross-Layer Protocol Engineers ($170,000 - $380,000+): Build protocols that coordinate across layers (bridges, shared sequencing, cross-layer messaging).

DA Layer Specialists ($180,000 - $400,000+): Focus specifically on data availability systems—sampling, erasure coding, light clients.

Rollup Framework Engineers ($190,000 - $410,000+): Build frameworks (OP Stack, Arbitrum Orbit, Polygon CDK) that make launching modular execution layers easy.

Interoperability Researchers ($160,000 - $360,000+): Study and solve cross-layer composability, atomic cross-rollup transactions, and unified liquidity.

Blockchain Economists ($140,000 - $320,000+): Model economic flows across modular stacks—fee markets, incentive alignment, value capture per layer.

This field rewards broad knowledge across multiple blockchain domains and the ability to think systemically about complex multi-layer architectures.

Best Practices for Modular Builders

When building modular blockchain applications:

Match Stack to Use Case: High-value DeFi may want Ethereum settlement + Ethereum DA for maximum security. Gaming may prefer Celestia DA + custom execution for low costs.

Plan for Async: Design applications to handle asynchronous cross-layer operations gracefully, with appropriate retry logic and user feedback.

Abstract Complexity: Build UIs that hide the multi-layer complexity from users—they should just see "fast cheap transactions" not "execution on Arbitrum, DA on Celestia, settlement on Ethereum."

Monitor All Layers: Implement monitoring across all layers of your stack to detect failures, latency spikes, or cost increases.

Have Fallbacks: Design for layer failures—if your DA layer goes down, have a fallback (post to Ethereum, pause, graceful degradation).

Standardize Interfaces: Use standard interfaces (like the OP Stack's modular DA interface) to make switching layers easier if needed.

Educate Users: Help users understand the security model and where different guarantees come from, especially for high-value operations.

The Future of Modular Blockchains

Modular blockchains are the dominant paradigm going forward:

Standardization: Emergence of standard interfaces for plugging together different layers (modular DA, modular sequencing, modular settlement).

Hyper-Specialization: Layers become increasingly specialized—DA layers optimize for cost, execution layers for throughput, settlement for security.

Cross-Stack Composability: Protocols like shared sequencing enable atomic cross-layer operations, reducing the composability gap with monolithic chains.

Sovereign Application Chains: Applications deploy their own execution layers with custom rules while leveraging shared settlement and DA infrastructure.

Modular Marketplaces: Developers choose from competitive marketplaces of DA layers, sequencing networks, and settlement layers, picking the best combination.

Ethereum as Settlement Hub: Ethereum solidifies its role as the primary settlement layer for modular stacks due to maximum security and legitimacy.

Blurring Lines: Monolithic chains adopt modular features (sharding, execution layers), and modular stacks become more tightly integrated, converging toward hybrid models.

The modular blockchain thesis has already won in the Ethereum ecosystem and is spreading to other ecosystems. The future of blockchain is modular, flexible, and specialized.

Building on blockchain? Think modular from day one—choose your execution environment, settlement layer, and DA layer based on your security, cost, and performance requirements, not based on historical "one blockchain does everything" assumptions.