Settlement is a property. Every blockchain settles its own state. The debate confuses a layer's primary function with its inherent capability. Ethereum L2s like Arbitrum execute and settle, but their settlement proofs are verified on a higher-security layer.
the-modular-blockchain-thesis-explained
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Why the 'Settlement vs. Execution' Debate is Misguided
Framing settlement and execution as competitors misses the point. They are specialized functions in a modular stack. The true architectural war is between vertically integrated monoliths and horizontally specialized, interoperable components.
introduction
THE ARCHITECTURE
The False Dichotomy
The blockchain stack is not a binary choice between settlement and execution, but a spectrum of specialized layers.
Execution environments are the variable. The core innovation is not settlement location, but the virtual machine design. Compare the EVM's determinism with Solana's parallel execution or Fuel's UTXO-based model. The settlement layer is a constraint, not the product.
Modularity redefines roles. A Celestia-based rollup uses Celestia for data availability and Ethereum for settlement. This creates a three-layer specialization where no single chain performs all functions, making the original dichotomy obsolete.
Evidence: Arbitrum One's 10-second fraud proof window demonstrates execution is primary, but its Ethereum settlement finality is the security anchor. The system's value derives from their integration, not their separation.
thesis-statement
THE ARCHITECTURAL SHIFT
The Core Argument: Specialization, Not Supremacy
The debate over a single 'best' layer is obsolete; the future is a modular stack where specialized layers interoperate.
The monolithic chain paradigm is dead. Ethereum's roadmap ceded execution to L2s like Arbitrum and Optimism, focusing its upgrades on settlement and data availability. This is not a retreat; it's a strategic specialization that defines the modular stack.
Settlement layers are not competitors. A rollup settles on Ethereum or Celestia for security and forks its state. An app-chain settles on dYdX Chain or Osmosis for sovereignty and custom fees. They solve different problems for different applications.
Execution layers compete on performance. This is the arena for Arbitrum, zkSync, and Solana. They compete on throughput, latency, and cost for user transactions. Their value accrues from attracting volume, not from being the 'final' chain.
Evidence: The data shows specialization works. Arbitrum and Optimism consistently process 10-20x more daily transactions than Ethereum L1, while Ethereum secures over $60B in TVL for them. The stack is already here.
key-trends
THE TRUE ARCHITECTURAL DIVIDE
The Real Battle Lines: Monolithic vs. Modular
The core debate isn't about settlement vs. execution layers; it's about the trade-offs between unified sovereignty and specialized fragmentation.
01
The Problem: The Sovereignty Trilemma
Monolithic chains like Solana and Sui optimize for performance but force a single, rigid trade-off between decentralization, scalability, and sovereignty. You get one global state, one governance model, and one security budget for everything.
- Locked-In Tech Stack: Can't swap out execution or data availability layers.
- Bottlenecked Roadmap: Upgrades are monolithic, slow, and contentious.
- All-or-Nothing Security: A single bug can compromise the entire ecosystem.
1
Stack
All
Risk
02
The Solution: Sovereign Rollups (Celestia, Eclipse)
Modular architectures separate concerns, letting you own your settlement and governance while renting security and data availability. This is the true counter to monolithic dominance.
- Unbundled Innovation: Mix-and-match VMs (EVM, SVM, Move) with optimal DA layers.
- Independent Sovereignty: Fork, upgrade, and set fees without protocol-wide consensus.
- Capital Efficiency: Security scales with usage, not a fixed validator set.
-90%
Launch Cost
Unlimited
VMs
03
The Real Competition: Shared Sequencers vs. L1 Block Space
The battleground is block production. Monolithic L1s sell precious, unified block space. Modular chains compete via shared sequencer networks like Astria or Espresso, which offer cross-rollup MEV capture and atomic composability.
- Vertical vs. Horizontal Scaling: L1s scale the chain; modular scales the sequencer network.
- MEV Redistribution: Shared sequencers can democratize extractable value across rollups.
- Atomic Composability: The killer app that fragmented execution currently lacks.
~100ms
Finality
Cross-Rollup
MEV
04
The Hidden Cost: Liquidity Fragmentation
Modularity's greatest weakness isn't tech—it's liquidity. Every new rollup or appchain fragments capital, creating a massive opportunity for intent-based aggregation layers.
- Aggregator Primacy: Protocols like UniswapX, CowSwap, and Across will dominate routing.
- Unified Liquidity Layers: Networks like LayerZero and Chainlink CCIP become critical infrastructure.
- The New Moats: Liquidity aggregation and cross-chain state synchronization are the real defensible businesses.
$10B+
TVL Opportunity
1000s
Pools
05
The Endgame: Hyper-Specialized Execution Environments
Monolithic chains will become general-purpose 'legacy' systems. The future is thousands of application-specific environments (ASEs) optimized for gaming, DeFi, or social, built on modular stacks like Polygon CDK, Arbitrum Orbit, or OP Stack.
- Performance by Design: Tailor VM, storage, and sequencing to the app's needs.
- Regulatory Arbitrage: Isolate legal risk to specific execution layers.
- The L1 as a DAO: Base layers like Ethereum or Celestia become minimal coordination and security hubs.
10x
Throughput
App-Specific
Optimization
06
The Metric That Matters: Time-to-Finality per Dollar
Forget TPS. The winning architecture will minimize the cost and latency for a user to achieve credible, verifiable finality. This combines execution speed, DA sampling time, and fraud/validity proof windows.
- User Experience as King: Fast, cheap, predictable finality drives adoption.
- The Modular Bottleneck: DA layer latency and proof generation times are the new constraints.
- Monolithic Advantage: Unified state offers instant, atomic finality within its domain.
<$0.01
Target Cost
<2s
Target Time
SETTLEMENT LAYER PERSPECTIVE
Architectural Showdown: Monolithic Stack vs. Modular Components
A first-principles comparison of how monolithic and modular architectures handle core blockchain functions, demonstrating that the 'settlement vs. execution' dichotomy is a false choice.
| Core Function | Monolithic (e.g., Solana, Sui) | Modular: Sovereign Rollup (e.g., Celestia, Avail) | Modular: Smart Contract Rollup (e.g., Arbitrum, zkSync) | |
|---|---|---|---|---|
Settlement Finality Source | Native L1 Consensus | Self-Sovereign Consensus | Parent L1 (e.g., Ethereum) | |
Execution Environment | Single, Native VM | Sovereign, Custom VM | EVM or Custom VM | |
Data Availability Guarantee | Integrated Consensus | External DA Layer | External DA or Parent L1 | |
Sequencer Centralization Risk | Validator Set | Sovereign Operator Set | Single Operator (often) | |
Upgrade Path | Hard Fork Governance | Unilateral Fork | Multisig / Timelock | |
Cross-Domain Composability Latency | < 1 sec (in-domain) | ~12-20 min (sovereign bridge) | ~12-20 min (L1 bridge finality) | |
Protocol Revenue Capture | 100% to L1 Validators | 100% to Rollup Operators | ~5-20% to L1, ~80-95% to Sequencer | |
Developer Sovereignty | Governed by L1 | Full (define own fork rule) | Limited by L1 smart contract |
deep-dive
THE ARCHITECTURE
Deconstructing the Modular Stack: Why Specialization Wins
The settlement vs. execution debate is a false dichotomy; the real battle is for the most valuable, defensible specialization.
Settlement is a commodity. The core function of ordering and finalizing state is a solved problem. The market will converge on a few highly secure, low-cost settlement layers like Ethereum L1, Celestia, and Avail. Competition drives margins to zero, making it a poor business.
Execution is the real battleground. This is where user experience and developer innovation happen. Specialized execution layers like Arbitrum for general EVM, dYdX for perpetuals, and Immutable for gaming create immense value by optimizing for specific use cases.
The debate is misguided. The modular stack's power is vertical integration of specialized components. A rollup using Celestia for data and EigenDA for restaking security demonstrates that the best settlement is the one enabling the most performant, cost-effective execution environment.
Evidence: The dominance of Arbitrum and Optimism in TVL and activity proves developers choose execution layers for tooling and users, not theoretical settlement guarantees. The value accrues to the layer where applications live.
counter-argument
THE INTEGRATED STACK
The Monolithic Rebuttal: Integrated Performance
Monolithic architectures dominate because they eliminate the latency and security overhead of cross-layer communication.
Integrated execution and settlement is a performance multiplier. The debate artificially separates functions that are co-dependent; a monolithic chain's state machine processes transactions end-to-end without inter-process communication. This eliminates the consensus overhead and latency inherent in modular designs where execution and settlement are separate layers.
The cost of modularity is latency and complexity. A rollup must finalize on a separate settlement layer like Ethereum, adding a 12-minute confirmation delay. A monolithic chain like Solana or Sui settles instantly within its own consensus, enabling sub-second finality that modular stacks cannot match without centralized sequencers.
Real-world throughput validates the model. Solana's 50k TPS and Aptos's 30k TPS are achieved through monolithic, parallel execution engines. This performance ceiling is currently unreachable for modular stacks, where the settlement layer (e.g., Ethereum) becomes the bottleneck for all connected rollups like Arbitrum or Optimism.
protocol-spotlight
BEYOND THE FALSE DICHOTOMY
Modular in Action: The New Stack Builders
The real innovation isn't choosing a side, but architecting systems that treat settlement and execution as complementary, specialized layers.
01
Celestia: The Settlement Agnostic
Decouples data availability from execution, enabling any chain to use it as a secure base layer. This shifts the debate from 'which chain' to 'which execution environment'.
- Enables sovereign rollups with their own governance and forks.
- Reduces L1 consensus overhead by ~99%, passing savings to users.
- Foundation for modular stacks like Arbitrum Orbit and OP Stack.
~$0.001
Per MB Cost
16KB/s
Data Blob Throughput
02
Fuel: The Parallel Execution Engine
Treats the settlement layer as a dumb bulletin board, focusing purely on maximizing execution throughput with UTXO-based parallel processing.
- Achieves ~10k TPS by processing independent transactions simultaneously.
- Uses Sway language & FuelVM for deterministic, lean execution.
- Acts as a modular execution layer for any settlement chain (Ethereum, Celestia).
10k+
Theoretical TPS
-90%
State Bloat
03
The Problem: Monolithic Inefficiency
Ethereum and Solana handle consensus, execution, and data on one layer, creating a trilemma. Scaling one function bottlenecks the others.
- High fees during congestion (Ethereum's ~$50+ gas).
- Rigid upgrades requiring hard forks and community consensus.
- Resource contention where apps compete for the same finite block space.
$50+
Peak Gas Cost
~15 TPS
Base Layer Limit
04
The Solution: Specialized Superchains
Architectures like OP Stack and Arbitrum Orbit use modular components to create vertically integrated, yet interoperable, chains.
- Shared security & tooling reduces development time from years to weeks.
- Custom execution environments for gaming, DeFi, or social apps.
- Interoperability via canonical bridges and shared sequencing layers.
4 Weeks
Chain Deployment
$10B+
Collective TVL
05
EigenLayer: Security as a Commodity
Reframes the settlement security debate by allowing Ethereum stakers to 're-stake' ETH to secure other systems (AVSs), like rollups or oracles.
- Monetizes idle security from ~$50B+ in staked ETH.
- Enables faster bootstrapping for new chains and middleware.
- Creates a market for cryptoeconomic security beyond PoW/PoS.
$50B+
Securing AVSs
15+
Active AVSs
06
Execution is the New MoAT
The endgame isn't a single settlement winner. Value accrues to execution layers that deliver superior UX—speed, cost, and developer experience—on top of shared security.
- User acquisition hinges on sub-second finality and sub-cent fees.
- Developer lock-in via superior VMs (Move, FuelVM, SVM) and tooling.
- Settlement becomes a low-margin utility, like AWS regions.
<$0.01
Target Tx Cost
<1s
Target Finality
takeaways
THE REAL BATTLEGROUND
TL;DR for Architects and Investors
The 'Settlement vs. Execution' framing is a false dichotomy. The real competition is for the user's intent and the economic value of sequencing.
01
The Problem: The False Dichotomy
Framing the stack as 'Settlement vs. Execution' is a category error. Every layer must execute code and settle state. The real split is between monolithic chains (Ethereum, Solana) and modular stacks (Celestia, EigenDA, Arbitrum). The debate is about who captures the sequencer revenue, not theoretical purity.
~$1B+
Annual MEV
2-Layer
Real Split
02
The Solution: Intent-Centric Architectures
The winning abstraction is the intent. Protocols like UniswapX and CowSwap don't care about your chain; they solve for optimal execution. This shifts value to the solver/sequencer layer (e.g., Across, Anoma, SUAVE). The chain becomes a commodity settlement guarantee, not the primary product.
90%+
Fill Rate
-20%
Avg. Slippage
03
The Metric: Economic Security per Unit Cost
Stop optimizing for theoretical TPS. The only metric that matters is the cost of attacking the system's state (security) versus the cost of using it. A rollup with EigenDA and a shared sequencer can offer 10x cheaper security than a monolithic L1 for the same throughput. This is the modular trade-off.
10x
Security/Cost Ratio
$0.001
Per Tx Cost Goal
04
The Entity: Shared Sequencers (Espresso, Astria)
This is the real battleground. A neutral, decentralized sequencer set can: \n- Capture cross-rollup MEV for redistribution \n- Provide atomic composability across rollups \n- Decouple execution from any single settlement layer \nIt turns settlement layers into interchangeable data availability providers.
~500ms
Finality
Multi-Rollup
Atomic Bundles
05
The Risk: Liquidity Fragmentation
Modularity's dirty secret. LayerZero, Chainlink CCIP, and Wormhole are billion-dollar bandaids for the liquidity problem their stack creates. If shared sequencers fail to enable atomic cross-rollup swaps, bridging and stableswap volumes will dominate fee revenue, not novel dApp logic.
$30B+
Bridged Assets
3-5
Dominant Bridges
06
The Bet: Settlement as a Feature
The endgame is Ethereum L1 as a high-assurance court, not a computer. Validiums and sovereign rollups (fueled by Celestia) treat settlement as an optional, high-security service. The user experience and economics are defined at the execution/sequencer layer. The 'settlement' debate is over.
$0.00
Base DA Cost
Sovereign
Execution Freedom
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