The debate is a false dichotomy. The core architectural question is not 'settlement vs. execution' but 'sovereignty vs. shared security.' Layer 2s like Arbitrum and Optimism are execution layers that inherit Ethereum's settlement guarantees, while app-chains on Celestia or Polygon CDK opt for sovereign settlement.
the-modular-blockchain-thesis-explained
Blog
Why the 'Settlement vs. Execution' Debate Misses the Point
The modular stack's core tension is between verifiable security and fast execution. Settlement is the anchor for the former, not just a transaction finalizer. We map the real architecture battle.
introduction
THE FRAMING ERROR
Introduction
The blockchain scalability debate is incorrectly framed as a binary choice between settlement and execution layers.
Settlement is a spectrum. A rollup's security is defined by its data availability (DA) layer and fraud/validity proof system. Using Ethereum for DA but a third-party prover like Risc Zero creates a hybrid model that defies simple categorization.
The market votes for integration. The dominance of EVM-compatible chains and cross-chain messaging protocols like LayerZero and Axelar proves developers prioritize composable execution environments over theoretical purity in settlement design.
thesis-statement
THE REAL BOTTLENECK
The Core Argument: Security is the Scarce Resource
Blockchain scaling debates focus on the wrong constraint, confusing throughput for the fundamental economic limit.
Security is the bottleneck. Settlement and execution are computational problems; security is an economic one. The cost of capital to secure a ledger, whether via PoW hashrate or PoS stake, defines its ultimate capacity.
Throughput is a commodity. Layer 2s like Arbitrum and Optimism demonstrate execution is infinitely scalable off-chain. The real competition is for shared security budgets on Ethereum or Celestia, not raw TPS.
Settlement is a verification game. Validity proofs from zkRollups or fraud proofs from Optimistic Rollups compress state transitions for the L1 to judge. The L1's role shifts from processing to finalizing attestations.
Evidence: Ethereum's ~$90B staked secures ~$500B in L2 TVL. This 5.5x leverage on capital efficiency is the real scaling metric, not the individual chain's transaction count.
key-trends
THE REAL FRONTIER
Three Trends Proving the Point
The market is voting with its capital, revealing that the core competition is not about layers, but about user experience and economic security.
01
The Rise of Intent-Based Architectures
Users don't want to manage liquidity or routing. They just want an outcome. Protocols like UniswapX, CowSwap, and Across abstract execution complexity into a declarative 'intent', which solvers compete to fulfill.\n- Shifts risk: User gets guaranteed price; solver bears MEV and execution risk.\n- Aggregates liquidity: Taps into all pools and venues, including private orderflow.\n- The real settlement: The user's chain is just the final receipt holder; execution is a multi-chain competition.
$10B+
Processed
~80%
Better Prices
02
Shared Sequencers as the New Battleground
Execution layers are commoditizing. The real moat is who orders the transactions. Projects like Astria, Espresso, and Radius are building decentralized sequencer sets that multiple rollups can use.\n- Guarantees liveness: No more single-operator downtime risk.\n- Enables atomic cross-rollup composability: A shared sequencing layer enables trust-minimized interoperability.\n- Captures the value: The entity controlling the sequencer captures the base-layer MEV and fee revenue.
<1s
Finality
100+
Rollup Capacity
03
Restaking Secures the Stack
Security is the ultimate settlement guarantee. EigenLayer and platforms like Babylon are creating a marketplace for cryptoeconomic security, allowing new systems (AVSs, rollups, oracles) to bootstrap trust from Ethereum's staked ETH.\n- Capital efficiency: ~$50B in TVL can secure countless services without new token issuance.\n- Unified slashing: Misbehavior on a consumer chain can slash the core ETH stake.\n- Settlement finality redefined: Economic security becomes a portable, tradeable commodity, decoupled from any single execution environment.
$50B+
TVL
50+
Active AVSs
WHY THE 'SETTLEMENT VS. EXECUTION' DEBATE MISSES THE POINT
Security Model Spectrum: From Monolith to Modular
Compares core security properties across architectural paradigms, showing that the critical trade-off is sovereignty vs. shared security, not settlement vs. execution.
| Security Property | Monolithic L1 (e.g., Ethereum, Solana) | Sovereign Rollup / L2 (e.g., Arbitrum, Optimism) | Modular Settlement Layer (e.g., Celestia, EigenLayer) |
|---|---|---|---|
Data Availability Source | Self-contained | Parent L1 (e.g., Ethereum) | External DA Layer (e.g., Celestia, Avail) |
Sovereignty Over State Transitions | |||
Inherited Consensus & Cryptoeconomic Security | |||
Sequencer Censorship Resistance | Through full nodes | Via L1 force-inclusion (7d delay) | Requires separate PoS/PoA network |
Upgrade Control | On-chain governance or hard forks | Multisig (typically 4-8 signers) | Sovereign chain governance |
Time-to-Finality for Users | ~12-15 minutes (Ethereum) | ~1 hour (optimistic) / ~15 min (ZK) | Varies by execution layer |
Maximum Theoretical Throughput (TPS) | ~15-50 (Ethereum), ~2k-10k (Solana) | ~100-4k (scales with DA layer) | Theoretically unbounded (execution bottleneck) |
Primary Security Cost | Block space & validator ops | DA posting fees to L1 | DA payment + separate validator set |
deep-dive
THE FRAMING ERROR
Settlement as a Security Anchor, Not a Ledger
The 'settlement vs. execution' dichotomy is flawed because it mischaracterizes the core function of a settlement layer.
Settlement is a security primitive, not a general-purpose database. Its primary function is to provide cryptographic finality for state transitions, not to process every transaction. This is why Ethereum's L1 throughput is intentionally limited.
The debate misplaces the performance burden. Execution layers like Arbitrum and Optimism exist to handle computation; demanding high TPS from the settlement layer is architecturally incoherent. The anchor must be secure, not fast.
Proof-of-stake consensus transforms settlement into a verifiable security root. Validators on Ethereum finalize bundles of L2 state roots, anchoring the security of rollups like Base or zkSync. The ledger is the L2; Ethereum is the notary.
Evidence: Ethereum processes ~15 TPS but secures over $40B in L2 TVL. The security-to-throughput ratio is the metric that matters, not raw L1 transaction count.
protocol-spotlight
BEYOND THE LAYER 1 DICHOTOMY
Architecting the Security Stack: Who's Building What?
The 'Settlement vs. Execution' debate is a distraction. The real battle is for the modular security layer that glues them together.
01
The Problem: Shared Sequencers Create a New Trust Vector
Rollups outsourcing sequencing to a single provider (e.g., Espresso, Astria) trade decentralization for scale. This creates a central point of failure and censorship.\n- MEV Extraction Risk: The sequencer controls transaction ordering.\n- Liveness Dependency: If the shared sequencer fails, all connected rollups halt.
1
Failure Point
100%
Rollup Downtime
02
The Solution: EigenLayer & Restaking as a Security Primitive
EigenLayer doesn't just secure new chains; it's a marketplace for cryptoeconomic security. Projects can rent the pooled security of Ethereum's $50B+ staked ETH.\n- AVS (Actively Validated Service): Any service (e.g., oracle, bridge, sequencer) can be secured.\n- Slashing for Liveness: Enforces performance guarantees beyond consensus.
$50B+
Securing Pool
Modular
Security
03
The Problem: Cross-Chain Security is a Messy Patchwork
Bridges and messaging layers (LayerZero, Axelar, Wormhole) each have their own validator sets, creating n² security assumptions. Users must trust multiple, often unaudited, multisigs.\n- Fragmented Security Budgets: TVL is split across dozens of competing bridges.\n- Asymmetric Risk: A $100M bridge securing $10B in value is a systemic risk.
n²
Trust Assumptions
$2B+
Bridge Hacks (2024)
04
The Solution: Babylon & Omnichain Shared Security
Babylon enables Bitcoin's $1T+ proof-of-work security to be leased to other chains via timestamping and staking. This creates a universal, high-cost-to-attack security base layer.\n- Bitcoin as a Root of Trust: Leverages the most immutable chain.\n- Cryptoeconomic Finality: PoW checkpointing provides strong settlement guarantees for PoS chains.
$1T+
Security Backstop
PoW
Root of Trust
05
The Problem: Provers are the New Single Point of Failure
ZK-Rollups depend on a single prover (or a small set) to generate validity proofs. If the prover is malicious or offline, the chain cannot progress.\n- Centralized Proving: Often run by the founding team.\n- Hardware Oligopoly: High-performance proving creates barriers to decentralization.
1
Active Prover
Specialized
Hardware
06
The Solution: Decentralized Prover Networks (e.g., =nil;, RISC Zero)
These protocols treat proving as a marketplace. Multiple provers compete to generate ZK proofs, with fraud detection and slashing enforced by a base layer like Ethereum.\n- Proof Commoditization: Breaks the hardware/software monopoly.\n- Liveness via Redundancy: Multiple provers ensure the chain never halts.
Market
For Proofs
Redundant
Liveness
counter-argument
THE ARCHITECTURAL FALLACY
The Steelman: "But Execution Needs Settlement!"
The demand for a unified settlement layer is a solution in search of a problem, ignoring the market's natural specialization.
Settlement is a commodity. The core function of finalizing state is a solved problem; Ethereum L1, Solana, and even Celestia provide sufficient security and liveness guarantees for any execution layer to build upon.
Execution demands specialization. A monolithic chain cannot optimize for every use case; Arbitrum for general compute, zkSync for ZK-provable logic, and dYdX for orderbook trading prove that execution environments must diverge.
The market arbitrages security. Protocols like Across and Stargate already abstract settlement away from users, who route intents based on cost and speed, not a theoretical 'canonical' chain.
Evidence: Ethereum's own roadmap, with EIP-4844 and Danksharding, explicitly cements its role as a data availability and settlement base for specialized execution layers, not a monolithic do-it-all chain.
FREQUENTLY ASKED QUESTIONS
FAQ: For Architects and Builders
Common questions about why the 'Settlement vs. Execution' debate is a false dichotomy for modern blockchain design.
Settlement layers finalize state (e.g., Ethereum, Celestia), while execution layers process transactions (e.g., Arbitrum, Optimism). The debate frames them as competing, but modern modular stacks like the OP Stack and Polygon CDK treat them as complementary, specialized components. The real focus should be on the data availability layer that connects them.
takeaways
WHY THE DEBATE IS MISGUIDED
TL;DR for Busy CTOs
The 'Settlement vs. Execution' dichotomy is a false choice. The real architecture is about modular specialization and economic security.
01
The Real Problem: Monolithic Inefficiency
Forcing a single chain to handle consensus, data, and execution creates a trilemma trade-off. You can't optimize for all three.
- Security is conflated with throughput, leading to high fees.
- Execution is bottlenecked by global consensus, causing ~12s+ latency.
- Innovation is stifled by rigid, one-size-fits-all VMs.
~12s+
Block Time
$100+
Gas Spikes
02
The Modular Solution: Specialized Layers
Decouple the stack. Let each layer excel at one job: Celestia for data, EigenLayer for security, Arbitrum/OP for execution, and Ethereum for final settlement.
- Unbundling enables ~100k TPS via rollups.
- Shared security reduces capital costs for new chains.
- Sovereignty allows chains to fork and upgrade execution without consensus changes.
100k+
Potential TPS
-90%
Dev Cost
03
The New Bottleneck: Cross-Domain UX
Modularity creates fragmentation. Users now face bridges, liquidity pools, and complex intent routing across dozens of chains.
- Security is diluted across 50+ bridges with varying trust models.
- Liquidity is siloed, increasing slippage and capital inefficiency.
- The winning stack will be the one that abstracts this complexity via intent-based systems like UniswapX and Across.
50+
Bridge Protocols
$2B+
Bridge TVL
04
Execution is the Commodity; Settlement is the Asset
Fast execution is cheap and abundant (see Solana, Avalanche). The real value accrues to the layer that provides credible neutrality and irreversible finality.
- Ethereum's L1 is the crypto-economic backbone, not a computer.
- Rollups (execution) compete on cost/speed; Settlement layers compete on security/decentralization.
- This is why EigenLayer restaking and Celestia data availability are pivotal—they redefine settlement's economic moat.
$90B+
ETH Securing
~15s
Finality
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