Modular Blockchain

Execution is the process of processing transactions and running smart contracts. In a modular stack, this function is offloaded to dedicated layers called rollups (Optimistic or ZK). These layers handle computation independently, batching results back to a base layer. This specialization allows for high throughput and diverse virtual machines (e.g., EVM, SVM, Cairo VM) without burdening the underlying chain.

• Examples: Arbitrum, Optimism, zkSync, Starknet.

The settlement layer provides a neutral ground for verifying proofs, resolving disputes, and ensuring finality for rollups. The consensus layer orders transactions and secures the network via a decentralized set of validators. In modular design, these are often combined into a single base layer (like Ethereum or Celestia) that provides security and coordination for all connected execution layers.

• Key Benefit: Execution layers inherit the security of the robust, decentralized base chain.

Data Availability (DA) guarantees that transaction data is published and accessible so anyone can verify state transitions or reconstruct the chain. Modular blockchains use specialized DA layers (e.g., Celestia, EigenDA) that employ Data Availability Sampling (DAS), where light nodes randomly sample small chunks of data to probabilistically verify its availability with high security and minimal resource cost.

• Impact: Enables highly scalable blockchains without sacrificing security or decentralization.

Modular chains achieve interoperability not through complex bridging but by building atop or alongside a shared security source. Multiple execution layers (rollups) settle on the same base layer, creating a cohesive ecosystem where assets and messages can move trust-minimized via native bridges. This is a core principle of rollup-centric architectures and sovereign rollups.

• Example: Hundreds of L2 rollups all settling finality on Ethereum L1.

Modular architecture grants developers sovereignty—the ability to define their own rules for execution, governance, and upgrades without permission from the base layer. Because components are decoupled, entire stacks can be easily forked and customized. A team can deploy a new rollup with a modified virtual machine by simply changing the execution layer, while reusing established settlement and DA layers.

• Result: Drives rapid experimentation and minimizes vendor lock-in.

By separating concerns, each layer optimizes for its specific resource. Execution layers minimize gas costs for users by not paying for full L1 security per transaction. Data Availability layers use efficient data encoding and sampling to reduce storage costs. This specialization leads to lower overall transaction fees compared to monolithic blockchains that must inefficiently bundle all functions.

• Mechanism: Costs are aligned with resource consumption (compute vs. data storage vs. security).

A modular blockchain decomposes the four primary functions of a blockchain into distinct, interoperable layers:

• Execution: Processes transactions (e.g., Optimistic Rollups, ZK-Rollups).
• Settlement: Provides finality and dispute resolution (e.g., Celestia, Ethereum).
• Consensus: Orders transactions and secures the network.
• Data Availability: Ensures transaction data is published and verifiable. This separation allows each layer to be optimized independently, creating a more scalable and flexible system than a monolithic blockchain where all functions are bundled together.

Modularity directly addresses the blockchain trilemma by offloading execution to specialized layers, dramatically increasing throughput. Key implementations include:

• Rollups (Layer 2s): Execute transactions off-chain and post compressed data and proofs to a base layer (e.g., Arbitrum, Optimism, zkSync).
• Data Availability Layers: Dedicated networks like Celestia and EigenDA provide cheap, scalable data publishing, reducing costs for rollups.
• Settlement Layers: Chains like Ethereum and Cosmos can act as neutral settlement hubs for multiple execution environments.

Modular stacks empower developers to choose and customize their technical stack, a concept known as sovereign rollups or modular appchains. Teams can:

• Select a virtual machine (EVM, SVM, MoveVM, CosmWasm).
• Choose a data availability provider based on cost and security.
• Opt for a shared or custom consensus mechanism. This composability fosters innovation, allowing applications to be built with tailored security, performance, and economic models, as seen in ecosystems like Celestia, Arbitrum Orbit, and Optimism Superchain.

Modular architectures decouple security from execution, creating new economic dynamics:

• Shared Security: Execution layers (rollups) can "rent" security from a robust base layer like Ethereum, avoiding the need to bootstrap a new validator set.
• Fee Markets: Transaction fees are split between execution fees (to the sequencer) and data availability fees (to the DA layer).
• Validator Specialization: Consensus and data availability providers can optimize for specific hardware, improving efficiency. This model underpins systems like Ethereum's danksharding roadmap and Cosmos Interchain Security.

The modular thesis is being pioneered by several major ecosystems:

• Ethereum + Rollups: The dominant modular stack, with Ethereum as the settlement and DA layer for L2s like Arbitrum and Optimism.
• Celestia: The first modular data availability network, enabling lightweight, sovereign rollups.
• Cosmos & IBC: The Inter-Blockchain Communication protocol allows modular, app-specific chains to interoperate.
• Polygon 2.0: A proposed network of ZK-powered L2 chains united by a cross-chain coordination protocol.
• Arbitrum Orbit & Optimism Superchain: Frameworks for launching custom L3 chains within their respective ecosystems.

Drivers:

• Unmatched scalability for end-users (low fees, high speed).
• Developer sovereignty and stack choice.
• Efficient resource utilization via specialization.

Challenges:

• Complexity: Increased systemic complexity and new trust assumptions (e.g., honest minority assumptions in data availability).
• Interoperability: Seamless communication between modular layers and across ecosystems remains a technical hurdle.
• Liquidity Fragmentation: Capital can become siloed across many execution environments. Solutions like cross-chain bridges and shared sequencing are active areas of development.

The traditional blockchain architecture where a single layer handles all core functions: execution, consensus, data availability, and settlement. This integrated design prioritizes security and simplicity but faces inherent scalability limits (the blockchain trilemma).

• Contrast to Modular: All nodes must process all transactions, limiting throughput.
• Examples: Bitcoin, pre-merge Ethereum, and Solana are largely monolithic in design.

Key benefits of the modular paradigm. Interoperability is enabled by having a common settlement or data availability layer, allowing assets and messages to flow between specialized chains. Shared security (or restaking) allows new chains to leverage the economic security of an established chain like Ethereum.

• Mechanism: Chains can settle on a common layer or use light clients to verify data from a trusted source.
• Example: Cosmos zones share security via the Cosmos Hub, while EigenLayer enables restaking for Actively Validated Services (AVS).

A core challenge where a sequencer or layer can withhold transaction data, preventing fraud proofs and halting the chain. Solutions include:

• Data Availability Committees (DACs): A trusted group attests to data availability.
• Data Availability Sampling (DAS): Light clients probabilistically verify data is available.
• EigenDA & Celestia: Dedicated data availability layers that provide cryptographic guarantees.

In many rollups, a single sequencer orders transactions, creating a central point of failure and potential censorship. Risks include:

• Censorship: The sequencer can exclude transactions.
• MEV Extraction: The sequencer can front-run or reorder transactions for profit.
• Downtime: A single point of failure halts the chain. Mitigations include decentralized sequencer sets and forced inclusion mechanisms that allow users to submit transactions directly to L1.

Asset bridges connecting modular layers are high-value attack surfaces. Exploits often target the bridging smart contracts or the light client verification logic. Key risks:

• Signature Verification Flaws: Incorrect validation of fraud/validity proofs.
• Oracle Manipulation: Reliance on external data feeds for state verification.
• Governance Attacks: Compromised multi-sigs controlling upgradeable bridge contracts. Security depends on the trust assumptions of the connecting layer (e.g., Ethereum's consensus).

A modular chain's security is often inherited from its settlement layer (e.g., Ethereum). This creates a security budget:

• Economic Security: Derived from the settlement layer's staked value.
• Liveness Assumptions: The modular chain halts if the settlement layer halts.
• Upgrade Coordination: Changes may require synchronized upgrades across layers. A weaker settlement layer or an insecure shared sequencer network reduces the security of all connected modular chains.

The dispute resolution mechanism is fundamental to security.

• Fraud Proofs (Optimistic): Assume state is correct, with a challenge period (e.g., 7 days) for anyone to submit proof of fraud. Security relies on at least one honest verifier.
• Validity Proofs (ZK): Use zero-knowledge proofs (e.g., zk-SNARKs) to cryptographically verify every state transition. Offers immediate finality but requires complex, trusted setups and prover infrastructure.

New models like EigenLayer allow Ethereum stakers to re-stake their ETH to secure additional services (AVSs), including modular chains and data layers. This introduces new considerations:

• Slashing Risks: Validators face slashing for misbehavior on the modular chain.
• Correlated Failure: A bug in one AVS could lead to mass slashing across the ecosystem.
• Economic Design: Ensuring the re-staked value sufficiently secures the modular chain's total value.