As Modular Blockchain continues to gain traction, not every project or sector is positioned to benefit equally. In this post, I’ll break down the three sectors that are poised to reap the most rewards from this trend.

1. Layer 1 Blockchains

Layer 1 blockchains serve as the foundation for settlement, data availability, and consensus in the Modular Blockchain ecosystem. As more Layer 2 chains (Execution Layers) are built on top of Layer 1 chains, the value and visibility of Layer 1 blockchains increase significantly.

• Ethereum stands out as the only Layer 1 blockchain that both accommodates numerous users and requires scaling solutions through Layer 2 chains. Other blockchains, like BNB Chain and Solana, don’t have the same need for Layer 2 scaling due to their architectural differences.
• Investment insight: In this group, the best and most obvious bet is Ethereum (ETH). Its role as the settlement layer for various Layer 2 projects makes it a prime candidate for long-term growth in the Modular Blockchain space.

2. Execution Layer (Layer 2 Chains) & Layer 2 Frameworks

Execution Layers, also known as Layer 2 chains, handle the actual execution of transactions, processing them before passing them back to Layer 1 for consensus and data storage. These chains generate significant value by being the focal point for user transactions, collecting fees while managing operational costs.

• The value of Layer 2 chains increases as their ecosystems grow. A more robust ecosystem means a higher governance token value, as there’s more to govern and more opportunities for the chain to prosper.
• However, Layer 2 chains can be split into two main groups:
  • Lead Layer 2 Chains: These are the pioneers in technology and provide the foundational tools for others to build upon. Examples include:
    • Arbitrum & Arbitrum Orbit
    • Optimism & OP Stack
    • Polygon & Polygon CDK
    • zkSync & ZK Stack
  • Follower Layer 2 Chains: These are Layer 2 chains built using the frameworks provided by the leading Layer 2 chains. Examples include:
    • Base, Blast, Worldcoin, Aevo (built using OP Stack).
• Investment insight: For those looking to invest in Modular Blockchain, it’s essential to focus on the Lead Layer 2 Chains like Arbitrum, Optimism, Polygon, and zkSync, as these projects are driving the development of the entire Layer 2 ecosystem.

3. Data Availability (DA)

Data Availability (DA) ensures that data is stored temporarily and made accessible when needed for reference, fraud detection, or restoring the correct state on Layer 2 chains. Major DA projects include:

• EigenDA
• Celestia
• NearDA
• Avail
• However, despite the growing presence of third-party DA solutions, no comprehensive reports have yet proven that these third-party solutions are more efficient than Ethereum's native data storage solutions, such as Ethereum blobs. In fact, 8 out of the top 10 Layer 2 projects currently use Ethereum for DA, with only two exceptions: one using Celestia and another using MantleDA.

Other Key Areas in the Modular Blockchain Trend

While sequencing, interoperability, and proving play critical roles in Modular Blockchain architecture, these sectors still need to tell a compelling story to convince investors of their potential. For now, the three sectors mentioned above stand to benefit the most from this evolving trend.

Conclusion

The Modular Blockchain space is evolving rapidly, but not all sectors or projects will see the same growth. Layer 1 chains, especially Ethereum, Layer 2 execution layers, and Data Availability solutions are the sectors most likely to thrive. By focusing on the leaders in these areas, investors can better position themselves to benefit from the ongoing expansion of the Modular Blockchain ecosystem.

Looking ahead, it's crucial to keep an eye on the development of these three sectors as they play key roles in shaping the future of blockchain technology.

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