Modular Narrative Makes a Comeback! How Settlement Layer, Execution Layer, and Aggregation Layer Bring New Opportunities?

Cryptocurrency researcher Bridget Harris believes that the future of the cryptocurrency industry will see a new wave of modular development, especially in innovation at the settlement layer, execution layer, and aggregation layer. This modular approach aims to strengthen existing functionalities of Ethereum or create new development opportunities for the ecosystem.

Modularization Focuses on Data Availability Layer and Sorter Layer

In the field of encryption, there have been many innovations and advancements in modularization in the past two to three years, but most of them are concentrated on breakthroughs in the Data Availability (DA) layer and the Sorter layer. Harris believes that the Execution layer, Settlement layer, and Aggregator layer are relatively overlooked areas.

The Data Availability field is basically monopolized by three major players: Celestia, Avail, and EigenDA; while the Shared Sorter field has many competitors, including Espresso, Astria, Radius, Rome, Madara, as well as RaaS providers like Caldera and Conduit.

Celestia TIA Mainnet Launch | Opportunities and Challenges of Modular Blockchain in the Future

Potential Development Opportunities in Modular Industry

On the other hand, the Execution layer, Settlement layer, and Aggregator layer have relatively less development, but there are project teams quietly seeing opportunities and already working on them in each of these areas.

Settlement Layer: Customized Reduction of Existing Security Costs

The Settlement layer can serve as the place to define the final results of the state to protect the security of execution results. In practice, when there are transaction disputes, the Settlement layer can also act as the Execution layer, rerun the transaction, and verify the proof to resolve fraud disputes. Ethereum's biggest dilemma as a Settlement layer is its low scalability, unable to handle the throughput of general applications. Therefore, some teams are trying to solve this problem by using modular mechanisms.

Hyperliquid, by writing its own consensus algorithm, establishes a highly specialized and customized Layer1. Its core architecture does not rely on existing Tendermint consensus algorithm, providing a faster Layer1 transaction platform for perpetual contract transactions, and can be customized. However, users still need to cross-chain from Arbitrum.

To meet the demand, some teams have even developed their own settlement environments in their protocols, such as Repyh Labs building a Layer1 network named Delta. Although this is a design concept opposite to modularization, it is still to provide flexibility in the existing environment. However, the disadvantage of a custom architecture is lack of liquidity.

Execution Layer: Challenging Higher Flexibility in Combination

The predecessor of the Execution layer was the general Layer1 competitive chain, such as Solana or BNB Chain, which now more commonly refers to general Rollups, such as Arbitrum or StarkNet.

In recent years, the development of the Execution layer has basically only beaten Ethereum in higher throughput and TPS. But the way has gradually shifted from building new competitive chains in the past to using modular ways to achieve in the Ethereum ecosystem, while leveraging Ethereum's liquidity and security.

But now, modularization of the Execution layer is not just about Rollups.

We have recently seen innovations in different virtual machine execution environments, such as using the execution environment as part of a shared network, enabling more splitting and allocation, providing developers with higher flexibility and customization. For example, Layer N allows developers to run multiple virtual machine environments such as EVM, SolanaVM, MoveVM, or multiple specific application environments such as perpetual contract exchanges, order book decentralized exchanges nodes.

Teams in this area are also trying to achieve composability and shared liquidity between different architectures, allowing each application on the Execution layer to asynchronously exchange information with each other without delays in consensus. Overcoming communication barriers between different database architectures to maximize overall network throughput.

Aggregator Layer: Aggregating Value with Zero-Knowledge Proof Processes

Aggregation refers to providing users or any traffic with better efficiency to find corresponding markets or resources, a more familiar aggregation scenario is 1inch, which integrates liquidity from various decentralized exchanges to provide users with the best trading path.

Harris pointed out that the market seems to undervalue aggregator applications, especially for decentralized exchanges, cross-chain bridges, and lending protocols. For example, the total market value of the two mainstream decentralized trading aggregators, 1inch and 0x, is only about $10 million, which is only a small part of Uniswap's $60 billion valuation.

The same goes for cross-chain bridges and lending protocols. In the lending sector, Yearn Finance is the leader in decentralized lending yield aggregation protocols, with a market value of only about $200 million, while Aave has about $1.3 billion. Compared to Across cross-chain bridges, aggregators such as Li.Fi and Socket/Bungee have a smaller market share;

Aggregators are given less value by the market.

Therefore, Harris wonders if embedding the aggregator layer into the platform or blockchain underlying consensus could bring new market opportunities?

A recent example is Polygon's AggLayer, where developers can easily connect their Layer1 and Layer2 to the network, aggregating relevant proof mechanisms to enable interoperability between CDK-compatible blockchain networks.

The concept of the aggregator layer is typically to interconnect assets of different blockchain networks through the integration of proof mechanisms. Similar cases include Avail's Nexus interoperability layer, Nebra, Astria, Sovereign, etc., through proof aggregation or sorter auction to integrate liquidity.

Recommended Reading: Introduction to Shared Proof Layer, Why it has become an important cornerstone of modular development?

Recommended Reading: This article clearly introduces the importance and market opportunities of the Shared Proof Layer Proof Aggregator Layer, and uses major existing projects in the market including Nebra, Avail Nexus, AggLayer as examples to explain its concept. It is highly recommended for readers to gain a clearer understanding of the positioning of this article.

A New Wave of Modular Narratives is Brewing

Whether it is the Settlement layer, Execution layer, or the recently emerging Aggregator layer related projects, these are areas that have been less emphasized in modularization in the past, unlike the "don't know which one" Data Availability layer, a new wave of true innovation is emerging, perhaps driving a new direction for the modular development of Ethereum.

Recommended Reading: Introduction to Aligned Layer, How to strengthen zero-knowledge proof applications through verification?

Recommended Reading: This article introduces how Aligned Layer builds a decentralized Settlement layer to provide projects with lower security requirements faster zero-knowledge proof soft settlements, allowing readers to gain a clearer understanding of the future technological development direction described in this article.