Celestia: The Modular Money Thesis

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Coinmonks

6 min readJan 19, 2024

Demand Drivers and Reflexive (3,3) Loops

Celestia is a data availability (DA) network that adopts a modular design, aiming to address scalability issues commonly found in monolithic blockchain systems. The two key features of Celestia’s DA layer are Data Availability Sampling (DAS) and Namespaced Merkle Trees (NMT). Without delving too deep into technical details, both features present innovative solutions for scaling blockchains.

DAS allows light nodes to verify data availability without downloading an entire block, and NMTs enable execution and settlement layers on Celestia to download only relevant transactions. This tackles the data availability problem.

Modular vs Monolithic Blockchains

Understanding Celestia’s value proposition requires distinguishing it from blockchains like Ethereum. In a Monolithic blockchain, a single layer handles multiple tasks during transaction ordering and execution. Modular blockchains, like Celestia, specialize in one or two tasks, such as data availability.

The Celestia website provides a soccer analogy for each layer, summarized here:

Execution: Executes transactions in a block and publishes proof of the final state.
Settlement: Resolves conflicts or disagreements between transactions.
Consensus: Agrees on the order of transactions.
Data Availability: Allows anyone to check the contents of previous or current transactions for verification.

The Modular Future

Celestia positions its DA layer as a fundamentally new way of scaling blockchains. The idea is that Celestia’s new primitive makes it easier and cheaper for new projects to deploy new rollups with Celestia as a DA layer. An example is the Manta Network, which has saved over 90% in fees by using Celestia instead of Ethereum, a significant cost-saving passed down to users.

As a utility token, TIA can accrue value through:

Rollups using TIA to pay for Celestia’s DA.
TIA utilises POS as its consensus layer, making the network more secure with the token’s increasing value.
TIA is being used as gas for new Rollups, although rollups may likely use their own tokens.
Airdrops (explored further below).

Celestia is (3,3) with Extra Steps

Celestia facilitates the launch of new rollups and blockchains using its DA. With several projects set to launch using Celestia’s DA, TIA could be considered a pure exposure to the airdrop narrative in 2024.

As more projects airdrop to TIA stakers, a reflexive cycle emerges:

More airdrops → Increased demand to buy and stake TIA → Improved security of TIA → Enhanced fundamentals → Price appreciation + Airdrop play

This mirrors the dynamics of OHM and (3,3), where big airdrops create expectations and make the market more price-insensitive.

Who cares about the price of TIA/OHM if we can stake $1k and receive >$1k in Airdrops/APY?

“Price of OHM can go down 80%, but the high APY will make up for it.”

“Price of TIA doesn’t matter because the airdrops will make up for it.”

Fundamentally, all reflexive loops are reflexive in both ways. The question is not whether it is a bubble, but how big the bubble can grow and where we currently stand. As a profit-driven individual, participating is not irrational as long as we are “early enough.” A good thread on this can be found on twitter as well.

Demand Drivers for Celestia

For a POS chain like Celestia, incentives are crucial for users to stake their tokens for validator security. Celestia inflates its token supply to reward stakers. To maintain user incentives, the value of TIA must increase. While this may be simplifying its token dynamics, the base case is that there needs to be sufficient demand drivers to counteract the effects of token inflation.

As of writing, the token is only about 2 months old. It would be unreasonable to expect such an early-stage project to identify its demand drivers yet, but these things are important to think about when it comes to the relationship between price and token demand. Especially in a reflexive loop like we have just mentioned.

This tweet gives a good overview of some of Celestia’s metrics and potential. Currently, 87% of all data posted to Celestia is in 3 namespaces, with about 30–50MB of data per day. Compared to Ethereum, which has ~15 rollups posting 700MB of data daily, Celestia supports up to 46,080 MB/Day, while Ethereum initially supports a max of 5,400 MB/day post EIP-4844.

Only 0.1% of data is used on Celestia, resulting in lower fees. While a two-month-old blockchain at 0.1% usage isn’t alarming, identifying sufficient demand drivers for Celestia’s sustainability in the medium to long term is crucial.

In my mind, for crypto projects like these, it’s useful to think about your tokens in terms of both price and technology. The Modular Blockchain vision of Celestia is both an enticing and promising architecture for blockchains. However, as it stands, a lot of it has yet to play out and we are still in the early stages awaiting the relevant infrastructure being built out. It’s important to identify and escape Echo Chambers as prices move up and down, yet understand the underlying demand drivers of the token itself.

Summing Up

The core of my thesis revolves around being “early enough,” anticipating more airdrops beyond Dymension and Saga. Consequently, it remains a good risk/reward to participate in TIA staking. In terms of “Bear cases” these will be things that I look for.

Attention shifting to other DA alternatives like EigenDA, Avail, etc., making DA a cheap and commoditized resource.
No significant airdrops for TIA stakers, with new protocols preferring to incentivize activity on their own apps. Overpriced potential airdrops lead to speculators unstaking, decreasing the price and security of Celestia.

For full disclosure, I own a bag of spot TIA sat staking in my wallet. I have also been eligible for the DYM airdrop, which has already more or less recouped my initial investment. And as for when I will be selling my Celestia, the answer is I don’t know. Unless it reaches peak euphoria, I think it’s more productive to evaluate my position in terms of my thesis and whether it still applies. Currently, the plan is to continue staking and reevaluate when the majors hit all-time highs, this is largely in line with the view that we are already in the initial stages of a bull market. To me, the decision to participate needs to be driven by an understanding of the risks and potential rewards and combined with a profit-driven perspective in this new edge blockchain innovation.