© 2026 The DeFi Report. All Rights Reserved.
Hello readers,
Despite price action and market sentiment, Ethereum is still the most important smart contract network in crypto. It still has a $234 billion dollar market cap. It still has the most TVL of any crypto network. It still has the most developers of any crypto network. It still has the most profound network effects in crypto.
Yet it still has many challenges to overcome.
In this week’s report, we zoom out to compare the build out of Ethereum today with that of the internet while introducing Celestia — which seeks to disrupt Ethereum as the default data availability (DA) solution serving Ethereum L2s and sovereign rollups.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment, legal, tax, business, or any other advice.
Let’s go.
Ethereum’s scaling roadmap presented investors with two primary hurdles to overcome this cycle, which did not exist in the ‘21 cycle:
An influx of L2 tokens over the last few years has diluted the amount of venture capital that can flow ETH as a long-term investment.
L2s have improved upon Ethereum’s base layer technology from an execution standpoint, which has resulted in a significant portion of its economics moving to L2s.
The output of this from the investor perspective can be understood through the report that Standad Chartered put out this week — in which they estimate that Base has taken $50b of market cap from Ethereum L1. It cut its year-end price target from $10k to $4k as a result.
[as an aside, we will be running our own analysis to poke holes in this report]
Given the lack of scalability for Ethereum at the L1 level, it’s imperative for it to be able to service L2s as its primary customer moving forward.
Ethereum owns this market today. But as we look forward, competitive threats are emerging.
To fully grasp what’s going on, we’d like to zoom out and compare the build-out of Ethereum with that of the internet itself. Laying this out first will help to illuminate Ethereum’s current challenges.
We then present Celetia’s value prop — which we cover in detail later in the report.
In the early days of the web, if you wanted to create a website, you had to host your own physical server — which was cost-prohibitive and didn’t scale well.
We solved this problem with the creation of shared server hosting. This made it much easier and cheaper to spin up a website — by leveraging hosting services such as GeoCities.
The Internet started to scale, and it became cheaper for entrepreneurs to build websites offering products and services.
Eventually, innovation became constrained by the shared execution offered by GeoCities. Enter virtual servers — which offer scalability + customization/flexibility of your own server but with the convenience of using a shared host. Amazon Web Services was born.
Along with AWS came e-commerce, SaaS companies, and social media — all of which were not possible in the early days of the internet.
This same process is playing out today on public blockchains — which are introducing a new data structure to the internet via global accounting ledgers and digital property rights.
It starts with a clunky, inefficient, and expensive user experience — before becoming streamlined, cheap, and fast.
Bitcoin was the first public blockchain. In the early days of web3, if you wanted to create a new application leveraging this new breakthrough technology, you had to start with your own blockchain. Namecoin (peer-to-peer naming system) — a fork of Bitcoin — is an early example. This era for public blockchains was similar to the early web — when you had to host your own server to build a website.
Ethereum entered in 2015. We can think of the L1 as the “GeoCities of web3.” Why? Ethereum made it possible for developers to spin up an application using shared infrastructure. No need to launch your own chain and boostrap validators. This is akin to GeoCities allowing devs to build websites without hosting on their own servers.
Of course, more throughput and flexibility are needed for developers to build specialized use cases. Enter Ethereum L2s — execution environments built “on top” of the L1, with Ethereum serving as the base infrastructure for data availability and security.
Now, Ethereum is starting to look like a “network of networks” — similar to the build-out of the internet itself.
However, several challenges remain. In particular, the cost of Ethereum’s DA is still quite high. This has opened the door for competitors such as Celestia to serve Ethereum’s L2 customers, similar to how AWS services web2 applications in the current cloud era.
Now. Given Celestia’s early success, we have to ask the question: is Celestia a threat to Ethereum’s L2 roadmap?
What happens if Ethereum L2s leave for a solution such as Celestia?
Celestia is a proof-of-stake blockchain (100 validators today), purpose-built to solve data availability verification — which historically has required a node to download all transactions in a block. They’ve solved this with data availability sampling — guaranteeing data availability without requiring a node to download the data.
Their target customer is other blockchains.
Now. Imagine you’re Robinhood. You have over 20 million monthly users trading stocks and options on your platform. Meanwhile, crypto trading has become a significant portion of your business (35% of top-line revenue in Q4).
Let’s say you decide you want to integrate further into crypto infrastructure as you see a future where all assets become tokenized for trading & settlement/accounting.
Naturally, you decide the best way to capture the most value while maintaining control and flexibility is to build an L2 on Ethereum (which has the best network effects in crypto).
You’ll need the following components to make it all work:
Execution: processes trades, swaps, payments, and other user actions
Consensus: makes sure nobody cheats and everyone follows the same rules (think of consensus as security)
Data Availability: makes the history of what happened (data) available for others to audit or other applications to access
Settlement: the final accounting/scoreboard
If you’re Robinhood, you’ll want to build your own sovereign L2, where you control the execution. However, you probably don’t want to build your own validator network for consensus/security. Maybe you use Ethereum for this.
Of course, you need to make all of your data available for others to audit/verify and for other apps to access. You can use Ethereum for this as well. But Celestia is 100x cheaper + it could allow you to integrate across other L2s and even with Solana (future) and make your data available there as well.
Maybe you choose Celestia as your DA layer.
Finally, you need somewhere to settle all user activity as the “final scoreboard.” Given Ethereum’s security, decentralization, and lindy, you choose it as your official accounting ledger.
Here’s your tech stack:
Celestia Explained via gogoDiego
Celestia is making it easier for Robinhood to:
Own its execution environment.
Leverage Ethereum for Consensus and Settlement — which is what Ethereum does best as the most secure & decentralized L1.
Leverage Celestia for Data Availability at a much lower cost than they’d pay using Ethereum (100x cheaper today).
In the future, if Celestia is able to build out a network of L2s (with native bridging) leveraging it for data availability, Robinhood could benefit from being able to offer access to their data to everyone in that network. Furthermore, Celestia may even be able to offer access to its data for apps and users on other chains, assuming Celestia is able to connect L1s in a native, seamless experience (not an easy task).
You may have heard of the term “money legos” when referring to the composability of DeFi applications. Celestia seeks to offer this type of experience to sovereign rollups that want to customize their tech stack while making the data available across various chains/apps/and execution environments.
L1’s achieve network effects today via shared standards (tokens, smart contracts, dev tooling, etc). Celestia seeks to create a network effect across L1s AND L2s as the key “middleware” protocol of the web3 tech stack. This is a big idea. Its goal is to create a network effect as the “default DA solution” via “blob fees” — the standard all L2s will opt into when using Celestia. This could give it a “moat” due to its composability with other rollups and across L1s — solving for fragmented liquidity and user bases across L1s & L2s. Again, this is a big idea and no easy task.
To be successful, it needs to acquire the largest L2s as customers (which it hasn’t just yet) and become the default for all new entrants.
There are multiple reasons why Robinhood (and existing L2s) may want to stick with Ethereum over Celestia.
Security risks. Ethereum assumes DA and settlement are unified when verifying rollups. If Robinhood posts data to Celestia but settles to Ethereum, Ethereum cannot natively verify Celestia’s DA guarantees. This increases trust assumptions for Ethereum validators, who must rely on external monitoring of Celestia.
Additional complexity. Blobs are built directly into Ethereum’s protocol, making it simpler to implement and maintain.
Optics/perception. Ethereum is known as the most decentralized and secure smart contract network today. Opting for a less proven alternative could be viewed as high risk for little reward at this nascent stage.
As noted, Celestia needs to attract the largest and most successful rollups + the majority of new entrants. Full stop. Why? It needs to land the biggest customers and then connect them all — so that a seamless UX can be created for future builders that want to access users and data across ALL chains while making the data accessible for anyone to verify.
If this type of momentum is achieved, it’s possible that Celestia (serving as the middleware connecting all chains via data availability) will become one of the most important protocols in web3 (similar to Bitcoin, Ethereum, and Solana).
Of course, that’s a long way off. But we wanted to start there so that you understand the game (and massive market) that Celestia is ultimately playing for.
Celestia is less than 1.5 years old today. But it is already the leading DA solution in crypto, owning 90% of the market today in terms of the amount of data posted.
Data: Blockworks Research
General L2s: 86.7% (Eclipse, a Solana Virtual Machine (SVM) L2 makes up the vast majority of data posted to Celestia today)
Gaming L2s: 2.8%
Finance L2s: 1.7%
Social L2s: .5%
Consumer L2s: .12%
In total, about 30 rollups post data to Celestia today. It secures about $500m of value.
As noted, Celestia has yet to get one of the top Ethereum L2s to leverage it for DA. We believe their goal is to get the top L2s to move and then become the “default DA solution” for new entrants. From there, they can achieve a network effect and “moat” with a new standard around “blob fees” — enabling composability across chains.
With that said, we think there is very little motivation for L2s such as Base, Arbitrum, and Optimism to leave Ethereum today. Why? Complexity, security risks, and politics/optics relating to “ETH alignment.”
Data: Blockworks Research
While Celestia has a roughly 90% market share in terms of data posted, it has just a 25% market share in terms of fees (due to lower cost than Ethereum). It’s doing roughly $2-$2.5k in fees/day at present.
Fees are set as low as possible to prevent spam. The goal is to grow a network effect today and control pricing power later.
Ultimately, Celestia’s pricing power will come from its network effect as the unifying standard across L2s and L1s. Without the network effect, there is no pricing power.
It’s all about economies of scale. Celestia’s addressable market is all Ethereum rollups, soverign app chains, + potential L2s that settle to Solana or other L1s.
Ultimately, Celestia believes there could be more chains than websites.
Its goal is to charge approximately 1/10th of a cent for transactions at a massive scale.
Just as AWS enabled the proliferation of web applications by handling the heavy lifting of servers and scalability, Celestia could enable the proliferation of customized blockchain applications by handling data availability at scale.
With Celestia, a developer can deploy their own chain (roll-up or sovereign chain) without recruiting hundreds of validators or inventing a new consensus protocol. This is analogous to a start-up spinning up cloud servers using AWS instead of buying physical servers.
The end result in web2 was a dramatic reduction in barriers to entry. For this reason, Celestia believes the addressable market for web3 use cases could expand dramatically if they are able to achieve a network effect as the default solution for developers requiring a customized web3 stack.
AWS had a massive impact on the proliferation of websites and apps on the internet by removing infrastructure barriers and lowering costs.
Celestia is seeking to provide the same support for the proliferation of rollups and sovereign blockchains.
Mustafa Al-Bassam: Co-founder and CEO of Celestia Labs. Previously co-founder of Chainspace, a smart contract platform acquired by Facebook in 2019. Holds a PhD in Computer Science from University College London, with research focused on securely scaling blockchain base layers.
Ismail Khoffi: Co-founder and CTO of Celestia Labs. Formerly a senior engineer at Tendermint and the Interchain Foundation, contributing to the development of blockchain interoperability solutions.
John Adler: Co-Founder and Chief Research Officer at Celestia Labs. Creator of Optimistic Rollups, a scalability solution for blockchains, and previously a researcher at Consensys.
Nick White: Chief Operating Officer at Celestia Labs. Lead evangelist & “face” of Celestia in public appearances.
Celestia Labs currently has 50 team members per LinkedIn.
March ‘21 seed round: $1.5m with participation from YZi Labs, Maven 11, and KR1
October ‘22 Series A: $55m led by Bain Capital and Polychain with participation from Placeholder, Coinbase Ventures, Galaxy, and others.
September ‘24 Series B: $100m led by Bain Capital, with participation from 1kx, Robot Ventures, Placeholder, and Syncracy Capital
In addition to having a strong cap table and plenty of runway, Celestia has several “spheres of influence” via VCs such as Chris Burniske and research platforms such as Blockworks Research.
We think this is a project that can garner continued support from institutional capital.
Total TIA Supply: 1,109,399,671
Circulating Supply: 545,878,993 (49%)
Investors: 35.6%. 33% unlocked on a cliff in Q4 of last year. The remaining tokens are unlocking on a linear schedule through 10/31/25 ($2.2 million per day at current TIA prices)
R&D & Ecosystem: 26.8%. 25% unlocked at TGE. The remaining tokens unlock on a linear schedule through 10/31/27 ($642k per day at current TIA prices).
Community: 20%. Fully unlocked.
Core Team: 17.6%. 33% unlocked on a cliff in Q4 of last year. The remaining tokens are unlocking on a linear schedule through 10/31/26 ($565k per day at current TIA prices).
In total, roughly $3.5m worth of TIA is being unlocked per day through October of this year (when the investors fully unlock). The figure drops to $1.2m per day thereafter, until the team is fully unlocked in October of ‘26.
TIA launched with 1,000,000 tokens. The supply has increased 10.9% due to inflation (rewards paid to stakers). Inflation is set at 8% per year initially, decreasing 10% each subsequent year until stabilizing at 1.5%.
In February, Celestia’s CEO proposed a 33% reduction in inflation to enhance the protocols token economic model. If implemented (it’s still under consideration), the proposal will reduce inflation from about 7.2% to 4.8%.
Tech/execution.
Ability to pull the top L2s away from Ethereum + capture the vast majority of new entrants.
Composability and native bridging cross-chain.
Ability to create a network effect (data availability is a commodity without it).
Some use cases (such as DeFi/Trading) may not be best suited for Celestia’s asynchronous, modular tech stack (as opposed to Solana’s synchronous, monolithic tech stack).
Current adoption is concentrated within a small number of protocols (namely Eclipse).
Competition: Some L2s such as Arbitrum already experiment with modular DA (Arbitrum Orbit allws for custom DA solutions). Ethereum danksharding and Ethereum’s own DA enhancements may reduce demand for Celestia. Eigen DA and Avail provide additional competition (though less adoption today).
Growth of web3. Celestia can only be successful if web2 builders continue to enter web3 with sustainable long-term use cases that require Celestia’s data availability sampling technology.
The internet is made up of a collection of decentralized protocols that ultimately enable the sharing of information (data) globally such that one computer can access all of the world’s content.
But this didn’t come about overnight. It was a process of stitching together the key protocols (such as TCP/IP, HTTP, DNS, etc) in conjunction with tooling such as AWS that ultimately made the Internet what it is today.
In many ways, web3 is building out in a similar, decentralized manner.
Ultimately, there needs to be a “connective tissue” across chains and data to deliver a user experience in web3 similar to what we have in web2.
Celestia wants to be that “connective tissue.”
They are betting on an optimistic future in which developers will want un-constrained flexibility to build web3 apps, while making the data accessible to all.
We think they may have the solution for that today.
But the tech isn’t enough. They’ll need to create a massive network effect amongst L2s and L1s via cross-chain composability for this vision to be realized.
That’s no easy task.
But given the current valuation, addressable market, team, backers, early lead, and lack of competition (besides Ethereum) in the market today, we think Celestia is best suited to solve this problem today.
Ultimately, we view a bet on Celestia as a bet on the expansion of web3 (blockchain proliferation on the scale of websites) and a hedge against Ethereum and its ability to successfully execute the L2 roadmap.
As such, we’ve started to accumulate TIA and are looking to purchase additional tokens under $3. Given the current market conditions and elevated unlocks through October (when the team fully vests), we think there may be opportunities to buy the token at a potential discount to what investors received in the $100m private round in Sept. 2024.
We’ll continue to monitor the project and share updates on future progress.
Take a Report.
And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.