Welcome to Elaborate VC! Today, I’m highlighting Fuel (FuelVM) and Mantle Network, both of which are Ethereum-based modular execution layers being developed by Fuel Labs and BitDAO, respectively. They are two of the few projects that are trying to scale Ethereum beyond the layer-1 or layer-2 levels, attempting to introduce an entirely new virtual machine as an execution layer to replace the Ethereum Virtual Machine (EVM).
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Statistics:
Total Funding: $81.5m
Stage: Unknown Venture Round
Investors: Maven11 Capital, CoinFund, Blockwall, Stratos Technologies, The Spartan Group, Dialectic, TRGC, Bain Capital Crypto, Alameda Research, ZMT Capital, Origin Capital, Fenbushi Capital
Current Team Size: 40+ employees
Location: Fully Remote
Website: fuel.network
Team: According to Crunchbase, Fuel Labs was co-founded by Nick Dodson, CEO, John Adler, CTO, and Samuel Borin.
Nick Dodson is the CEO of Fuel Labs and initially got into crypto through the crypto mining industry. He then became interested in mining aggregators before moving towards developing on the early Ethereum ecosystem. He has previously worked at ConsenSys, a blockchain infrastructure company and the parent company of MetaMask, Infura, and Truffle. Listen to him speak here:
John Adler is the CTO of Fuel Labs and has a background in electrical and computer engineering with experience as a researcher and engineer at ConsenSys. He is also the current Chief Research Officer at Celestia, the modular blockchain solution, and created optimistic rollups according to Celestia. You can listen to him here:
Tokenomics: There is currently no public information regarding a token that is directly associated with Fuel.
Statistics:
Total Funding: $230m for BitDAO, Mantle Network’s parent company
Stage: Private Sale
Investors: Early Partners List
Current Team Size: Unknown
Location: Remote
Website: mantle.xyz
Team: There is currently no public information regarding Mantle Network’s team members but BitDAO has 12 listed employees on LinkedIn.
Tokenomics: There is currently no public information regarding a token that is directly associated with Mantle Network but BitDAO is governed by the BIT token. BIT is an ERC-20 token with a maximum supply of 10B tokens that can be used to make new proposals, vote on proposals, or to delegate votes. An overview of BIT governance can be viewed here.
Thesis: The Ethereum Virtual Machine (EVM) is a virtual machine that emulates a computer system, acting as a runtime environment that can execute smart contracts deployed on Ethereum. Despite all of its capabilities, the EVM is slow and outdated, creating network congestion issues and unusably high transactions fees on the Ethereum network, especially during periods of high traffic.
Many projects are now focused on scaling the EVM to increase transaction output and lower transaction fees through layer-1 and layer-2 solutions. However, layer-1 EVM chains like Fantom, BNB Smart Chain and Avalanche, continue to rely on the EVM and simply create more space for transactions to be processed instead of improving upon the EVM core infrastructure itself.
Layer-2 scaling solutions like Arbitrum and Optimism, which utilize optimistic rollups, have led the initial path for Ethereum-based scaling solutions but continue to rely on external, sometimes off-chain, validator groups to verify fraud proofs that can take up to 7 days to finalize. Other layer-2 scaling solutions like zero-knowledge (zk) rollups and zkEVM chains (Polygon Hermez, Scroll, Starknet) have made progress towards public mainnet but remain in development. Both layer-2 rollup solutions also continue to rely on Ethereum’s EVM and its capabilities as a monolithic blockchain that handles every function, from consensus to settlement to data availability.
Modular execution layers (MEL) like Fuel and Mantle Network will be able to far surpass any currently comparable operating virtual machine like the EVM to provide throughput levels that are magnitudes above what is possible today. Instead of relying on a monolithic blockchain as a base, like Ethereum, to run on top of, MELs like Fuel and Mantle Network will be able to run on top of Ethereum and other purpose-built platforms like Celestia and Eigenlayer, which separate the consensus, settlement, and data availability layers.
But before we continue, let’s define a modular execution layer as a “verifiable computation system designed for the modular blockchain stack.” You can also read about Celestia and Eigenlayer in my previous investment memos.
With the development of new consensus and data availability layers like Celestia and Eigenlayer combined with the development of new execution layers like Fuel and Mantle Network, blockchains will be able to increase its transaction throughput by multiple magnitudes, unlocking brand new capabilities of decentralized networks that will better replace existing legacy systems.
Solution: Modular execution layers only handle the execution of transactions while delegating consensus, settlement, and data availability to other platforms. By doing so, they are able to utilize purpose-built platforms that allow for a much higher level of efficiency while also being to focus specifically on optimizing their virtual machine as the best possible execution layer. Both MELs are also working hand-in-hand with the projects that will become their consensus, settlement, and data availability layers to optimize in the best way possible. However, both Fuel and Mantle Network should theoretically be able to run as a neutral execution layer on top of the modular blockchain stack.
Fuel is working directly with Celestia as John Adler, the Chief Technology Officer of Fuel Labs, is also the Chief Research Officer at Celestia.
Mantle Network is working in partnership with Eigenlayer through development and research.
Although there is little technical information on Mantle Network, here are some more details on the technical workings of Fuel.
The Fuel virtual machine (FuelVM) is an optimistic rollup that is unique because it uses an Unspent Transaction Output (UTXO) model, like Bitcoin, instead of an accounts model. The UTXO model allows the FuelVM to achieve parallel transaction validations and fraud proofs without state serialization. This means that transactions can be executed in any order without needing to rebuild the accounts tree (Merkle root of the state) after each transaction/block. One can simply check that all of a transactions inputs were computed, previously unspent, and unique. This also means that each transaction defines its own state and can spend and process several inputs and outputs at the same time. These capabilities of parallel transaction validations and unique fraud proofs without requiring state serialization from the UTXO model will therefore provide a high level of scalability beyond the EVM’s serial transaction processing.1 2
Current mainstream CPUs natively support 8, 16, 32, and 64-bit word lengths, but not 256-bit word lengths. The EVM is built to only process 256-bit word lengths, which means that anything smaller has to be transformed to a 256-bit word length in order for EVM to process. This process is wasteful and resource-intensive on computer hardware, which primarily use 64-bit words. FuelVM solves this simply problem by operating natively on 64-bit word lengths.
FuelVM is also written in Sway, a domain-specific language (DSL) based on the Rust programming language. Sway is purpose built as a blockchain virtual machine language as it includes syntax that can leverage a blockchain VM without needlessly verbose boilerplate.3
Current blockchains that use Rust include Solana, Polkadot, and NEAR, which means a large number of current blockchain developers will be able to easily move to development on Sway and FuelVM.4 Rust is also far more popular than Solidity in the development of web2 apps which means that there are a much greater number of Rust developers available.
Risks: Both Fuel and Mantle Network are currently in the early stages of its development and much of the risk of investing in either of them rests with both teams’ ability to execute and deliver on its roadmap. The concept of the modular blockchain stack and a modular execution layer are new and have never been done before, especially as its base layer in platforms like Celestia and Eigenlayer haven’t even been fully built out yet. That means that investing in a modular execution layer right now means that you take on execution risk, not only from a project like Fuel or Mantle Network, but also from projects like Celestia or Eigenlayer because they are reliant on them to build the entire modular blockchain stack. If the entire stack is not built out, it will not function as it is meant to.
Outside of execution risk, investing in Fuel or Mantle Network includes onboarding risk from the broader crypto industry. Currently, the crypto industry remains extremely niche with few serious use cases and few users exist outside of speculators. With additional issues like Celsius, Genesis Trading, FTX, and macro issues going into 2023, investing either project or crypto in general right now has heightened risk compared to investing in 2021. However, I do see Fuel and Mantle Network as potential solutions to address the usability of blockchains as new initiatives are brought on to take advantage of the heightened throughput levels if they are able to succeed.
Use Cases: If modular execution layers are able to successfully scale Ethereum and other blockchains, it will open up entirely new possibilities for blockchains to act as global transaction systems and databases. This means that in the future, we could potentially see a more decentralized internet and database structure that could run current web2 applications similar to Instagram or Youtube. These applications could foreseeably be run on a decentralized database where users pay transaction fees to operate on the decentralized network but own their own personal data. This means that users could maintain control over their personal data and choose to do whatever they would like to do with it, even selling it for profit if they so choose - similar to something that Ocean Protocol is building.
A truly scalable blockchain would be able to run decentralized versions of many of todays web2 applications. However, that will be farther into the future. I think one of the biggest immediately applications of a scaled blockchain network would be a decentralized central limit order book exchange.
Central Limit Order Book (CLOB) Decentralized Exchange (DEX): An efficient CLOB exchange cannot currently run on a decentralized blockchain network due to throughput and therefore, liquidity issues. Many issues arise due to the way automated market making (AMM) DEXes are structured like slippage, sandwiching, and rebalancing losses do not exist or are not as prominent in traditional exchanges. Read about it here. In contrast, a modular blockchain with a much higher level of throughput would theoretically be able to maintain high enough throughput levels and thus, begin to attract enough liquidity to build central limit order book exchange on top of a decentralized platform. This would allow users to avoid messes like the recent FTX implosion, especially as users have already been flocking to decentralized platforms like dYdX and GMX to avoid opaque centralized platforms.
Competition: Currently, Fuel and Mantle Network are the only modular execution layer solutions that I am aware of but they compete generally with other Ethereum and blockchain scaling solutions.
Optimistic Rollups
Arbitrum: Arbitrum is an optimistic rollup layer-2 solution based on Ethereum being developed by Offchain Labs. It is currently the largest layer-2 blockchain with $1.13B of total locked value (TVL) on chain.
Optimism: Optimism is also an optimistic rollup layer-2 solution based on Ethereum being developed by OP Labs. It is currently the second largest layer-2 blockchain with $560.48m of TVL on chain.
Zero-Knowledge (zk) Rollups and zkEVM Chains
Polygon Hermez: Polygon Hermez is Polygon’s zk-rollup solution in development. Polygon acquired the Hermez Network in a 250m MATIC deal on August 4, 2021. Polygon Hermez is aiming for a high throughput level of 2000 transactions per second (TPS) guaranteed by zk-SNARKS.
Scroll: Scroll is aiming to become a native zkEVM layer-2 chain. This means that Scroll can generate zk proofs for general EVM verification instead of existing zk-rollup solutions that are application-specific.5
StarkNet: StarkNet is a zk-rollup layer-2 solution that recently launched their StarkNet Alpha chain live on Mainnet. It will be a general purpose blockchain that continues to take advantage of Ethereum’s security layer by producing zk-STARK proofs off-chain and then verifying the proofs on-chain.
Aztec: Aztec is a privacy-focused zk-rollup layer-2 solution. They already have a working product on mainnet called zk.money that focuses on both privacy and scaling but now they’re focused on building Noir. Noir is a decentralized, programmable private smart contract platform secured by zkSNARKs.
zkSync: zkSync is a zk-rollup layer-2 solution that is now live on mainnet. They aim to continue scaling Ethereum past the layer-2 basechain by scaling on top, creating a layer-3 chain that works on top.
Concluding Remarks: I believe an investment in a modular execution layer like Fuel or Mantle Network could see great upside in value, especially if the modular blockchain thesis is able to come to fruition. The space is still very new and somewhat theoretical with regards to if it will work and how it will work. However, because the space is still in its infancy, projects like Fuel and Mantle Network are primed to be the first movers, especially as they work in partnership with other pioneering projects of the modular blockchain stack like Celestia and Eigenlayer.
The crypto industry is clearly moving in the direction of scaling Ethereum and blockchains in general, and I believe the thesis of a modular blockchain stack is a prominent and probable solution to current network congestion issues. If executed well, a modular blockchain stack would revolutionize the crypto industry by unlocking potential use cases that are thought to be impossible right now. Solutions that I mentioned like onboarding a CLOB DEX to the blockchain or even using blockchains as a decentralized network for near-instantaneous payments across the world would all of a sudden become much more realistic scenarios that will continue to bring blockchains into main stream society as a viable replacement solution for many of our legacy systems.
An investment in a modular execution layer like Fuel or Mantle Network is risky, with its success hinging on multiple internal and external factors, but I believe the upside is asymmetric, with the downside being capped and an upside that is currently not completely comprehensible because we don’t even understand the possibilities that were to occur if it succeeds.
To learn more about Fuel, Mantle Network, or Modular Execution Layers in general, I’d recommend reading Maven11’s article here, Fuel’s article here, and Mantle Network’s article here. I also want to mention The Block Research’s article here and Messari’s article here but they are stuck behind a paywall.
I am not a financial advisor. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.