What’s the deal with modular blockchains

There has been a lot of discussion comparing modular blockchains and monolithic blockchains. As it stands, no blockchain’s dominance remains uncontested, and new projects enter the market with each passing day. In just a few clicks, anyone can deploy an application-specific rollup, or spin up an infrastructure project catering to one of the crucial verticals within the modular stack. Users have a nearly endless supply of options for transacting on-chain, and developers have an even larger number of permutations they can choose from in designing their blockchain’s architecture - why is this? 

Every blockchain has its issues, whether relatively small or worryingly large. Until recently, L1s were the most abundant blockchain when L2s, application-specific rollups, and modular building blocks popped up and shifted the narrative. Ethereum and Solana are the most popular and most economically secure blockchains, exhibiting a clear difference in developer preference - the EVM versus the SVM. Both of these blockchains exhibit different architectures that have been tailored to fit their specific needs since inception - for Ethereum this was a focus on decentralization while Solana focused on scalability. 

Each chain offers different experiences derived from their design principles and tradeoffs within the blockchain trilemma. Ethereum has made strides to become more modular through offloading execution to L2s and Solana has seen slight developments around modular infrastructure, but these are still largely referred to as monolithic blockchains. While we often see blockchains attract different user types dependent on their architecture, they aren’t built with a core focus group in mind. The user experience on blockchain A is typically different from blockchain B, but these decisions aren’t at the forefront of blockchain design - the user experience comes afterwards. So, why such a debate over modular versus monolithic, if the competition still clearly favors the latter? What’s the point of designing modular blockchains if it’s so difficult to determine where users will navigate to?

Berachain is one of many L1s and L2s slated to launch in 2024. This report aims to highlight differences between modular and monolithic blockchains, examine value accrual within the modular stack, and explain how Berachain’s Protocol Design & PoL (Proof-of-Liquidity) fit into the equation.

Providing some context

There are a number of infrastructure categories in the modular stack - data availability layers, shared sequencers, zero-knowledge provers, settlement layers, and more. These four categories work to simplify workflows of a blockchain’s core processes: execution, data availability, settlement and consensus. Modular blockchains began as ideas in research forums, driven by lackluster performance of monolithic L1s and the experimentation that comes naturally with crypto.

The first L2s to gather attention were Optimism, Arbitrum, zkSync, and Starknet - all of these EVM-based L2s inherit security from Ethereum mainnet. These L2s utilize either optimistic or zero-knowledge proofs, early examples of modular design finding early product-market within the blockchain architecture battleground. These narratives have changed in recent months, mostly due to the continued development and success of Solana, with monolithic options remaining suitable for everything a user might need on-chain. 

The differences between a modular and monolithic chain revolve around how they manage consensus, execution, settlement, and data availability, though their architectures can vary. A monolithic chain handles all of this in-house, though newly modular chains like Ethereum might eventually outsource DA to Celestia, or offload execution duties to a provider like MegaETH - the beauty of modular infrastructure comes from its ability to be used quite freely. 

It’s as if Pandora’s Box has been opened and developers are suddenly free to experiment with new architectures, with previous development phases relegating developers to siloed blockchain environments with immutable design principles. With modularity, ideas don’t have to remain in lengthy research or blog posts - the infrastructure to build novel economic systems with strong cryptographic guarantees and superior user experiences is now a reality. 

The optionality mentioned is obviously a major draw for crypto’s developer base, but users have been left out of this discussion almost entirely. Consumers vote with their wallets, and this is especially true on blockchains, via the frequency of transaction and amount of capital. The average crypto user shouldn’t have to decide between one chain over another due to a minor problem over transaction cost discrepancies, rather the systems should adapt to increasingly heightened user preferences. 

Modular architectures are increasingly favored for the stack upgradability, should future tech advancements make current options obsolete. Berachain V2’s design will transform the definition of modular infrastructure, creating a system where developers gain access to full EVM equivalence via an ETH2-styled execution environment, along with plug and play consensus featuring sybil resistance mechanisms, currently optimized for PoL and Tendermint consensus. 

This definition of modularity can also extend to interactions within the Berachain ecosystem, introducing modular liquidity into the vernacular and adding a new dimension of modularity beyond the chain stack.

What if everyone was prioritizing the wrong type of modularity? What if there was a better way of making a blockchain modular, without the need to outsource core protocol functionality?

Berachain as a new type of blockchain

Berachain isn’t exactly a monolithic or modular chain. While it won’t be discussed in depth today, the upcoming Berachain V2 will be implementing modular consensus - a unique structure that builds off of V1’s design to create a more resilient and dynamic blockchain. 

The aforementioned blockchain roles are all done in-house, with PoL as the major difference. Whether a modular or monolithic blockchain, consensus mechanisms are rarely experimented with to ensure other roles are properly managed. 

Berachain seeks to align incentives between user experience and crucial system architects (validators, users and developers), which were ignored in favor of increasingly inconsequential vanity upgrades to marginally boost blockchain performance. 

As blockspace becomes increasingly commoditized, there is no shortage of chains that can offer cheap transaction costs, high throughput, and extremely competitive time-to-finality. Berachain acknowledged this and saw an opportunity to tackle the more pressing issue of value alignment within the protocol.

Within Berachain, validators, users and protocols are finally working together toward the incentives and reward framework explicitly built into the blockchain’s architecture. Instead of focusing on outsourcing architecture for marginal technical benefit, Berachain made a blockchain unified via PoL to make liquidity flows and protocol interactions more modular. In DeFi ecosystems on other chains incentives are often isolated. A user can’t farm tokens on one application and then use those assets on a different application to engage in its governance or boost their rewards - on Berachain they can.

PoL is centered around collaboration and incentive alignment - participants are either a user that’s fighting for their share of BGT (Bera Governance Token), a validator trying to attract more BGT, or a protocol working with peers to boost user rewards and gain a foothold in the market. Berachain’s tri-token model of BGT, BERA and HONEY makes liquidity flows modular within the blockchain. As a short example, users might farm on Kodiak, loop it through Infrared via Kodiak’s vaults, and eventually use the same tokens earned for more power over their assets. 

Prior to Berachain, this was not possible on any blockchain. Even previous examples of protocol synergies within ecosystems have been somewhat isolated as DeFi has revolved around liquidity mining, an act that involves the deliberate farming of an individual protocol’s unique governance token. 

Aligning every actor

Within the PoL system there are three distinct participants: validators, users and dApps. To create symbiosis, BGT weaves these moving parts together to allow the chain to scale liquidity and economic security simultaneously. Modular blockchains are defined relating to architecture and the fragmentation of the stack; modular liquidity can be used to describe a system where the roles of users on a chain are no longer isolated. 

Development on Berachain stands out as a new approach, one where developers and users are aligned from the beginning. Creating applications on Berachain requires an understanding of PoL-driven incentive mechanisms, while users are aware of the stark difference in transacting on Berachain versus any other blockchain. Validators directly interact with users and communicate their desire for BGT. Protocols combine forces with competitors to bring themselves and their users greater BGT rewards. There’s no longer a zero-sum competition between ecosystem actors, extending these benefits to everyone interacting on-chain in some way. 

Where modular architectures might align developers across different ecosystems, modular liquidity aligns all participants across a single ecosystem. The protocols deployed on modular blockchains are no different from those on monolithic, meaning the primary user advantage only comes from the ability to transact at lower costs and gain marginally faster transaction finality. This system doesn’t prioritize innovation or novel economic games, rather design principles that exhibit the same lack of attention toward user experience and what drives someone to transact on-chain. Over time, these advantages become commoditized, meaning that creating user value elsewhere becomes even more important. Modular liquidity - like what’s possible on Berachain - creates that value for users.

Berachain makes liquidity liquid.

Berachain’s tokenomics make its blockchain experience inherently user-centric, thanks to the split functionality of its gas token (BERA) and governance token (BGT). Berachain is an example of an economic system where preferences are modular, but cohesive, a system where on-chain interactions are familiar but less taxing on the user. With liquidity able to flow between moving parts, there’s less focus needed on making the overarching blockchain architecture modular. As a result, the symbiosis between BERA and BGT helps grow Berachain’s utility for users and make it more secure in the process.

If you’d like to learn more about how PoL and BGT might work in the wild, you can read this report.