Celestia's First-Mover Advantage in the Modularity Narrative
Investment thesis for Celestia (TIA)
“The three only compelling baselayer innovations in blockchain are: 1. Bitcoin, 2. Ethereum and 3. Celestia.”
Celestia is a newly-launched modular blockchain that aims to provide data availability services to Ethereum rollups. It was launched on October 31, 2023, and its native token, TIA, was issued to 580,000 users as part of an airdrop. Since its launch, Celestia's TIA token has experienced a speculative rally, with a price appreciation of around $2.1 to $17.2 on 21 January, a multiple of ~8.2x.
Is Celestia - even after a large price appreciation - still a good addition to your cryptocurrency portfolio?
This article will examine specific aspects of the token in the form of investment hypotheses (including risks), aiding you in the token assessment of Celestia.
Investment hypotheses
The following investment hypotheses summarizes the token assessment as follows:
Modularity narrative play
Celestia has a first-mover advantage in this narrative
Celestia offers a unique solution to the data availability (DA) problem
Airdrop flywheel: Airdrop value accrual for investors by simply staking the token
No selling pressure from insiders until the first cliff unlock on 30 Oct 2024
Modularity narrative
Modular blockchains are a new paradigm in blockchain design.
Instead of one monolithic blockchain doing everything (e.g., Bitcoin and Ethereum), Modular blockchains break the chain into smaller layers that can be combined, separating the different layers to provide enhanced transaction speed and scalability. By disaggregating the core components of a Layer 1 blockchain, modular blockchains can make 100x improvements on individual layers, resulting in a more scalable, composable, and decentralized system. This enables developers to build blockchain applications for mass adoption.
Celestia offers a more cost-effective solution for storing data compared to Ethereum, as it provides larger block space. This results in significant cost savings for users, as demonstrated by MantaNetwork, which saved over 99% in fees by using Celestia for Data Availability (DA) instead of Ethereum. These cost savings can be passed down to users, making Celestia a more affordable option for data storage.
The modular approach provides flexibility, scalability, and specialization, but it also increases complexity and requires inter-chain coordination.
First-mover advantage
Celestia, EigenDA, Avail, and IntmaxIO are all modular blockchain projects that focus on data availability. Among the data availability solutions, Celestia has a first-mover advantage. While Celestia has already launched its mainnet, the other projects are still in various stages of development.
Celestia offers a solution to the data availability problem
The problem: In traditional blockchain networks, if a node cannot access the data needed to validate a transaction, it cannot participate in the network. This creates a vulnerability, as an attacker can prevent nodes from accessing the data by withholding it. This is known as a data withholding attack.
Celestia’s solution to the problem: Data Availability Sampling
This method involves randomly selecting users to download small portions of the data. These users are called "light clients," as they have cheap consumer-grade hardware, like phones. By downloading small portions of the data, like clients can have high confidence in data availability.
When a new block is added to the blockchain, Celestia randomly selects a set of like clients to download a small portion of the block. These light clients then validate that they have received the data correctly. If a light client fails to validate the data, it is assumed that the data is not available. If a data withholding attack is detected, light clients can band together to reconstruct the block. By using this method, Celestia can ensure data availability without requiring all nodes to store a complete copy of the blockchain. This makes the network more scalable.
Additionally, the method creates a positive feedback loop: the more light clients there are, the larger the blocks become, and the more secure the network becomes.
Airdrop flywheel
The Celestia network has facilitated the launch of new rollups, with some rollups planning to airdrop tokens to TIA stakers.
This has led to a narrative where the price of TIA is perceived as less significant due to the expected value of airdrops. For instance, the airdrop of $DYM has already covered the cost basis for $TIA for some individuals based on the the current implied price of around $4 on Aevo. The promise of turning $100 to $100,000 sounds amazing. Just look at the Youtube thumbnails and their associated those view numbers. The demand for these videos encourages content creators on platforms like YouTube and TikTok to produce more of them. This has created a reflexive cycle, increasing the demand to buy and stake TIA in anticipation of future airdrops.
However, there is a recognition that there may come a time when staking TIA will no longer be advantageous. Despite this, the current sentiment is that TIA is a promising investment for the bull market, but potentially challenging in a bear market. The decision of when to sell TIA is uncertain for many, with some considering factors such as the dominance of Coinbase in the app store or when major cryptocurrencies reach all-time highs.
No selling pressure from insiders until 30 oct 2024
Celestia’s 1 billion TIA supply at genesis will be subject to several different unlock schedules. Celestia's investors will unlock 35.6% of their holdings after one year, on October 30, 2024. After the cliff, the remaining tokens will be unlocked linearly until October 30, 2027.
Early backers are already deep in-the-money with their investment in Celestia. Their holdings are locked until 30 October 2024 and then vested for three years afterward. Hence, there is no selling pressure from early backers until then.
However, all tokens, whether locked or unlocked, can be staked. Staking rewards are unlocked upon receipt and will contribute to the circulating supply.
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Disclaimer: The information provided here is for educational purposes only and should not be financial decisions. Any actions taken based on the information presented are at your own risk. considered as financial advice. The content is intended to provide general information and should not be relied upon as the basis for any financial decisions.