Gelato: Web3 developer services veterans and RaaS newcomers

Judging from past development, Gelato can provide relatively useful products, but it has not invested much in BD. According to posts on the governance forum, their investment in marketing and BD throughout 2022 The total budget was only $103,600.

The importance of investment in BD and marketing for infrastructure projects can be clearly seen from the development history of Chainlink and Polygon. Whether it can effectively increase investment in BD and marketing may be a key point for Gelato's subsequent development.

2.3 Financing and important partners

Gelato has had a total of 4 rounds of fundraising, including 3 rounds of private placement and 1 round of public placement. The details are as follows:

The seed round took place in September 2020. , raising US$1.2 million from investors: IOSG, Galaxy Digital, D1 VC, The LAO, Ming Ng, MetaCartel, Christopher Jentzsch. The cost of $GEL corresponding to this round of financing is US$0.019.

In September 2021, Gelato announced a fundraising of US$11 million. Investors: Dragonfly, Parafi, IDEO, Nascent, Stani Kulechov (Founder of Aave), the cost of $GEL corresponding to this round of fundraising to $0.2971.

The public offering will also be held in September 2021, raising US$5 million. The cost of $GEL corresponding to this round of financing is also US$0.2971.

In December 2020, Gelato completed an expansion round of financing, led by IOSG. The amount and method of financing were not disclosed.

In addition, when the project was first established, they received Grants from Gnosis and MetaCartel.

In terms of partners, since Gelato is in the developer services industry and also provides external RaaS services, they have many partners, which we have basically listed above.

In addition, Gelato once won the winner of BNB Chain's Most Valuable Builders iii in 2021.

3. Business analysis

3.1 Industry space and competition landscape

We will mainly analyze the smart contract automation service and RaaS market. .

3.1.1 Smart Contract Automation Services

Regarding the market space and competitive landscape of smart contract automation services, we have already conducted a relatively detailed analysis in previous articles. At present, our The point of view has not changed, here we only excerpt the core point of view:

In the world of Web3, scenarios that require automatic execution of smart contracts are widespread, such as regular reinvestment returns, regular salary payments, liquidity rebalancing, etc. wait. For developers, it costs a lot of labor and time to design and execute a complete set of monitoring, calculation, and running programs by themselves. Automation service providers can help developers avoid "reinventing the wheel"; for service providers such as Gelato Generally speaking, the marginal cost of providing services to new users is very low. There is no difference between Uniswap's limit order and Quickswap's limit order. Therefore, the cooperation between the two parties here is more "economical" for both parties and has solid business logic.

However, the problem may be that because the threshold for the services provided by Gelato is not high in nature, the fees developers are willing to pay are relatively limited. In practice, the difficulties they encounter may be similar to those encountered by web2's automated service provider IFTTT. It's very similar to: "It can provide useful products, but not many people are willing to pay for it."

In the field of smart contract automation, Chainlink and Gelato are currently widely used. Although the Keeper network ($KP3R) created by Andre Cronje also focused on this market, over time, the Keeper network has basically withdrawn from this field, and the main use case of the KP3R token has become to obtain Fixed Forex protocol income.

According to IOSG disclosures, Gelato currently accounts for 80% of the smart contract automation market. It is not easy to gain an advantage in the market segments in which Chainlink, the leader in Web3 infrastructure, participates. But unfortunately, high market share has not brought stable income. The current product is in a state of "applause but not popular", and commercialization is slightly difficult.

From a competitive perspective, although Gelato entered the market earlier than Chainlink and occupies the current leading position in the market, in the medium to long term, Chainlink has a stronger brand than Gelato and is more powerful. With the much-needed developer access channels, richer team financial reserves, and the ability to form cross-sales with other self-owned services, it is not easy for Gelato to stay ahead in the competition with Chainlink.

3.1.2 RaaS

RaaS has been a popular sub-track in the infrastructure field for 23 years. Recently, with the launch of Altlayer on Binance’s Launch Pool, this track has become quite popular. Market attention.

With the rapid development of ETH L2, the scalability problems that ETH once faced seem to have been largely solved through Rollup. Especially after the upcoming Dencun upgrade is completed, the cost of Rollup will be reduced by an order of magnitude again, which gives Rollup a certain basis for large-scale commercial promotion.

The Ethereum system currently has the most complete infrastructure in the web3 field (including wallets, browsers, oracles, indexes, etc.), and the user experience in the EVM system is also the most widely used among current web3 users. acceptance. For application developers, instead of creating a chain to handle many "chores" related to the operation of the chain, it is a good choice to become a Rollup of ETH, allowing them to focus on the application itself.

On the one hand, we see that teams such as Coinbase, Consensys, Mantle, and Blur that have made very good results in other areas of web3 have all chosen L2 when building a chain in 2023 (corresponding to this) Yes, Binance and OKX both built L1 in 2020).

On the other hand, we can also see more and more L1s deciding to switch to Rollup, including:

Celo, a stablecoin project that is somewhat similar to Luna, on 23 In July 2020, they proposed to transition them to ETH's L2

Lisk, which was established in 2016, announced in December 23 that it would use the Gelato service to transition to ETH's L2

We expect that in the future , this trend will continue. In the process of developers building Rollup, there are still a series of issues and trade-offs that developers need to consider, such as how to choose a Rollup that suits their own characteristics, how to build and run Sequencer, how to solve the MEV problem, and what kind of oracle and index to choose. etc. As an "integrated service provider" directly facing developers, RaaS service providers obviously have relatively solid demand in this context.

In November 23, Binance released a research report on the RaaS track, which mainly mentioned five projects: Conduit, Altlayer, Caldera, Gelato and Lumoz. The other four projects can be said to be Direct competition with Gelato.

< figcaption style="text-align: center;">Source: Binance RaaS research

You can view the above protocols It is the Ethereum ecosystem. In fact, for developers, their goal is to create an application chain that better meets their needs, and they don’t particularly care whether this chain is Rollup or Cosmos’ IBC chain. Although the infrastructure of the Ethereum system is relatively complete, the Ethereum system is not the only option.

Based on the above reasons, we also count the “one-click chain” service providers of the Cosmos ecosystem as Gelato’s competitors. Gelato's competitors in the field of RaaS or AppChain as a service are as follows:

(In fact, there are also participants in the RaaS field such as Astria, Gateway.fm, Karnot, Snapchain, Vistara, Zeeve, etc. Due to space limitations We will not introduce it in detail.)

From the above project information, we can see that although the RaaS track is an emerging track, there are already many players in the field, and the leading VCs have already participated in RaaS. When it comes to projects, the competition is fierce. Since the second half of 2023, there have been more and more protocols using RaaS to deploy Rollup, and in addition to Altlayer, there are also Cosmos-based Dymension and Saga that are about to issue coins, and the entire track has entered a small climax.

Judging from the current few actual RaaS rollups, there seems to be no charge for providing the RaaS service itself. Several RaaS service providers hope to capture more value from future derivative services.

In order to explore how the RaaS track obtains revenue, we take Optimism as an example to understand Rollup’s revenue and cost structure:

The Gas paid by Rollup users is generally paid to There are three layers as follows:

Execution layer. The execution layer faces users directly, collects Gas fees paid by users, and pays fees to the DA and settlement layer.

DA layer. The DA layer ensures data availability for Rollup. This part is the main place where users pay for gas, and it is also the bulk of the L2 project cost. In addition to Ethereum, DA is also provided by the recently popular Celestia, Polygon's independent Avail, and Eigenlayer.

Settlement layer. The problem with the settlement layer is that there are relatively few fees that can be captured. Optimism currently only pays around 0.05ETH per day in settlement fees to Ethereum (source).

For Optimism and any other Rollup, its income = execution layer income, expenditure = DA expenditure + settlement layer expenditure, gross profit = execution layer income - DA expenditure - settlement layer expenditure.

First of all, from the perspective of cost items, the expenditure on the settlement layer is very small. Optimism currently only pays about 0.05ETH in settlement fees to Ethereum every day

Then from In terms of total revenue, due to the high DA cost, Optimism’s "gross profit" space is not large

We can see that in the entire Rollup ecosystem, DA has captured the greatest profits. As RaaS service providers, if they want to obtain income, they need to take another 10% from the "gross profit" of Optimism (= execution layer income - DA cost - settlement layer cost), which is generally difficult.

Based on the current comprehensive information, possible ways for RaaS to obtain revenue/capture value include:

Obtain more benefits at the execution level by hosting sequencers, MEV, etc. This is also the most reasonable and likely source of income

Earn income by becoming the settlement layer (such as Dymension) of Rollup/Appchain

Do not charge fees through user transactions. Instead, it is charged by integrating wallets, browsers and other infrastructure, or other technical consulting services

Similar to traditional SaaS subscription fees

Of course, Altlayer recently cooperated with Eigenlayer For the Restked rollup they hope to achieve, they use $ALT more as an economic bandwidth to capture value for the token through combination with Restking, but this value capture has little to do with the RaaS service itself it provides.

In general, because there are fewer RaaS projects actually online, the revenue acquisition method has not yet been determined. However, an analysis of Rollup’s revenuecost structure shows that it is more difficult to obtain revenue from RaaS.

In terms of competition, since the users of RaaS service providers are developers/project parties, how to attract developers/project parties is the main direction of RaaS service providers. Although different RaaS service providers have different technical characteristics, the services that RaaS service providers can provide are largely determined by the underlying framework, so we believe that the services provided by RaaS service providers are generally homogeneous. characteristics.

With relatively homogeneous service content, the influence of the project itself may be an important factor in the decision.

For unissued currency projects, the main focus is on investment capital. On the one hand, the endorsement of leading investment capital can effectively lower the psychological threshold for developers/project parties to use services and increase their likelihood of using services. On the other hand, leading investment capital has rich developer/project resources in the industry, which can bring a natural customer base to RaaS service providers. We can see that Conduit users show obvious Paradigm characteristics.

For RaaS projects that have issued coins, the market value of the project is a simple quantitative indicator of its influence.

For RaaS projects with good influence, the team's ownBDability is a long-term decision Key factors for RaaS project ceiling.

In a market like RaaS that seems like a blue ocean but may actually be close to a red ocean, compared to its competitors, Gelato does not have an advantage in terms of influence and BD capabilities. Its advantage lies more in its team. Specializing in developer services for many years, we can provide a more comprehensive development tool suite.

3.2 Token Model Analysis

Gelato Network’s governance token The total amount of $GEL is 420,690,000, and its distribution is as follows:

50% is allocated to community development (20% was later reserved for further financing after a governance vote in March last year)

4% is allocated to the public offering in September 21

21% is allocated to investors in the private placement, and half of the investors’ tokens will be released in September 2022 and September 2023 (later governed After voting, the tokens originally scheduled to be released in September 2023 will be released in February 2023).

25% is allocated to the team, of which 15% is allocated to the current team; 10% is allocated to the future team. 25% of the team tokens will be released after one year of lock-up, and the remaining portion will be released linearly over three years.

According to the lock-up terms, all public and private investors’ portions are currently in circulation. 27% of the community’s tokens are locked, and the remaining 15% of the team’s tokens are locked. The overall circulation ratio is 58 %.

Through the analysis of on-chain data, we found that among private equity investors, 4 addresses including IOSG and Dragonfly have not sold their $GEL tokens. The above four addresses hold a total of 12.4% of $GEL.

Currently, GEL’s circulating market value is US$164 million, and its full circulation market value is US$282 million. .

According to the official documentation, the use cases of $GEL are governance and staking.

But in fact, since it went online, Gelato has not had many matters that need to be managed. There are only 10 votes in total on Snapshot; $GEL has no real online staking function (except for staking $GEL in 22 years to obtain Arrakis governance tokens).

Overall, $GEL’s token use cases are thin.

3.3 Risk

The risks faced by Gelato are as follows:

Difficulties in obtaining income: Whether it is smart contract automation or RaaS business, its business model is Determining that it is more difficult to obtain income

Competitors are strong: Chainlink in the smart contract automation field, Altlayer, Conduit, Caldera and Dymension in the RaaS field all constitute Gelato's competitors. Compared with competitors, Gelato's competitive advantages Not strong enough.

4 Valuation level

Whether it is smart contract automation or RaaS, we are currently unable to obtain accurate estimates of projects in the track Revenue data, so we cannot make an accurate valuation. Here we mainly list the circulating market value and full circulating market value of several projects that compete with Gelato for your reference.

5. Reference content and acknowledgments

https://www.neelsomani.com/blog/rollups- as-a-service-are-going-to-zero.php

https://twitter.com/_RayXiao/status/1742869034222182890

https://mirror.xyz/ hismrti.eth/I-aOI7SfOItFb51prXpX3hhy-3_9EYu-jaMdIsQExXc

https://mirror.xyz/hismrti.eth/SOq1l9dU-rWOd_pUoUZZAHIJDf_SuBudRZO8ux-3XNw

https://www.neelsomani. com/blog/rollups-as-a-service-are-going-to-zero.php