Metrics Ventures Research Report: Will Gelato Experience a New Surge by Entering the RaaS Track?
Gelato is in the early stages of value discovery.Authors: Charlotte, Kevin, Metrics Ventures
TL;DR:
- Gelato was founded in 2019, initially helping developers create automated, gasless smart contracts capable of off-chain computation, and has been a leader in this field. In September 2023, Gelato completed its transformation into a RaaS platform, and this narrative shift will open up new markets and growth potential.
- Layer 2 continues to experience rapid growth, especially as more Dapps turn to building application chains to achieve scalability, customization, and reduce value loss. RaaS lowers development costs and provides professional consulting services, which will have high market demand. The RaaS platform will act as a middleware distributor in the Web3 world, helping developers quickly complete infrastructure setup.
- Gelato is not the first mover in the RaaS space, but it is a team that has been deeply involved in Web3 infrastructure development for over four years. Gelato's years of development achievements and resources will directly translate into competitiveness in the RaaS field: (1) integration of native Web3 middleware services, (2) integration of mature account abstraction solutions, (3) a wealth of third-party Web3 middleware distribution resources.
- The RaaS space is currently relatively early, making it difficult to identify leading projects based on technical characteristics and ecological data; continuous attention to the competitive dynamics within the space is necessary.
- From a narrative and timing perspective, Gelato is a target worth positioning: the Cancun upgrade is one of the most closely watched events in the market, and the launch of ALT has begun to attract ordinary users' attention to the RaaS space, which is in the process of being slowly discovered.
1 Is RaaS a Worthwhile Sector to Invest In?
Before studying the Gelato project itself, it is necessary to first recognize the overall importance and development prospects of the RaaS business.
**First, the demand for scalability still exists, and scalability remains a key technology for achieving Web3 mass adoption.** Although existing Layer 2 solutions have initially addressed scalability needs, Dapps still compete for blockspace, especially for transaction-heavy use cases (notably games and social finance), where significantly increased transaction fees and longer wait times continue to affect user experience. During bull markets, the demand for scalability will further increase as transaction volumes rise. In fact, the continuously growing TVL also reflects market demand for Layer 2, which has maintained a rapid growth trend since 2023.
**Second, the demand for customization of blockchains by Dapps is continuously growing.** As blockchain applications develop, even Dapps that have performed well on existing chains will turn to building their own customizable app chains under various requirements such as flexibility at the DA layer, MEV trading income, block generation time, scalability, customer acquisition, token value capture, economic systems, and ecological expansion, especially when Dapps have low requirements for composability.
Third, transitioning from Dapps to app chains will also lock in more revenue for the ecosystem (reducing the value loss of gas fees, which can be locked in or returned to users by the project parties), attracting more validators to stake tokens and binding more liquidity to the ecosystem. This will bring more empowerment to the original project tokens and greatly promote the economic flywheel.
Among the many optional public chain architectures, Rollup will be one of the core choices. Rollup, as Ethereum's chosen scalability solution, possesses a certain degree of legitimacy and will benefit from Ethereum's thriving ecosystem. Currently, general-purpose Rollups have been validated by the market, and the technology of general-purpose Rollups is relatively mature, with their development frameworks being directly usable.
Currently, more Layer 2 demand may come from the transition of Dapps to app chains. App chains focus on two aspects: customization of the chain to meet Dapp needs, and building a good ecosystem to attract users and complete user migration. Therefore, if the application chain itself is not focused on public chain technological innovation but rather on the core business of the application itself, then it should not spend too much time on the development process from 0 to 1, but rather outsource the development and maintenance process and focus on the development of the core business; on the other hand, app chains also need a professional technical team to provide consulting services among various Rollup frameworks, DA layers, and other solutions.
The core business model of the RaaS platform is to become the AWS or Google of the Web3 world, acting as a distributor of blockchain middleware and profiting from it. Therefore, the scale and quality of the middleware ecosystem that can be captured will be the primary competitiveness of the RaaS platform. Additionally, as an operator of Rollups, the RaaS platform will also capture transaction fees and MEV income.
According to Messari's classification, the current RaaS ecosystem mainly includes three types of projects: SDK, Shared Sequencer Set, and No-code Deployment. Gelato belongs to the No-code Deployment track, providing one-stop services for developers through the integration of SDK frameworks and infrastructure services. Other projects in this track alongside Gelato include Lumoz, Altlayer, Caldera, and Conduit.
（Image source: Messari）
2 From Smart Contracts to Layer 2: Gelato Completes Its Transformation to a RaaS Platform
Gelato was founded in 2019, initially helping developers create automated, gasless smart contracts capable of off-chain computation, and has been a leader in this field. In September 2023, Gelato completed its transformation into a RaaS platform, inheriting its advantages in smart contract development technology and infrastructure ecosystem accumulation, giving it significant competitiveness in this track.
Gelato is currently in the early stages of its business, initially adopting the Layer 2 framework based on Polygon, and announced support for OP Stack in December, with plans to adopt more frameworks in the future. At the DA layer, it currently supports Ethereum, Celestia DA, Avail, and Eigen Layer DA.
Currently, two projects have chosen Gelato as their RaaS service provider: Astar and Lisk. Astar is the first Layer 2 on Gelato to use the Polygon CDK. As of December 26, 2023, over 3,000 smart contracts have been deployed on Astar zkEVM, over 15,000 wallets have been created, and more than 300 million transactions have been completed. Lisk will be the first Layer 2 on Gelato to launch using the OP Stack framework, focusing on the development of RWA and DePIN ecosystems.
To reduce development difficulty, Gelato launched the Deployment Platform in December 2023, allowing developers to directly select Rollup frameworks, data availability layers, and middleware integration, creating a Rollup with just a few clicks.
Gelato is not the first mover in the RaaS field, so where does its competitive advantage lie?
Gelato has been deeply involved in smart contract development for four years, which will directly empower its RaaS business expansion. Specifically, Gelato's competitiveness is reflected in three aspects: (1) integration of native Web3 middleware services, greatly optimizing the smart contract development experience on Layer 2; (2) integration of relatively mature account abstraction solutions; (3) a wealth of third-party Web3 middleware distribution resources, providing developers with a complete suite of development resources.
1 Native Business Integration: Automation, Gasless Transactions, Off-chain Awareness, and VRF
Gelato initially aimed to optimize the development and usage experience of smart contracts as a decentralized backend for Web3, with its core functionalities including four aspects: contract automation, gasless transactions via relays, off-chain data awareness and computation, and VRF.
Contract Automation:
One point that users often overlook is that smart contract functions cannot be triggered automatically; they require an EOA account to send an on-chain transaction to execute the contract functions. DEX limit orders, automatic compounding, and loan liquidation all require contract automation. Automate is Gelato's core function, eliminating the costs for contract developers to perform manual operations or run bots themselves. Gelato acts as a marketplace that brings together two parties: developers who wish to achieve transaction automation and infrastructure operators who run bots to find tasks to complete in exchange for service fees.
In Gelato's network architecture, there are three roles: Event Listener, Checker, and Executor. The Listener is responsible for monitoring on-chain events, and when it detects that the triggering conditions are met, it submits the user logic to the Checker. The Checker checks whether the automated task can be executed at a given moment based on the logic, and when it believes the triggering conditions have been correctly met, it submits the transaction to the Executor, which is the infrastructure operator network responsible for executing the on-chain transaction, also known as a Bot or Keeper.
Relayer and Gasless Transactions:
In standard on-chain transactions, users must first deposit native tokens into their EOA wallets as gas before they can engage in subsequent interactions, which poses a significant barrier to user experience. The work of Gelato Relayer is that users will sign messages off-chain to interact with Web3 apps, and this message is sent to Gelato Relay via an API call. The Relayer verifies the signature on-chain, after which the EOA controlled by the Relayer sends the transaction to trigger the contract function and pays the gas fee. This creates a more flexible payment system, such as using a single balance to pay for all transactions across EVM chains or having developers sponsor users' gas fees.
Off-chain Data Awareness and Computation:
Gelato has upgraded Automate to Web3 Functions, which breaks the limitation that smart contracts cannot connect with off-chain data, allowing developers to compute and execute on-chain transactions based on any off-chain data. Functions written in Typescript, stored on IPFS, and run by Gelato can achieve seamless integration with off-chain data, enhanced computational capabilities (avoiding complex computations consuming large amounts of gas on-chain), and customizable logic execution.
VRF (Verifiable Random Function):
The VRF function is widely used in areas such as gaming, NFT generation, and random selection of validators. Its key aspect is that the entity operating this function can generate random numbers and provide proof of their randomness and correctness, ensuring that the generated random numbers are unbiased and unpredictable, and that others can verify the generation process without malicious intent.
The core component of Gelato VRF is Drand, a network composed of a group of decentralized nodes that reach consensus on the threshold parameter before generating random numbers. Each node creates a signature and broadcasts it across the network. When the threshold parameter is reached, the last node creates the final BLS signature, which can be verified by the entire network, and the random number is the hash of this signature.
Gelato has strong competitiveness in its native business. Gelato supports up to 15 blockchain networks, and reports from the first half of 2023 disclosed that over 400 applications have integrated Gelato, executing over 5.5 million transactions, including leading projects like MakerDAO, Gnosis Pay, and Pancake Swap. Currently, the only direct competitor to Gelato in this field is Chainlink.
2 Mature Account Abstraction Solution Integration
Based on Relay services, Gelato developed the Relay Kit and collaborated with Safe to create an account abstraction SDK. Safe's account abstraction consists of multiple kits, with the core suite developed in-house and some using third-party solutions. The Relay Kit provided by Gelato implements the functionality of Payment Abstraction, allowing users to pay Ethereum transaction fees directly using native tokens or ERC-20 tokens, rather than being limited to ETH.
Account abstraction can be divided into two key steps: Signature Abstraction and Payment Abstraction. The former allows various contract accounts to use different signature verification schemes (such as single private key signatures for EOAs, multi-signature aggregation, etc.), while the latter mainly provides multiple currency options for transaction fee payments or sponsorship. We know that Layer 2 public chains like zkSync and StarkNet have already developed native account abstraction solutions, so what advantages does Gelato's account abstraction offer compared to directly adopting the AA solutions in the SDK?
In short, current ZK-Rollups have generally implemented the Signature Abstraction process well, but Payment Abstraction has not yet matured. Gelato, using its own Relay and 1Balance services, has validated its ability to complete flexible payments and gasless transactions, and has a relatively mature solution for achieving Payment Abstraction. Payment Abstraction is also the most direct way to enhance user UX, and the AA SDK integrated by Gelato and Safe can also be directly used to achieve social account login and a no-mnemonic experience.
3 Abundant Web3 Middleware Distribution Resources
In analyzing the landscape of the RaaS sector, we mentioned that middleware distribution resources will be one of the core competitive advantages of RaaS platforms. Although general-purpose Layer 2 solutions provide SDKs, developing a chain still requires a series of functionalities such as block explorers, indexers, oracles, and cross-chain bridges. Gelato has accumulated a wealth of infrastructure and middleware partnerships over its four years of development, which can be directly used as development tools, providing a plug-and-play suite for launching chains. Currently, the Gelato RaaS Marketplace offers 27 middleware integration services, but it is worth noting that Gelato has integrated over 400 applications in its Web3 Function business, and these clients will quickly convert into distribution resources, greatly promoting the development of the Gelato RaaS ecosystem.
3 Competitive Landscape: The RaaS Sector is in Its Early Stages
Projects within the RaaS sector that also belong to the No-code Deployment subfield include Conduit, Altlayer, Caldera, and Lumoz, with basic information about each project available in the table below.
From the perspective of ecological expansion, the number of projects using RaaS services to launch chains is currently limited, and many early movers in the RaaS sector do not have ideal data; it is currently difficult to measure project competitiveness based on the number of chains launched.
From the perspective of middleware resources, the number of integrations in the Gelato RaaS Marketplace does not hold an advantage, but Gelato's ecosystem of over 400 applications will serve as a reserve pool for the Marketplace. We need to closely monitor the growth of Gelato's integration numbers to assess changes in its competitiveness in the RaaS field.
Overall, the RaaS sector is still in a very early stage, with multiple projects still in the testnet phase, making it difficult to identify leading projects based on existing data. Altlayer has recently launched on Binance Launchpad, and currently, only Altlayer and Gelato have issued tokens in the RaaS sector, making them the only two secondary market targets for RaaS. Comparing the valuations of the two, Altlayer currently has a market cap of $451,466,031 and an FDV of $4,104,236,647, while Gelato has a market cap of $167,412,873 and an FDV of $287,476,805. In terms of both market cap and FDV, Gelato's valuation offers a better cost-performance ratio.
4 Gelato Flywheel: Token Economics
GEL is the native token of Gelato, and the current token economics still primarily focuses on the Automate business, with no empowerment for the RaaS business yet.
Operators running the Automate bots can only participate in the network by staking GEL, with revenue sources including two aspects: 1) charging transaction fees on each transaction; 2) discovering arbitrage opportunities and completing back-running transactions. Malicious behavior by bots will face the risk of confiscation.
In July 2023, Gelato updated the staking and task allocation mechanism for bots to accelerate the Gelato flywheel. After the update, bots still need to stake GEL to join the network, requiring a minimum stake of 150k GEL to become a node, with a three-month unbonding period. However, Gelato adjusted the parallel task allocation algorithm. The frequency of task allocation to bots is proportional to the amount of GEL staked by that bot, encouraging bot operators to stake more GEL continuously. Additionally, the gas costs consumed by bots will be supplemented in real-time by fees paid by Gelato ecosystem applications or retail users, further stimulating the bot staking flywheel effect.
Gelato's token economics should integrate the RaaS business in the future, which requires further observation.
5 Conclusion: Gelato is in the Early Stages of Value Discovery
Gelato's expansion into RaaS will bring a more powerful narrative space, transitioning from backend development services that cannot be directly perceived by users to a more visible RaaS platform in the market, providing Gelato with a new round of growth potential. Technically, on one hand, Gelato's native services such as automation and account abstraction will empower Layer 2 development, providing a more convenient experience for Layer 2 developers and users; on the other hand, automation and account abstraction will lead to more complex on-chain operations and higher gas costs, executing these functions on Layer 2 will greatly optimize costs, thus the transition to Layer 2 also brings new soil for its native services. The middleware customer resources accumulated by Gelato over the years can quickly convert into empowerment for Layer 2 development, so this transformation can achieve a mutual reinforcement of both businesses.
From the perspective of token performance, Gelato did not see a significant increase in token price after announcing its transformation into a RaaS platform in September last year, until recently, when the market began to gradually discover Gelato's RaaS transformation, with prices rising more than double from $0.3. This surge primarily stems from the hype surrounding the Cancun upgrade and the launch of ALT on Binance, bringing attention to the RaaS sector. From a narrative and market enthusiasm standpoint, the RaaS sector has long lacked secondary speculative targets, thus not receiving sufficient market attention. At this point, the Cancun upgrade is one of the most closely watched events in the market, and the launch of ALT has begun to attract ordinary users' attention to the RaaS sector, which is in the process of being slowly discovered. There are few secondary speculative targets in the RaaS sector, and speculative funds for this sector will currently concentrate on ALT and GEL. Gelato has a long development history, solid fundamentals, and abundant ecological resources, and its current market cap is still relatively undervalued, making this a key period for positioning. However, it is important to note that Gelato has not yet seized the leading position in the RaaS sector and will need to continue monitoring changes in its competitiveness.
Future attention to this project will include the adoption of RaaS services, the situation of the token, and potential changes in token economics. Currently, it occupies a leading position in automation services, and if it can secure a leading position in the RaaS sector, it will further confirm its growth potential.
