Original Title: "Metrics Ventures Research Report | Entering the RaaS Track, Will Gelato See a New Breakthrough?"

Original Author: Charlotte, Kevin, Metrics Ventures

TL;DR:

1. Gelato was founded in 2019, initially helping developers create automated, gas-free, and off-chain computing smart contracts, and leading the way in this field. In September 2023, Gelato completed its transformation into an RaaS platform, and the narrative shift will open up new markets and growth opportunities for it.

2. Layer2 is maintaining a high growth trend, especially for achieving scalability, customization, and reducing value loss. More and more Dapps will turn to building application chains. RaaS reduces development costs, provides professional consulting services, and will have high market demand. The RaaS platform will serve as a middleware distributor in the Web3 world, helping developers quickly complete infrastructure construction.

3. Gelato is not the first mover in the RaaS field, 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) native Web3 middleware service integration, (2) mature account abstraction scheme integration, and (3) rich third-party Web3 middleware distribution resources.

4. The RaaS track is currently in the relatively early stages, making it difficult to confirm the leading project based on the technical characteristics and ecological data of the project. It is necessary to continue to pay attention to the changes in the competitive strength of projects within the track.

5. From the narrative and timing perspective, Gelato is a target worth investing in at present: the Cancun upgrade is one of the most closely watched events in the market, and the launch of ALT has begun to attract the attention of ordinary users to the RaaS track. The value of the RaaS track is currently being slowly discovered.

1.RaaS Is a Worthwhile Track for Layout?

Before delving into the Gelato project itself, it is necessary to first understand the overall importance and development prospects of the RaaS industry.

First of all, the demand for expansion still exists, and expansion is still the key technology to achieve Web3 Mass Adoption. Although the existing Layer2 has initially solved the demand for expansion, Dapps still need to compete for Blockspace, especially for Transaction-heavy use cases (especially games and socialfi), the significantly increased transaction fees and longer waiting times still affect user experience. When the trading volume increases significantly during the bull market, the demand for expansion will also increase further. In fact, the continuously growing TVL also reflects the market's demand for L2, and L2 has maintained a high-speed growth trend since 2023.

Secondly, the customized demand of Dapps for blockchain is continuously increasing. With the development of blockchain applications, even Dapps that have achieved good development on existing chains will turn to building their own customizable Appchains, especially when Dapps do not require high composability, under the requirements of flexibility in the DA layer, MEV transaction revenue, block generation time, scalability, user acquisition, token value capture, economic system, and ecological expansion.

Thirdly, shifting from Dapp to Appchain will also lock in more revenue for the ecosystem (reducing the value loss of gas fees, which can be locked by the project or returned to users), attracting more validators to stake tokens and binding more liquidity to the ecosystem. This will bring more empowerment to the original project token and have a great promoting effect on the economic flywheel.

Among the many optional public chain architectures, Rollup will be one of the most core choices. As Ethereum's chosen scaling solution, Rollup itself has a certain legitimacy and will benefit from Ethereum's thriving ecosystem. Currently, the general-purpose Rollup has been tested by the market, and its technology is relatively mature, and its development framework can be used directly.

Currently, more L2 demands may come from the conversion of Dapps to Appchains. Appchains focus on customization of the chain to meet Dapp requirements, as well as building a strong ecosystem to attract and retain users. Therefore, if the application chain itself is not focused on public chain technology innovation, but rather on the core business of the application itself, then it should not spend a lot of 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, Appchains also need professional technical teams to provide consulting services for them in 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, serving as a distributor of blockchain middleware and profiting from it. Therefore, the scale and quality of the middleware ecosystem that can be captured will become the primary competitive advantage of the RaaS platform. In addition, as the operator of Rollup, the RaaS platform will also capture transaction fees and MEV revenue.

According to Messari's classification, the RaaS ecosystem currently includes three types of projects: SDK, Shared Sequencer Set, and No-code Deployment. Gelato belongs to the No-code Deployment track, providing developers with a one-stop service by integrating SDK frameworks and infrastructure services. Other projects in this track include Lumoz, Altlayer, Caldera, Conduit, and more.

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2. From Smart Contracts to Layer2: Gelato Completes RaaS Platform Transformation

Gelato was founded in 2019 and initially helped developers create automated, gas-free, and off-chain computing smart contracts, leading the way in this field. In September 2023, Gelato completed its transformation into an RaaS platform, inheriting its technology in smart contract development and advantages in infrastructure ecology, making it a formidable competitor in this race.

Gelato is currently in the early stages of its business and uses an L2 framework initially based on Polygon. In December, it announced support for OP Stack and will 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 L2 to use Polygon CDK on Gelato. As of December 26, 2023, there have been over 3,000 smart contracts deployed on Astar zkEVM, with over 15,000 wallets created and over 300M transactions completed. Lisk will be the first L2 to be released on Gelato using the OP Stack framework, focusing on the development of RWA and DePIN ecosystems.

In order to reduce development difficulty, Gelato launched the Deployment Platform in December 2023. Developers can directly choose the Rollup framework, data availability layer, and middleware integration, and create a Rollup with just a few clicks.

Gelato is not a pioneer in the RaaS field, so where does its competitive advantage lie currently?

Gelato has been deeply involved in smart contract development for four years and will directly empower RaaS business expansion. Specifically, Gelato's competitive advantages are reflected in three aspects: (1) native Web3 middleware service integration, greatly optimizing the smart contract development experience of L2; (2) integration of a more mature account abstraction solution; (3) a large number of third-party Web3 middleware distribution resources, providing developers with a complete development resource suite.

1) Native Business Integration: Automation, Zero Gas Fees, Off-Chain Awareness and VRF

Gelato was originally developed as a decentralized backend for Web3, aimed at optimizing the development and usage experience of smart contracts. Its core features include four aspects: contract automation, gasless transactions implemented by Relay, off-chain data awareness and computation, and VRF.

Contract Automation:

One thing that users often overlook is that smart contract functionality cannot be triggered automatically, but requires a chain transaction sent by an EOA account to execute contract functionality. DEX limit orders, automatic compounding, and loan liquidation all require contract automation. Automate is Gelato's core feature, eliminating the cost of manual operation or running bots for contract developers. Gelato brings together two parties as a market: developers who want to achieve transaction automation, and infrastructure operators who run robots to find tasks to be completed 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. When the triggering conditions are met, it submits user logic to the Checker. The Checker checks whether the automated task can be executed at the given time based on the logic. When it determines that the triggering conditions have been met, it submits the transaction to the Executor. The Executor is the infrastructure operator network responsible for executing on-chain transactions and is also known as Bot or Keeper.

Relayer and gasless transactions:

In standard on-chain transactions, users need to first deposit native tokens in their EOA wallet as gas before they can proceed with subsequent interactions. This creates a significant barrier for user experience. The role of Gelato Relayer is to allow users to sign messages off-chain to interact with Web3 apps. These messages are sent to Gelato Relay via API call, and the Relayer verifies the signature on-chain. The EOA controlled by the Relayer then sends a transaction to trigger the contract function and pay for gas fees. This creates a more flexible payment system, such as using a single balance to pay for all transactions on EVM chains or having developers sponsor user gas fees.

GEL is the native token of Gelato. Currently, the token economy is still mainly focused on the Automate business and has not yet been empowered by the RaaS business.

The operator responsible for running the Automate bot can only participate in the network by staking GEL, and the sources of income can include two aspects: 1) collecting transaction fees on each transaction; 2) discovering arbitrage opportunities and completing back running transactions. Operators who engage in malicious behavior will face the risk of confiscation.

In July 2023, Gelato updated the staking and task allocation mechanism for its bot to accelerate the Gelato flywheel. After the update, the bot still needs to stake GEL to join the network and become a node, with a minimum stake of 150k GEL and a three-month unstaking period. However, Gelato adjusted the parallel task allocation algorithm for the bot. The frequency of task allocation for the bot is proportional to the amount of GEL staked, encouraging bot operators to stake more GEL. In addition, the gas cost consumed by the bot will be supplemented in real-time by the fees paid by Gelato's ecosystem applications or retail users, further stimulating the staking flywheel effect of the bot.

The token economics of Gelato should integrate RaaS business in the future, which requires further observation.

5. Conclusion: Gelato is in the early stage of value discovery

Gelato's expansion towards RaaS will bring a more powerful narrative space, transitioning from backend development services that cannot be directly perceived by users to a more market-visible RaaS platform, which will bring a new round of growth opportunities for Gelato. Technically speaking, on the one hand, Gelato's native automation and account abstraction services will empower L2 development, providing more convenient experiences for L2 developers and users. On the other hand, automation and account abstraction will bring more complex on-chain operations and higher gas costs. Executing these functions on L2 will greatly optimize costs, thus providing new soil for its native services. Gelato's years of accumulated middleware customer resources can quickly be transformed into L2 development empowerment, enabling a mutual benefit between the two businesses through this transformation.

From the perspective of token performance, Gelato's transition to a RaaS platform announced in September last year did not cause a significant increase in token price until the past month. Gelato's RaaS transformation has gradually been discovered by the market, and the price has increased by more than double, starting from $0.3. This wave of increase mainly comes from the hype of the Kankan upgrade and the listing of ALT on Binance, which brings heat to the RaaS track. From the narrative and market enthusiasm, the RaaS track has always lacked secondary speculative targets, so it has not received enough market attention. At this point in time, the Kankan upgrade is one of the most concerned events in the market, and the listing of ALT is starting to attract ordinary users' attention to the RaaS track. The value of the RaaS track is currently in the process of being slowly discovered, and there are not many secondary targets in the RaaS track. The speculative funds for this track will be concentrated on ALT and GEL. Gelato has a long development time, solid fundamentals, and strong ecological resources. Its market value is still relatively undervalued at present, and it is a critical period for layout. However, it should be noted that Gelato has not yet seized the leading position in the RaaS track and needs to continue to pay attention to changes in its competitiveness in the future.

The follow-up attention to this project will include the adoption of RaaS services, the situation of tokens on the exchange, and the possible changes in token economics. Currently, it has taken the lead in automation services. If it can seize the leading position in the RaaS track, it will further confirm its upward potential.

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