In the history of web 1.0 and web 2.0, hundreds of companies competed for dominance in the information revolution. Only those who managed to turn complex technologies into user-friendly products emerged as winners.
Although this relates to the internet of information, we find ourselves at a similar inflection point in crypto today. Blockchain technology enables the transfer of assets seamlessly, in seconds and without the need of a trusted third party but lacks the user experience that will make it go mainstream. Its volatile nature makes it a store of value rather than a medium of exchange in the eyes of many.
On the other hand, other current payment systems such as Apple Pay, PayPal, or Venmo are user-friendly and ensure value stability. However, they involve middlemen which not only makes transactions longer but also results in fees. In some regions of the world, individuals are even excluded from the global economy because they do not have a bank account in the first place, or because local financial institutions are weak.
What if we brought together the strengths of blockchain technology and the user-friendly nature of traditional payment systems to finally unlock the promise of blockchain: an instant and far-reaching internet of value? This is precisely the ambition of the Celo blockchain.
Celo is a layer 1 blockchain founded in 2017 and backed by a16z. Like many other blockchains, it is an EVM-compatible chain that supports transactions and decentralized applications. Decentralized applications are applications that provide financial services while leveraging blockchain technology. On Celo, dApps include for instance Ubeswap, a mobile-first decentralized exchange, PoolTogether, a crypto-powered savings protocol based on premium bonds, Moola, a platform for borrowing and lending assets, as well as SushiSwap.
The validation of transactions relies on a proof of stake consensus mechanism. Unlike in a proof of work model, proof of stake selects validators according to the amount of the blockchain’s native token they have staked. Since validators are chosen on this basis, no substantial computing power is needed and there is no competition between miners that drives gas fees to astronomical heights. Transactions take much less time to verify because individual nodes do not have to dedicate so much processing power as is the case for instance with PoS-based blockchains Solana (50,000 TPS) and Polkadot (1,000 TPS). Ethereum can only process 16 TPS as a matter of comparison.
To know more about the difference between layer 1 and layer 2 blockchains and the current landscape of chains, you can refer to the article we have published here.
As mentioned above, proof of stake consensus enables relatively high transaction speed and low gas fees, which amount respectively to 5 seconds and $0.00004 on Celo. The total daily amount of gas fees spent on Celo has also been consistently lower than on Ethereum over time, as shown below.
Celo achieves a throughput of 200 TPS while maintaining low gas fees. This throughput is higher than the 16 TPS on Ethereum but 200 remains relatively low in comparison to blockchains like Solana. The team is nonetheless working towards a larger throughput that will potentially make Celo the ‘fastest EVM chain by end of 2022’, according to co-founder Marek Olszewski.
Moreover, its network of nodes is limited to 163 nodes, thus making the network more centralized than blockchains like Ethereum. Its total number of transactions and unique addresses since inception are also lower. As a matter of fact, it has processed 70.6 million transactions whereas the total number of transactions on Solana is 44 billion.
However, a look at the transactions on Celo since its inception reveals organic growth, notably since late July. Celo has gone from processing 10% of the total Ethereum transactions to 45% of Ethereum transactions, indicating an increasing adoption rate.
In addition, Celo is currently the 4th fastest growing blockchain in DeFi, according to Coinstack and DeFiLlama. Its TVL (total value locked) has grown by 157% since August 1, from $339M to $870M. It is outperforming Terra, Ethereum, BSC, HECO, and Polygon among major blockchains with at least $800M in TVL on this front. Let’s take a look into why Celo has been increasingly gaining traction.
What makes Celo unique resides in that it is 1) a global payment platform that can be used by anyone with a mobile phone 2) it uses stable-value tokens pegged to fiat currency to minimize volatility. We try to simplify below how those two mechanisms work.
Today, about 2 billion people are unbanked, most people have not heard of crypto wallets yet, but nearly everyone has a mobile phone. Celo reaches mobile phone users by allowing them to use their phone number as the public key, instead of traditional long string addresses. Phone numbers become the public addresses visible to one’s contacts. You can link a mobile number to your wallet before receiving a verification code via SMS. This approach does not compromise the user’s privacy because a hash (hash plus a pseudorandom pepper) of the phone number is stored on the shared database, rather than the phone number itself.
Furthermore, Celo also uses an algorithm called EigenTrust to compute a phone number’s reputation score. It is determined by the total number of other phones who trust it weighted by their respective reputation scores and is particularly useful when transacting with people outside one’s contact list.
Celo features two primary crypto assets: Celo and Celo Dollars. Celo (CELO) is the protocol's native asset. It serves as a utility that enables users to participate in network consensus (through its proof of stake system), pay for on-chain transactions, and vote on governance decisions. Celo Dollar (cUSD) is a stable asset that follows the US Dollar.
The stability of Celo relies on two different types of mechanisms.The first one is represented by elastic supply stablecoins pegged to fiat currencies such as Celo Dollar (cUSD), Celo Euro (cEUR), and others. To provide additional stability, Celo is also backed by a basket of diversified cryptocurrencies held as reserves to support the peg.
The second one is Mento, a stability algorithm that captures arbitrage opportunities. When the price of cUSD is above $1 arbitrageurs are expected to purchase CELO and exchange it for cUSD, then sell the cUSD to collect the profit. This selling pushes the market price of cUSD back down to $1. Similarly, if the price of cUSD is under $1 arbitrageurs will buy the token and then exchange it for CELO to profit from the difference. The cUSD buying pushes the price back up to $1.
There are currently about 90 dApps on Celo, that are either fully deployed or soon to be deployed notably when built in the context of Celo Camp, a virtual accelerator and competition organized by Celo.
We can classify these dApps into three major categories: wallets to manage your Celo assets, DeFi dApps, and ‘impact’ dApps that comprise a social dimension.
As shown on the Nansen chart below, some dApps are more established than others in each category, with for instance Moola and Ubeswap accounting for 40% of the total log occurrences on Celo. Log occurrences are times when the entities’ respective smart contracts successfully run code.
Moola is a mobile-first platform for borrowing and lending assets on Celo and Ubeswap is a mobile compatible fork of the decentralized exchange Uniswap. Other interesting DeFi dApps on Celo are Mento, an automated market maker (AMM) type of decentralized exchange that is native to the Celo platform and Poof.cash, a private protocol where you can deposit, earn and withdraw without anyone else seeing your balance.
It is particularly interesting to see that huge DeFi protocols like SushiSwap are outperformed in a number of log occurrences by smaller mobile-native dApps on Celo (Moola, Ubeswap etc), indicating a real interest in mobile-first crypto services. Effectively, SushiSwap only accounts for 1.7% of the total log occurrences.
Amongst these DeFi dApps, some are focused on powering specific causes. For instance, projects like Doni allow you to fund and provide microlending to communities.
The assets you use on these dApps are then managed by wallets, the main ones being Valora, Celo Wallet, Terminal, Metamask, Abra and Opera. Note that while some of these like Valora are Celo native, others are Metamask-like browser extension wallets (e.g. Inflibridge).
We also see a number of entities that have deployed contracts on Ethereum and Polygon also coming to Celo (PoolTogether, SushiSwap, etc).
It can be of particular value to track the latest and hottest smart contracts created on Celo, including new trending token sales, staking and liquidity pools, and NFT collections to stay ahead of the curve.
For instance, you can identify the hottest liquidity pools. The chart above indicates that the contract that has seen the highest capital inflows and number of depositors in the last 7 days is the Mobius cUSD-DAI liquidity pool.
Mobius is a bridge stableswap exchange built on Celo, meaning that users can bridge over assets from other chains to Celo and swap them for assets with prices that are theoretically equal, to avoid impermanent loss risk. It also comprises LPs that are incentivized with yield.
With the ‘top labels from interacting wallets’ tool, you can find out whether a particular liquidity pool has received liquidity from smart money. For those who are not familiar with Nansen labels yet, smart money labels refer to crypto entities that trade or invest in a way that is considered experienced or well informed.
Today, we stand at an inflection point in crypto where blockchain technology has already proven successful in many ways but lacks the user-friendly experience that will make it go mainstream. Past revolutions like web 1.0 and web 2.0 have shown that companies that simplify wonderful yet complex technologies enable global adoption. In decades from now, it won’t matter to most users what smart contracts the DeFi services they use are built on, just like the majority of internet users know very little about how the backbone infrastructure of the internet works. This, Celo understood it well as reflected in their mobile-first approach, as well as its value stabilizing mechanism to tackle volatility.
Celo is certainly one of the pioneering projects with ambitions to accelerate DeFi adoption and onboard more people into crypto. It will be interesting to follow the growth of its ecosystem and the projects it will onboard next.