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Celer Network: A Review of the Next Layer 2 Scaling Solution

Abstract

Just like how the 56Kbps dialup Internet in the 90s cannot possibly support 4K video streaming, the insufficient scalability of today’s blockchain is the key factor limiting its use cases. Current blockchains have low throughput because each operation needs to be processed by the vast majority of nodes to reach on-chain consensus, which is precisely “how to build a super slow distribution system”. Ironically, the on-chain consensus scheme also leads to poor privacy as any node can see the full transaction history of one another. While new consensus algorithms keep getting proposed and developed, it is hard to free on-chain consensus from its fundamental limitations.

Off-chain scaling techniques allow mutually distrustful parties to execute a contract locally among themselves instead of on the global blockchain. Parties involved in the transaction maintain a multi-signature fraud-proof off-chain replicated state machine, and only resort to on-chain consensus when absolutely necessary (for instance, in the event two parties disagree on a state). Off-chain scaling is the only way to support fully scale-out decentralized applications (”dApps”) with better privacy and no compromise on the trust and decentralization guarantees. It is the inflection point for blockchain mass adoption, and will be the engine behind all scalable dApps (decentralized applications).

Celer Network is an Internet-scale, trust-free, and privacy-preserving platform where everyone can quickly build, operate, and use highly scalable dApps. It is not a standalone blockchain but a networked system running on top of existing and future blockchains. It provides unprecedented performance and flexibility through innovation in off-chain scaling techniques and incentive-aligned cryptoeconomics.

Celer Network embraces a layered architecture with clean abstractions that enable rapid evolution of each individual component, including a generalized state channel and sidechain suite that supports fast and generic off-chain state transitions; a provably optimal value transfer routing mechanism that achieves an order of magnitude higher throughput compared to state-of-the-art solutions; a powerful development framework and runtime for off-chain applications; and a new cryptoeconomic model that provides network effect, stable liquidity, and high availability for the off-chain ecosystem.

Introduction

A good number of modern economic activities elementally entail the flow and exchange of information and value. Over the past two centuries, the transfer of information has evolved from discrete events through pigeon networks to continuous flows through the speed-of-light Internet. Be that as it may, the value transfer portion is far from light speed and is still very much discrete events controlled by segregated financial silos. This mismatch creates a devastating bottleneck in economic evolution: no matter how fast information flows, the expensive and slow value transaction is limiting the productive exchange of the two.

Essentially, a revolutionary abstraction of trust among distrustful parties that results in an incentive-aligned distributed consensus, blockchain technology offers the foundation to dismantle segregated financial silos and dramatically expand the scope and freedom of global value flows. In practice, nonetheless, blockchain is deviating further away from the speed-of-light vision due to its low processing power compared to traditional value transfer tools. Scalability is a fundamental challenge that is hindering mass adoption of blockchain technology.

The CELER network team envisions a future with decentralized ecosystems where people, computers, mobile and Internet-of-Things (”IOT”) devices are able to carry out secure, private, and trust-free information-value exchange on a massive scale. To realize the latter, blockchains should match the scale of the Internet and support hundreds of millions or billions of transactions per second. However, given the processing speed of existing blockchains (i.e., a few or tens of transactions per second), is it really possible to bring the scale of the Internet to blockchains? The answer is yes but only with off-chain scaling.

While on-chain consensus is the foundation of blockchain technology, its limitations are also obvious. In a sense, consensus is the opposite of scalability. For any distributed system, if all nodes need to reach consensus on every single transaction, its performance will be no better (in fact, much worse due to communication overhead) than a centralized system with a single node that processes every transaction, which means the system is eventually bottlenecked by the processing power of the slowest node.

On-chain consensus also has severe implications on privacy, because all transactions are permanently public. A few on-chain consensus improvements have been proposed including sharding and various Proof-of-X mechanisms. They make the blockchain relatively faster with different tradeoffs in performance, decentralization, security, and finality, but cannot change the fundamental limitations of on-chain consensus.

To enable Internet-scale blockchain systems with better privacy and no compromise on trust or decentralization, we have to look beyond on-chain consensus improvements.

The core principle to design a scalable distributed system is to make operations on different nodes mostly independent. This simple insight shows that the only way to fully scale out decentralized applications is to bring most of the transactions off-chain, avoid on-chain consensus as much as possible and use as a last resort. Related techniques include state channel, sidechain, and off-chain computing Oracle. Despite its high potentials, off-chain scaling technology is still in its infancy with quite a number of technical and economic challenges remaining unresolved.

To enable off-chain scaling for prime-time use, the project’s team proposes Celer Network1, a coherent architecture that brings Internet scale to existing and future blockchains. Celer Network consists of a carefully designed off-chain technology stack that achieves high scalability and flexibility with strong security and privacy guarantees, and a game-theoretical cryptoeconomic model that balances any new tradeoffs.

Simply put, the Celer Network project is intended to enable developers to quickly build and operate highly scalable decentralized applications. They join a long list of companies that are trying to achieve similar ends. Celer Network is also quite well known as they are completing their ICO on the Binance Exchange Launchpad.

However, should the project be considered given the number of competing solutions?

In this Celer Network review we will give you everything you need to know about the project including its technology, roadmap and team members. We will as well analyze the long term potential of the CELR tokens.

Celer Technology Stack

As a comprehensive full-stack platform that can be built upon existing or future blockchains, Celer Network encompasses a cleanly layered architecture that decouples sophisticated off-chain platform into hierarchical modules. This architecture greatly simplifies the system design, development, and maintenance, so that each individual component is able to easily evolve and adapt to changes.

A well-designed layered architecture should have open interfaces that enable and encourage different implementations on each layer as long as they support the same cross-layer interfaces. Each layer only needs to focus on achieving its own functionality.

Inspired by the successful layered design of the Internet, Celer Network adopts an off-chain technology stack that can be built on different blockchains, named cStack, which compromises of the following layers in bottom-up order:

  • cChannel: generalized state channel and sidechain suite.
  • cRoute: provably optimal value transfer routing.
  • cOS: development framework and runtime for off-chain enabled applications.

Celer architecture provides innovative solutions on all layers. Below we highlight the technical challenges and features of cChannel, cRoute, and cOS.

  • cChannel

This is the bottom layer of Celer Network that interacts with different underlying blockchains and provides the upper layer with a common abstraction of up-to-date states and bounded-time finality. cChannel uses state channel and sidechain techniques, which are both cornerstones of off-chain scaling platforms.

A state channel allows mutually distrustful parties to execute a program off-chain and quickly settle on the latest agreed states, with their security and finality guaranteed by on-chain bond contracts. It was initially introduced by Lightning Network to support high-throughput off-chain Bitcoin micropayments. Since the introduction of Lightning Network, there have been several research works that addressed various problems in the context of payment channel networks, such as routing, time lock optimization, and privacy. Nonetheless, off-chain network is still in its early stage, facing a few major challenges in terms of modularity, flexibility, and cost efficiency.

cChannel meets current challenges by offering a set of new features.

  • Generic off-chain state transition:

Off-chain transactions can be arbitrary state transitions with dependency DAG. This allows Celer Network to support complex high-performance off-chain dApps such as gaming, online auction, insurance, prediction market and decentralized exchanges.

  • Flexible and efficient value transfer:

Multiple state channel and sidechain constructions with different tradeoffs on efficiency and finality are provided to support fast value transfer with generic condition dependency, minimal on-chain interactions, and minimal fund lockup.

  • Pure off-chain contract:

Any contract that is not directly associated with on-chain deposits does not need any on-chain operation or initialization unless a dispute is triggered. Every pure o↵-chain contract or object has a uniquely identifiable off-chain address, and only needs to be deployed on blockchains when necessary with an on-chain address assigned by the built-in off-chain address translator.

  • cRoute:

Celer Network is a platform for highly scalable dApps, designed to support high-throughput value transfer. Off-chain value transfer is a key requirement of many off-chain applications. While Celer Network is capable of supporting dApps beyond payment solutions, it additionally brings about groundbreaking improvements to off-chain payment routing as it directly determines how much and how fast value can be transferred within the ecosystem.

All of the existing off-chain payment routing proposals boil down to conventional “shortest path routing” algorithms, which may achieve poor performance in an off-chain payment network due to the fundamental differences in the link model. The link capacity of a computer network is stateless and stable (i.e., not affected by past transmissions). Nevertheless, the link capacity of an off-chain payment network is stateful (i.e., determined by on-chain deposits and past payments), which leads to a highly dynamic network where the topology and link states are constantly changing. This makes conventional shortest path routing algorithms hard to converge, and thus yields low throughput, long delays, and even outages.

To counter this fundamental challenge, Celer Network’s payment routing module, cRoute, introduces Distributed Balanced Routing (DBR), which routes payment traffic using distributed congestion gradients. Highlighted below are a few unique properties of DBR.

  • Provably optimal throughput:

The Celer Network team has proved that for any global payment arrival rate, if there exists a routing algorithm that can support the rate, then DBR can achieve that. Their evaluation shows that DBR achieves 15x higher throughput and 20x higher channel utilization ratio2 compared to state-of-art solutions.

  • Transparent channel balancing:

“Keeping the channels balanced” has been the team’s goal since the proposal of Lightning Network. However, existing attempts in channel balancing comprise heuristics that require heavy on-chain or off-chain coordination with poor guarantees. DBR embeds the channel balancing process along with routing and constantly balances the network without requiring any additional coordination.

  • Fully decentralized:

The DBR algorithm is a fully decentralized algorithm where each node only needs to “talk” to its neighbors in the state channel network topology. DBR’s protocol also lowers messaging cost.

  • Failure resilience:

The DBR algorithm is highly robust against failures: it can quickly detect and adapt to unresponsive nodes, supporting the maximum possible throughput over the remaining available nodes.

  • Privacy preserving:

The DBR algorithm can be seamlessly integrated with onion routing to preserve anonymity for sources/destinations. Due to its multi-path nature, the DBR algorithm naturally preserves the privacy regarding the amount of transferred value, without using any additional privacy-preserving techniques (e.g., ZKSNARK).

  • cOS:

An on-chain dApp is simply a frontend connecting to the blockchain. Off-chain dApps, though with great potentials for high scalability, are not as easy to build and use as the traditional on-chain dApps. Celer Network introduces cOS which is a development framework and runtime for everyone to easily develop, operate, and interact with scalable off-chain dApps without being bogged down by the additional complexities introduced by off-chain scaling. Celer Network allows developers to concentrate on the application logic and create the best user experience, with the cOS dealing with the heavy lifting including the following tasks:

  • Figure out the dependency between arbitrary off-chain and on-chain states.
  • Handle the tracking, storage, and dispute of off-chain states.
  • Tolerate intermediate node failures transparently.
  • Support multiple concurrent off-chain dApps.
  • Compile a unified implementation to different on-chain and off-chain modules.

Celer Cryptoeconomics

Celer Network’s cryptoeconomic mechanism, cEconomy, is designed based on a fundamental principle: a good cryptoeconomic (token) model should provide additional values and enable new game-theoretical dynamics that are otherwise impossible. While gaining scalability, an off-chain platform is also making tradeoffs on network liquidity and state availability, and it will never take off without a cryptoeconomic model that can enable new dynamics to balance out these tradeoffs.

New tradeoffs:

An off-chain platform gains scalability by making the following tradeoffs.

  • Scalability vs. Liquidity:

Off-chain value transfer requires deposits to be locked on-chain as network liquidity. This is especially challenging for potential off-chain service providers, because a significant amount of liquidity is needed to provide effective off-chain services for global blockchain users, either as outgoing deposits in state channels or fraud penalty bond in sidechains. Be that as it may, holders of a large number of crypto assets (whales) may not have the business interest or technical capability to run an off-chain service infrastructure, while people who have the technical capability of running a reliable and scalable off-chain service often do not have enough capital for channel deposits or fraud-proof bonds. Such a mismatch creates a huge hurdle for the mass adoption and technical evolution of off-chain operating networks.

  • Scalability vs. Availability:

While off-chain scaling does not make any compromise on the trust-free property of the blockchain, it does sacrifice the availability guarantee. Each state channel or off-chain contract is associated with a dispute timeout, and the involved party will be at risk when staying off-line longer than the timeout, or when the local states are lost.

Therefore, we need an incentive-compatible mechanism to provide sufficient liquidity for entities which are capable of running a reliable and scalable off-chain service infrastructure, and to guarantee that the off-chain states are always available for possible on-chain dispute.

New Cryptoeconomics:

To complete the off-chain scaling solution, Celer introduces a suite of cryptoeconomic mechanisms, referred to as cEconomy, that brings indispensable value and provides network effect, stable liquidity, and high availability through the Celer Network’s protocol token (“CELR ”) and three tightly coupled components, as discussed below:

  • Proof of Liquidity Commitment(PoLC) Mining:

The team’s first goal entails balancing out the scalability-liquidity tradeoff by lowering the liquidity barrier for technically capable parties to become off-chain service providers and as such contriving an efficient and competitive market for good and reliable off-chain services.

The gist of the idea is to capacitate service providers to tap into large amounts of liquidity whenever they need to. The first part to realize this idea is to provision an abundant and stable liquidity pool that can smooth out short-term liquidity supply fluctuation.

To that end, the team proposes the Proof of Liquidity Commitment (PoLC) virtual mining process.

From a high level, the PoLC mining process is to incentivize Network Liquidity Backers (NLB) to lock in their liquidity (which can be in the form of digital assets, including but not limited to cryptocurrencies and CELR) in Celer Network for a long time by rewarding them with CELR tokens and therefore establishing a stable and abundant liquidity pool.

More specifically, the mining process involves NLBs to commit (lock) their idle liquidity (for example, ETH) to a “dumb box”, called Collateral Commitment Contract (CCC), for a particular period of time. During this period of time when the digital assets are locked, the NLB’s assets can only be used in the liquidity backing process and nothing else. More formally, the PoLC mining process can be defined as the following:

  • Definition 1 (PoLC Power):

In the event NLB i locks Si amount of local cryptocurrency in a blockchain (e.g. ETH) for Ti time, its PoLC power, Mi, is computed as:

Mi = Si Ti.

  • Definition 2 (PoLC Incentive Mechanism):

For a limited period of time, Celer Network intends to provide incentives in the form of CELR to NLBs who lock their CCC (Collateral Commitment Contract) as a show of support for the system. Incentives will be distributed proportional to each NLB’s PoLC power. Let Ri denote the incentives of i, one has:

where R is the total reward for the current block.

Note that locking liquidity in CCC does not carry any inherent counterparty risk as it simply shows a liquidity commitment to Celer Network. In addition, note that early unlocking of CCC is not allowed. One may try to create a “spoofed liquidation” with an appearance of one’s CCC getting liquefied due to “hacking” of a faked OSP. To avert this spoofing, the newly mined CELR is not available for withdrawal and usage until CCC unlocks. Any early liquidation will cause the already mined CCC to be forfeited and redistributed to other miners. The construct of a common denominator of liquidity in PoLC is also an important question. For the initial launch of the platform, the team intends to use the native currency of the target blockchain and later use more heterogeneous crypto assets through external price oracles.

With these mechanisms in place, the PoLC mining process ensures that the PoLC power in the system will grow as the system and utility of the CELR grows, forming a positive loop.

At this point, one may wonder why CELR is so valuable that it can serve as such an incentive. Well, this is explained in the following sections describing Liquidity Backing Auction and State Guardian Networks.

  • Liquidity Backing Auction (LiBA):

The second part for solving the liquidity puzzle is to forge a way for off-chain service providers to access to liquidity pool globally, which is realized through the Liquidity Backing Auction (LiBA). LiBA capacitates off-chain service providers to solicit liquidity through “crowd lending”. In essence, an off-chain service provider starts a LiBA on Celer Network to “borrow” a certain amount of liquidity for a certain amount of time.

An interested liquidity backer is in a position to submit a bid that contains the interest rate to be offered, the amount of liquidity and the amount of CELR that they are willing to stake for the stipulated period of time. The amount of liquidity can be submitted via a CCC (Collateral Commitment Contract). That is, CCC has the functionality to serve as a liquidity backing asset. The borrowed liquidity will be used as a fraud-proof bond or outgoing channel deposit.

LiBA is a generalized multi-attribute Vickrey-Clarke-Groves (sealed-bid secondscore) auction. To initiate an auction process, an OSP (Open Settlement Protocol) creates a standard LiBA contract through the Celer Network’s central LiBA registry with information regarding the total amount of requested liquidity (q), duration of the request (d) and the highest interest rate (rmax) that it can accept. NLBs who watch the registry will notice this new LiBA contract and can start the bidding process. Celer Network requires all crypto assets to be locked in CCC for the bidding process.

Notably, CCC can be “lock-free” and simply used as a backing asset without the functionality of PoLC mining. CCC acts as a container for crypto assets and provides a unified verifiable value of heterogeneous crypto assets. What’s more, the use of CCC makes it easier for NLBs to participate in LiBA without moving crypto assets around every time they bid and, as such, simplifies the backing process and improves security. NLB i submits the bid in the form of a tuple bi = (ri, ti, ci), where ri is interest rate, ti is the total amount of CELR it is willing to lock up during the contract time and ci is the aggregate currency value contained in the set of CCCs bonded with this bid. The moment the bid is submitted, the corresponding CCCs are temporarily frozen. After sealed bidding, the LiBA contract uses reverse second-score auction to determine winning bids with the following three steps.

  • (Scoring Rule):

For each bid bi = (ri, ti, ci) in the bid set β = {b1, b2, …, bn} with fi = , its score si is calculated as follows:

where fmax = max{f1, f2, …, fn} and rmax = max{r1, r2, …, rn}. w1 and w2 are weights for the two components and are initially to ensure we take into account an interest rate with higher weight and then take into account the amount of staked CELR.

  • (Winner Determination):

To determine who has the chance of becoming the network liquidity backer, the LiBA contract sorts the bids in B in descending order by their scores. The sorted bid set is denoted by:  where,

Winners are the first K bids in β*, where

  • (Second-Score CELR Staking/Consumption).

After winners are determined, their CCCs will be locked in the LiBA contract for time d (the duration of the request), their interest requests are accepted and interests are prepaid by the OSP initiating the liquidity request. Nevertheless, it is important to note that not all of their committed CELR are locked, or rather consumed in this contract. Each winner only needs to lock up or consume enough CELR so its score matches the score of the first loser in this auction. Whether the token will be locked or consumed is contingent upon the stage of the platform. In the first 5 years, new tokens will be generated through PoLC mining and LiBA only requires token staking. In the event the PoLC mining concludes, LiBA will start to consume tokens and the consumed tokens will be injected into the system as continuous PoLC mining rewards. Note that under the second-score CELR staking/consumption mechanism, the participants are projected to submit bids matching their true valuation (truthfulness) of the good (in this case, the opportunity to back the network liquidity). Below is an example extracted from Celer Network’s whitepaper:

Assume that an OSP initiated a LiBA with the following parameters (600 ETH, 30 days, 1%) and there are three potential bidders (let’s say A, B, and C) for this LiBA. The three bidders’ bids are bA = (1%, 800 CELR, 400 ETH); bB= (0.5%, 800 CELR, 200 ETH); bC = (1%, 100 CELR, 400 ETH). According to the scoring rule, we have sB > sA > sC. Since A and B can fill the entire request, they are selected as winners. It should be noted that even though A and C have the same interest rate (1%) and provide the same amount of liquidity (400 ETH), bidder A is selected as a winner while bidder C loses; this is due to the fact that their committed CELR tokens, as a symbol of their contributions to this platform, are significantly different. Finally, according to the second-score staking rule, A and B lock (or consume) their CELR tokens to match the score of C for 30 days.

After the auction process finishes, the OSP who initiated the liquidity request pays the interests to the wining liquidity backers by depositing into the LiBA contract.

Upon receiving the payment of interests, the LiBA contract then gives the interests to the corresponding liquidity backers and issues 1:1 backed cETHs (using ETH as an example) that match the liquidity request amount. Although cETH is essentially an IOU, it brings no risk to the user as these IOUs are 100% insured by the network liquidity backers in the LiBA contract.

In normal cases, the LiBA contract is resolved before the timeout when the OSP sends back all the cETH tokens. Basically, before the timeout, the OSP will settle all paid cETHs to EUs with real ETHs by withdrawing from upstream channels collectively.

In the case where the OSP may get hacked, Celer Network’s trust model can vary. The simplest trust model without any protocol-level overhead is reputation-driven, where NLBs choose a reputable OSP without any history of default. In this simple model, NLBs are exposed to the risk of losing funds and assets as their CCCs are insurances for the EUs if the OSP defaults. Be that as it may, it is arguable that even in this simple trust model, operating a highly reliable and reputable OSP is possible; it is very unlikely that all backings will be lost. There are additional security features which may be added around LiBA to further alleviate the potential risk. For instance, newly issued cETHs are only allowed to be deposited to a whitelist of state channel contracts; cETHs are only allowed to be used incrementally with an upper bound spending speed. There are as well an abundance of things an OSP can do to maintain a secure infrastructure such as compartmentalized multi-node deployment, formal verification of security access rule of network infrastructure and more.

In addition, the team enables an advanced security model in which case a randomly selected quorum of NLB will need to co-sign an OSP’s operations (e.g. payment). These NLBs will only allow an outgoing transfer if and only if they see an incoming transaction with a matching amount. These NLBs are also tethered to the incoming payments of OSP. On the assumption an OSP fails to make the repayment eventually, NLBs will have the first-priority right to claim the incoming funds to OSP from other channels. However, it is worth noting that this operation model will inevitably tradeoff some efficiency of the network. Consequently, the team believes that the ultimate balance in the trust model should be defined by the market demand. They open both trust model for the market to organically evolve. The team envisions that the trust-free model will be more favorable in the early days of network launch and then it will become more trust-based.

Regardless of the LiBA’s trust model, the team highlights that the LiBA process ensures that end users never take any security risk as the required liquidity is 100% “insured” by the LiBA contract. The team strives to make sure that the benevolent end users do not need to worry about the security of their received fund and LiBA achieves that. PoLC and LiBA together incentivize an abundant liquidity pool, lower the barrier of becoming an off-chain service provider, reduce centralization risk, and accelerate network adoption.

Simply put, LiBA enables off-chain service providers to solicit liquidity through “crowd lending” with negotiated interest rates. Lenders are ranked according to their “happiness scores” that are determined by the interest rate, the amount of provisioned liquidity and the amount of staked CELR. Notably, lenders who stake more CELR (as an indicator for their past contributions to the ecosystems) have higher chances of being selected to provide liquidity to off-chain service providers.

  • State Guardian Network (SGN):

Another usage of the CELR token entails providing off-chain data availability with a novel insurance model and simple interactions, which balances out the scalability-availability tradeoffs as earlier mentioned.

From the surface, the availability problem seems to be an easy one to solve. One possible answer to that question might be: assuming the team buildz some monitoring services in the future and people will pay for these monitoring services when they are offline. It feels like a reasonable solution at first look, but we drive this train of thought just a little bit forward, we will immediately see track-wrecking flaws.

Let’s start with this question: are these monitoring services trust-based? If the answer is yes, then it creates another centralized choking point, single point of failure and is just not secure. Malicious counterparty can easily bribe these monitoring services to hurt benevolent end users.

Is the team able to construct a monitoring service that is trust-free? For instance, they may punish the monitoring service providers if they fail to defend the states for the users.

However, when delving into this idea, we immediately see some caveats that render this approach impractical. How much penalty should monitoring service providers pay?

Ignoring the frictions, the total penalty bond for monitoring service providers ought to be equal to the largest potential loss incurred to the party that went online.

This effectively doubles the liquidity requirement for an off-chain network because whenever someone goes online, in addition to the existing locked liquidity in channels or fraud-proof bond in sidechains, monitoring service providers also need to lock up a similar amount of liquidity as penalty deposits.

Worse, the monitoring service providers need to retain different assets for a variety of monitoring tasks and things can get really complicated on the off chance the involved states are complex and multiple assets classes are in play. Sometimes, there is not even a straightforward translation from state to the underlying value, given all the complex state dependency for generalized state channels.

Even with plentiful liquidity, the “insurance” model here is really rigid: it is basically saying that you get X% back at once if the monitoring service providers fail to defend your states. If you choose a large value of X, it can become really expensive due to the additional liquidity locking, but if you choose a small value of X, it can become really insecure.

On top of these disadvantages, it is unclear the manner by which the price of state monitoring services should be determined as market information is still segregated with low efficiency. This low efficiency and the per-party bond on heterogeneous assets will further bring about complicated on-chain and o↵-chain interactions with monitoring services and smash the usability of any off-chain platform. There are more issues, but the above mentioned are already bad enough.

To solve these issues, the Celer Network team proposes State Guardian Network (SGN). State Guardian Network refers to a special compact side chain to guard off-chain states when users are online. Holders of the CELR token are in a position stake their CELR into SGN and become state guardians. Before a user goes online, they can submit their state to SGN with a stipulated fee and ask the guardians to guard their state for a particular period of time. A number of guardians are then randomly selected to be responsible for this state based on state hash and the “responsibility score”. The detailed rules for selecting the guardians are as follows:

  • (State Guarding Request):

A state guarding request is a tuple ηi = (si, li, di) where si is the state that should be guarded, li is the amount of service fee paid to guardians and di is the duration for which this state should be guarded.

  • (Responsibility Score):

The responsibility score of a state guarding request ηi is calculated as:

A user’s Responsibility Score is essentially the income flow generated by this user to the SGN.

  • (Number of guardian stakes):

Given a set of outstanding state guarding request R = {η1, · · · , ηm}, the number of CELR at stake for each request ηi R is

where K the total number of CELR stakes that guardians stake in the SGN. In other words, the amount of responsible CELR staked is proportional to the ratio between this requests responsibility score to the sum of all outstanding states responsibility scores.

  • (Assignment of guardian stakes):

Given a state guarding request η1, let hi be the hash value for the corresponding state si (e.g., Keccak256 hash). Each CELR stake k is associated with an ID pk (which is also a hash value). Let l(g1, g2) be the distance between two hash values g1 and g2 (for instance, the distance measure used in Chord DHT). Then CELR stakes are sorted in ascending order by their distance to the hash value hi. Suppose that

The first ηi CELR stakes that have the smallest distance are selected, and the corresponding stake owner will become the state guardian for this request.

(State Guarding Service Fee Distribution):

For each state guarding request ηi = (si, li, di), the attached service fee li is distributed to state guardians according to the following rule. For each state guardian j, let zj be the amount of his/her staked CELR that were selected for this state guarding request. Then the service fee that guardian j gets from state guarding request ηi is:

Note that each staked CELR has the same probability of being selected for a state guarding request. As a result, from the view of an SG, the more CELR staked in SGN, the more of such SG’s stakes will be selected in expectation (i.e., the value of zj will be larger), thus the amount of service fees that he will receive will increase. That affords CELR significant value as a membership to the SGN.

(Security and Collusion Resistance):

Each guardian is assigned a dispute slot based on the settlement timeout. If the guardian fails to dispute its slot when it ought to, subsequent guardians can report the event and get the failed guardian’s CELR stake. As a result, as long as at least one of the selected guardians are not corrupted and fulfills the job, an end user’s state is always safe and available for dispute.

The SGN mechanism also brings in the following additional values:

  • It does not require significant liquidity lock-up for guardians.

Guardians are only staking their CELR which can be used to guard arbitrary states regardless of the type/amount of the underlying value/tokens.

  • It provides a unified interface for arbitrary state monitoring.

Regardless of whether the state is related to ETH, any ERC20 tokens or complicated states, the users would just attach a fee and send it to SGN. SGN does not care about the underlying states and involved value, and simply allocates the amount of CELR proportional to the fee paid to be responsible for the state.

  • It enables simple interactions.

Users of Celer Network do not need to contact individual guardians and they only need to submit states to this sidechain.

  • Most importantly, it enables an entirely new and flexible state guarding economic dynamics.

Rather than forcing the rigid and opaque “get X% back” model, SGN brings users a novel mechanism to “get my money back in X period of time” and an efficient pricing mechanism for that fluid insurance model. On the assumption that all guardians at stake fail to dispute for a user, the user will get the CELR stakes from these guardians as compensation. In steady state, CELR tokens that are staked in the SGN represent an incoming flow (e.g., earning x Dai/second).

Ignoring the cost of state monitoring and other frictions, on the off chance a user submits the state to SGN, she can choose explicitly how much CELR is “covering” for her state by choosing fees paid per second (i.e., the responsibility score).

In summary, SGN is a special compact sidechain that guards the states when users are online so that the users’ states are always available for dispute. Guardians need to stake their CELR into SGN to earn guarding opportunities and service fees from the users.

The CELR Token

The upcoming Initial Coin Offering (ICO) on Launchpad will be selling the CELR token, which is the native token for the Celer Network. There is a total supply of 10 billion CELR and nearly 6% of the tokens will be available in the ICO, with pricing at $0.0067 for each token.

There is a hard cap of $1,500 USD per account, and the tokens can only be purchased with Binance’s BNB tokens. While the ICO is planned for March 19 through March 24, it is likely that it will sell out within hours of the previous Fetch and BitTorrent ICOs on Launchpad are any guide.

You can see the breakdown of the distribution of funds from the ICO. The Binance Launchpad sale is only a small percentage of the funds and there were two previous fund raising rounds that took place which saw the distribution of a sizable portion of the coin supply.

Token distribution split for Celer ICO. Image via Binance Launchpad

There was a seed sale of tokens for 11.5% of the CELR and a private sale for a further 15.5%. In terms of the vesting period, they are 10 months for the former and 3 months for the latter. Hence, you are unlikely to see much selling pressure at least for the first three months of the project.

There are various uses being planned for the CELR token, from adding value for users to providing network security and stability. Of course it will be used as a platform currency, but it is also planned to have the following additional uses:

  • Proof of Liquidity Commitment (PoLC):

This is a mining process that is designed to maintain liquidity. It is a staking system in which users have to lock up CELR for a period of time and are rewarded with additional CELR tokens.

  • Liquidity Backing Auction (LiBA):

This will allow off-chain providers to request liquidity, and lenders will be able to stake tokens to offer them as loans. The lenders will be ranked in the system based on the number of staked tokens, the liquidity already provisioned, and the interest rate being offered.

  • State Guardian Network (SGN):

Any user will be in a position to submit their state before going offline to have it protected for a set period of time at a stipulated fee. Holders of CELR tokens will be in a position to stake them to earn service fees for providing state protection.

As is the case with a majority blockchain networks, the CELR tokens should gain in value as more users join the network and use the tokens. An increasing number of applications will as well help support increased value, as will transaction speeds and ease of use. And the above mentioned incentive features will also help to increase demand for the CELR token, thus increasing its value.

Celer ICO Strengths and Opportunities

Celer has placed a particular emphasis on tech development and keeping their community informed on the relevance of the various innovations deployed by the network. To demonstrate the full-stack MVP, the team released a video of their first cApp built on the Celer Network, known as cGomoku.

With the release of the MVP demo, the team has demonstrated its commitment to developing the Celer Network by showcasing the viability of their innovative architecture at this early stage. As the first cApp built with the cOS operating system, the demo of cGomoku both highlights the functionality of the development framework and the network itself.

The team draw directly on their experience researching and building innovative technological solutions for developing the architecture of the Celer Network. Mo Dong developed formal network verification algorithms at his previous company, Veriflow. Junda Liu, Qingkai Liang and Xiaozhou Li have ample experience developing high-performance distributed systems and network infrastructure for applications at the enterprise level.

The team boasts a history of transforming theoretical knowledge into functional applications and with that, foster a high level of confidence in their ability to deliver on their ambitious vision.

Celer ICO Weaknesses and Threats

Off-chain scaling solutions are in no short supply, but their market capitalizations illustrate that some have fallen out of favor with the investing community to a degree. Lightning Network, Raiden and Trinity all take aim at providing off-chain payment scaling. Beyond pure payments, solutions like Plasma and Loom Network provide a pathway for the development of computation intensive applications.

The Celer Network has several aspects that distinguish it from other off-chain scaling solutions: x15 faster transactions than Lightning Network or Raiden; a developer suite and token system designed to incentivize adoption; and blockchain agnostic compatibility.

Yet the adoption of Celer is not just about developer suite functionality and token economics.

Community building and marketing strategies to drive mainstream adoption are crucial for the success of the Celer Network. Up until this point, the team has made clear their focus remains on product development. Yet as we know, the road to onboarding developers, contributors and users is not as straightforward as producing even the most technically viable solution for off-chain scaling.

For Celer to take a lead role as a scaling solution, serious attention must be paid toward building an ecosystem of users. While the team members are highly-qualified tech experts and even have experience with startups, marketing Celer to the wider community will require additional expertise and resources. A more balanced team with personnel specifically dedicated to building partnerships and spreading awareness would further strengthen the project as it progresses.

Team & Partners

The Celer Network and its team are based in California in the United States. It is a small team, comprised of the four founders (all of whom are PhDs) and 8 additional team members, most of whom are blockchain developers.

Some of the Celer Network team members

The Lead Team:                                                                                               

  • Mo Dong:

Dr. Mo Dong received his Ph.D. from UIUC. His research focuses on learning based networking protocol design, distributed systems, formal verification and Game Theory. Dr. Dong led project revolutionizing Internet TCP and improved cross-continental data transfer speed by 10X to 100X with non-regret learning algorithms. His work was published in top conferences, won Internet2 Innovative Application Award and being adopted by major Internet content and service providers. Dr. Dong was a founding engineer and product manager at Veriflow, a startup that specializes in network formal verification. The formal verification algorithms he developed are protecting networking security for fortune 50 companies. Dr. Dong is also experienced in applying Algorithmic Game Theory, especially auction theory, to computer system protocol designs. He has been teaching full-stack smart contract courses. He produces technical blogs and videos on blockchain with more than 7000 subscribers.

  • Junda Liu:

Dr. Junda Liu received his Ph.D. from UC Berkeley, advised by Prof. Scott Shenker. He was the first to propose and develop DAG based routing to achieve nanosecond network recovery (1000x improvement over state-of-art). Dr. Liu joined Google in 2011 to apply his pioneer research to Google’s global infrastructure. As the tech lead, he developed a dynamic datacenter topology capable of 1000 terabit/s bisection bandwidth and interconnecting more than 1 million nodes.

In 2014, Dr. Liu became a founding member of Project Fi (Google’s innovative mobile service). He was the tech lead for seamless carrier switching, and oversaw Fi from a concept to a $100M+/year business within 2 years. He was also the Android Tech Lead for carrier services, which run on more than 1.5B devices. Dr. Liu holds 6 US patents and published numerous papers in top conferences. He received BS and MS from Tsinghua University.

  • Xiaozhou Li

Dr. Xiaozhou Li received his Ph.D. from Princeton University and is broadly interested in distributed systems, networking, storage, and data management research. He publishes at top venues including SOSP, NSDI, FAST, SIGMOD, EuroSys, CoNEXT, and won the NSDI’18 best paper award for building a distributed coordination service with multi-billion QPS throughput and ten microseconds latency. Xiaozhou specializes in developing scalable algorithms and protocols that achieve high performance at low cost, some of which have become core components of widely deployed systems such as Google TensorFlow machine learning platform and Intel DPDK packet processing framework. Xiaozhou worked at Barefoot Networks, a startup company designing the world’s fastest and most programmable networks, where he led several groundbreaking projects, drove technical engagement with key customers, and filed six U.S. patents.

  • Qingkai Liang

Dr. Qingkai Liang received his Ph.D. degree from MIT in the field of distributed systems, specializing in optimal network control algorithms in adversarial environments. He first-authored more than 15 top-tier papers and invented 5 high-performance and highly-robust adversarial resistant routing algorithms that have been successfully applied in the industry such as in Raytheon BBN Technologies and Bell Labs. He was the recipient of Best Paper Nominee at IEEE MASCOTS 2017 and Best-in-Session Presentation Award at IEEE INFOCOM 2016 and 2018.

There are as well some pretty well known investors and VC firms that have taken part in the earlier stages of the Celer Network. These include the likes of Pantera capital, Arrington XRP Capital and FBG Capital among many others.

Finally, they have also entered a number of commercial agreements with other blockchain based projects. For example, they are piloting cross-shard off-chain transactions with Quarkchain, testing Qtum’s new x86 virtual machine and working with Chainlink to combine real world information with layer-2 scalability.

Product, Traction & Roadmap

The Celer network has been working on their technology for some time now. For instance, they released their whitepaper back in June of 2018. Hence, we can get an idea of how much work has been done by looking into Celer Network’s GitHub repositories.

The Celer network has a public GitHub repository where you can view the recent activity. However, because this is still a relatively new project, the bulk of their development work is taking place in their private repositories. However, they have shared this data in this Binance Research report.

Commits of three most active private repos. Source: Binance Research

As you can see from the above, there has been an enormous amount of code commits in these repositories over the past 12 months. This shows that the developers have been quite active getting their product ready before they moved on to their crowd sales.

The Celer team will slowly start pushing these private commits to their public repos in batches. In other words, the release is done as a single code drop on each occasion instead of regular daily commits that would take place in a traditional GitHub.

Despite this though, the extent of the development is quite impressive for a project that has yet to complete an ICO and is more than I have seen for other projects at this stage. This all makes sense when viewed in conjunction with the extensive development roadmap that they have laid out.

So, what can we expect to see from the project over the coming year?

Below is a breakdown of what we can expect to see for the upcoming quarters for the Celer Network:

Celer Network Roadmap for 2019

As we are toward the end of the first quarter of the year, it will be interesting to see how much of the development goals they meet from above. This could give a good indication of whether they can realistically meet their milestones in the quarters that follow.

Market, Opportunities and Challenges

Celer appears to have some competitive advantages over other similar projects that could help lift it to prominence. Chief among these is its demonstrated speed, with the network performing 15x faster than rivals thanks to its generalized state channel and channel balancing solutions. In addition to being faster, there have been reports of inefficiencies from the Lightning Network and other similar projects showing Celer may be more advanced than competitors.

The four founders are a benefit to the project, with strong backgrounds in network infrastructures, distributed systems, and performance networking. They also have years of experience with some of the largest tech companies and research labs.

Celer has avoided the obsolescence problem by becoming blockchain agnostic. Because it can work with any blockchain there is no chance of it becoming obsolete due to the blockchain it supports losing support. And not least of all the staking mechanism used by Celer Network ensures the token will remain valuable.

On the other side of the spectrum there are some concerns and challenges faced by Celer. One is the lack of marketing the project has seen so far, although that may be changing as the team now includes two Marketing & Operations members. Along the same lines there is very little social presence for the project, with less than 10,000 Twitter followers and just 39 followers of the Celer Network sub-Reddit.

Let’s not forget the competition the project faces from more established payment networks such as Raiden, Funfair and the Lightning and Loom Network.

Conclusion

Celer Network is ready to launch the third ICO on the new and popular Binance Launchpad platform, and while the competition of off-chain scaling solutions is stiff, the popularity of ICOs on Launchpad almost guarantees this ICO will sell out quickly.

With that in mind, similar projects have had poor post-ICO performance (Raiden at 0.45x ICO price and Trinity at 0.05x ICO price). The fact that we are deep in a bear market could help limit downside however.

In looking at the proven speed of the network (15x faster than rivals) and the projected scalability it appears Celer Network could be a ground-breaking technological development, but it remains unproven. The Celer Network is also a fairly new project, having gotten its start in June 2018.

The team has deep knowledge and expertise, and this could give them an edge in delivering a unique off-chain scaling solution.

That said, this solution could be some time in coming, so those looking to participate in the March 19 ICO on Launchpad may need to show a good deal of patience in waiting for a working product.

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