CoinClear

Fuel Network

4.6/10

Modular execution layer with custom VM for parallel execution — strong tech, nascent ecosystem.

Updated: February 16, 2026AI Model: claude-4-opusVersion 1

Overview

Fuel Network is a modular execution layer built around the FuelVM, a custom virtual machine designed from the ground up for blockchain-optimized execution. Originally conceptualized as one of the first optimistic rollups on Ethereum (Fuel V1 in 2020), the project pivoted to build a purpose-designed execution environment rather than yet another EVM-compatible rollup. Fuel V2 launched its mainnet in late 2024 / early 2025.

The core thesis is that the EVM is a bottleneck — its sequential execution model and account-based state management limit throughput. FuelVM uses a UTXO-based model (like Bitcoin) that enables parallel transaction execution, a register-based VM (more efficient than EVM's stack-based design), and native asset support. Smart contracts are written in Sway, a Rust-inspired domain-specific language.

Fuel has raised over $80M from investors including Blockchain Capital, Stratos, and CoinFund. The team includes ex-Ethereum researchers and rollup pioneers. The technology is genuinely innovative, but the project faces the same challenge as StarkNet: a non-EVM architecture must justify its developer learning curve through proportionally superior performance and capabilities.

Technology

FuelVM Architecture

FuelVM is a register-based virtual machine using a UTXO model. Key innovations include:

  • Parallel Execution: UTXO model allows transactions that don't share state to execute in parallel, unlike EVM's sequential processing
  • Native Assets: All tokens are first-class citizens in the VM, not smart contract state — transfers are as efficient as ETH transfers on Ethereum
  • Predicates: UTXO spending conditions that enable stateless smart contract logic without on-chain state
  • Sway Language: A Rust-inspired language purpose-built for FuelVM, with strong typing and safety guarantees

Performance

FuelVM benchmarks show significant throughput improvements over EVM for parallelizable workloads. The register-based design reduces computational overhead. Native asset handling eliminates the token approval pattern and reduces gas costs for transfers. Theoretical throughput is high, though real-world performance depends on actual transaction patterns and state contention.

Modular Design

Fuel is designed as a modular execution layer, meaning it can plug into different data availability and consensus layers. Initially deploying as an Ethereum L2 (using Ethereum for DA and settlement), Fuel can theoretically use Celestia or other DA layers. This modularity is forward-looking but adds complexity.

Security

Settlement Security

Fuel settles to Ethereum, inheriting Ethereum's security for state finality. The bridge uses a fraud-proof mechanism (optimistic rollup style) with a challenge period. Bridge contracts are controlled by a multisig with plans for progressive decentralization. The security model is similar to other optimistic rollups in its reliance on honest challengers.

Concerns

  • Bridge contracts are upgradeable via multisig
  • Fraud proof system is still maturing
  • UTXO model is less battle-tested for complex DeFi than account-based models
  • Sway compiler is new and has had fewer security audits than Solidity compilers

Decentralization

Current State

Fuel's sequencer is centralized, operated by the Fuel team. Block production is single-entity. A decentralization roadmap exists but timelines are uncertain. The multisig controlling bridge contracts represents a centralization vector. The project is in early-stage operations where centralization is common but must progress toward decentralization to justify the L2 positioning.

Governance

Governance mechanisms are still being developed. The FUEL token (if/when fully launched) is expected to play a governance role. Currently, all protocol decisions are made by the Fuel Labs team.

Ecosystem

Current State

The ecosystem is early-stage:

  • DeFi: Initial protocols launching (Spark, Mira, Swaylend) but with limited TVL
  • TVL: Low, in the tens of millions range
  • Developer Tools: Forc (Fuel toolchain), Sway standard library, Fuel indexer
  • Wallets: Fuel Wallet, Fuelet
  • Active dApps: A handful, mostly in beta or early launch

The ecosystem is growing but remains small. The Sway language requires developers to learn a new language, which slows adoption despite Rust-like familiarity. Fuel has invested in developer grants and hackathons to bootstrap the ecosystem.

Developer Experience

Sway provides a modern development experience with strong typing, pattern matching, and built-in testing. The Forc toolchain handles building, testing, and deploying. Documentation is comprehensive. However, the learning curve versus Solidity or even Cairo is real, and the ecosystem of libraries and integrations is still nascent.

Tokenomics

Token Overview

The FUEL token launched alongside the mainnet. Details of the token distribution include allocations for the team, investors, community, and ecosystem development. The token is used for gas fees on the network and will be used for governance and potentially staking. Early token performance has been volatile as the market evaluates the project's long-term potential.

Utility

FUEL has native gas utility — all transactions on Fuel Network require FUEL for gas. Unlike StarkNet (which accepts ETH for gas), FUEL has exclusive gas demand, which is a tokenomics advantage. Future staking for decentralized sequencing could add additional demand.

Risk Factors

  • Non-EVM barrier: Sway requires learning a new language, limiting the developer pool compared to EVM-compatible rollups
  • Early ecosystem: TVL and dApp count are far behind established L2s like Arbitrum, Base, and Optimism
  • Centralized operations: Single sequencer and multisig bridge control create centralization risks
  • Market saturation: The L2 market is crowded with well-funded alternatives, making differentiation difficult
  • UTXO complexity: The UTXO model, while enabling parallelism, adds complexity for DeFi patterns that were designed for account-based models
  • Execution risk: The team must simultaneously build a VM, language, toolchain, and ecosystem — spreading resources thin

Conclusion

Fuel Network represents one of the most technically ambitious L2 projects. Rather than building another EVM-compatible rollup, Fuel redesigned the execution environment from scratch with FuelVM, achieving genuine innovations in parallel execution, native assets, and the UTXO model. Sway is a well-designed language, and the modular architecture is forward-thinking.

The challenge is identical to StarkNet's: technical superiority must overcome the ecosystem moat of EVM compatibility. Developers must learn a new language, users must bridge to a new chain, and DeFi protocols must be rebuilt from scratch. In a market where Arbitrum and Base offer "good enough" EVM execution with massive ecosystems, Fuel must demonstrate that its performance advantages are worth the switching cost.

Fuel is a high-conviction bet on the thesis that custom VMs will outperform EVM in the long run. The technology deserves serious attention, but investors should expect a long timeline before ecosystem maturity and should monitor TVL and developer growth as key indicators.

Sources