Analysing Layer2s in 2022 Part Three

This article is an original Web3 annual review by Coinlive and GeniiData; please cite the source if you intend to reproduce the content.

Roadmap

4. Development Trend & Ecosystem Prospect

Optimism is currently an L2 project second only to Arbitrum, and its indicators are still upward. The TVL is lower than that of Arbitrum, which is about 500 million US dollars (Defillama caliber), but there is little difference between the two in terms of the number of users and daily transaction volume. The daily transaction volume of Optimism has also reached an impressive level of 500,000.

There are more than 150 projects listed on the Optimism Ecosystem Portal. The ecosystem includes DEX, cross-chain bridge projects, lending applications, revenue agreements, NFT platforms, etc.

As the leading chain on L2, most Defi projects choose to deploy on Arbitrum and Optimism at the same time, such as Uniswap, AAVE, and Curve. These star projects have also brought a lot of traffic to Optimism. Optimism also gave birth to native projects such as Synthetix. These projects contributed to Optimism's TVL, which is second only to Arbitrum, reaching $1.14B.

Source: orbiter.finance, the top project on Optimism

(III) zkSync

1. Project Introduction

zkSync is the ultimate solution for the second layer zero-knowledge rollup expansion of Ethereum. Its vision is to be trustless, private, and blazingly fast.

zkSync key features are low transaction fees, cryptographically secure funds (just like on the Ethereum mainnet), users always control their funds, and permissionless smart contracts.

Team Information

zkSync was founded by Matter Labs, a German company working on scaling Ethereum. They started working on a zkSync solution in December 2019 and released zkSync v1.0 in June 2020.

Fundraising Status

In September 2019, zkSync raised US$2 million in Seed round.

In February 2021, it raised US$6 million in Series A fundraising and invested in encryption companies such as Binance, Aave, Curve, and Coinbase Ventures.

In November 2021, the B round raised US$50 million, with investment institutions such as a16z, Dragonfly and Placeholder, and other venture capital funds.

In January 2022, US$200 million was obtained as a dedicated ecosystem fund, a.k.a an ecosystem accelerator, from the investment institution BitDAO.

In November 2022, the C round of fundraising reached a total of US$200 million, co-led by Blockchain Capital and Dragonfly, and other investors include a16z, Variant, Lightspeed Venture Partners, etc.

As a whole, zkSync has raised a total of $458 million in its mission to expand Ethereum technology and value.

1. Technology and Product Performance

zkSync is an L2 protocol based on the ZK rollup architecture. All funds are held by smart contracts on the main chain, while calculations and storage take place off-chain. The main idea is that instead of validating each transaction individually, transactions are "aggregated" into a single item (summarized block), which is then validated, and all transactions are approved simultaneously. SNARK verification is much cheaper than verifying each transaction individually, and storing state off-chain is much cheaper than storing it on the EVM. Therefore, scalability can be significantly improved (approximately 100-200 times the capacity of the main network), and transaction costs can be saved.

zkRollup strictly inherits the security guarantees of the underlying L1, because the zkRollup architecture provides the following guarantees:

●Validators can never corrupt the state or steal funds (unlike sidechains).

●Even if validators stop cooperating, users can always get their funds back from the zkRollup smart contract because the data is available.

●Neither users nor a single trusted third party need to monitor zkRollup blocks online to prevent fraud (unlike fraud prevention systems such as payment channels or Optimistic Rollups).

Maximum throughput: Since the upgrade on Feb 9, 2021 that brought support of recursion to zkSync on mainnet, protocol throughput is limited essentially only by the need to publish state changes for every transaction via calldata Ethereum, to ensure data availability. With the current block gas limit of 12.5M, zkSync can process over 2000 TPS.

Transaction finality: Shorter layer-on-chain confirmation time with the proof time generation is estimated to be about 10 minutes. Transactions in zkSync reach Ethereum finality once the SNARK proof of the zkSync block is generated and accepted by the smart contract. When a user sends a transaction, it waits for the block to be filled, so proofs are not generated immediately. With higher throughput on the zkSync system, the time between blocks will decrease.

It is expected that current developments in ZK prover technology will reach proof times, enabling ZK Rollup blocks to be produced in under a minute. Compared to fraud-based scaling solutions such as optimistic rollup that require at least a 2-week lockup period to operate more or less safely.

Instant confirmations: Even though the time to finality is about 10 minutes, it does not affect the usability of the network. Transactions submitted to zkSync by users are instantly confirmed and instantly displayed to the receiving party in the UI and API (although marked as unconfirmed), and the transferred assets can immediately be used to make further transfers (which might even end up in the same zkSync block).

zkSync has apparent advantages in high-congestion environments:

1)Security: A congested network will not threaten assets in zkSync. Any movement of funds inside or outside of zkSync requires zero-knowledge proofs to be valid, and it is entirely immune to any influence from L1 censorship.

2) User cost is still very low: The regular operation of zkSync is also unlikely to be interrupted, even by small amounts. Validator nodes are configured to automatically increase the gas price above average for high-priority mined zkSync blocks. Since each transaction costs about 1/100 of the corresponding ordinary transaction cost on L1, zkSync users are less affected even in a congested state.

3) Gas payment method: It is not necessary to use ETH to transfer gas fees, and you can use the transferred tokens to pay transaction fees. For example, if you want to transfer the DAI stablecoin, you only need to pay the gas fee with a fraction of DAI. Similar to the withdrawal fee deduction method in centralized exchanges.

4) Privacy protection: Privacy is an absolute prerequisite for mass adoption and an important part of the zkSync roadmap.

zkSync 2.0

Since zkSync 1.0 lacks support for zkEVM and cannot handle more complex smart contracts, zkSync 2.0 is a more refined version. Firstly, it implements arbitrary smart contract functions by supporting Solidity (via zkEVM) and Zinc (rollup's internal programming language). Secondly, through zkPorter (a protocol that combines zkRollups and sharding), the throughput increases exponentially, about 20,000 +TPS. Thirdly, users can increase the use of tokens to pay transfer fees, such as transferring ETH can use DAI as gas fees. In more detail, zkSync 2.0 has the following features:

●Similar to the security of the main network, zero dependence on third parties

●Standard Web3 APIs

●Permissionless #EVM compatible smart contracts.

●Key EVM features, such as smart contract composability are preserved.

●Account abstraction and meta transactions.

Roadmap

In February 2022, zkSync 2.0 testnet was launched

In October 2022, the project was registered and started working with ecosystem partners to prepare for the launch of the mainnet

The main network will be launched in the second quarter of 2023 (tentatively)

4. Token Economy

Tokens will be issued, but tokenomics has yet to be announced.

5. Development Trend and Ecosystem Prospect

The zkSync ecosystem includes more than 150 innovative projects in Defi, wallet, payment, cross-chain, tools, digital identity, privacy, NFT, games, social, and Dao. The launch of zkSync 2.0 will accelerate the enrichment and development of the zkSync ecosystem.

At present, zkSync2.0 has yet to be officially launched, and it is only open for specific projects, so its product advantages cannot be reflected in the data for the time being. But from a technical point of view, zkSync is also very competitive compared to several other projects.

zkSync2.0 vs. Arbitrum and Optimism:

●Significantly improved security: ZK Rollup eliminates the reliance on observers and replaces game-theoretic economic security with cryptographic security—users can fully be secured by pure automated mathematics instead of incentivizing participants.

●Transaction costs: ZK Rollups are cheaper, and for some common use cases, the cost savings can be significant by order of magnitude!

●Finally, zkSync 2.0 will have an extension called zkPorter that provides a constant 1-3 cent transaction fee by taking data off-chain. Optimistic rollups fundamentally cannot have such extended off-chain data availability because observers cannot verify the validity of each transaction without public data. Therefore, it is impossible for them to provide such a hybrid system for users who prefer ultra-low fees over security.

zkSync2.0 vs. Starkware:

●Although Starknet is technically a ZKRollup, the current architecture of the Cairo VM does not allow users to enforce arbitrary transactions through the L1.

●The mechanism of Validium is very similar to zkRollup, but there is a difference in that data availability in zkRollup is on-chain, while Validium keeps it off-chain. This allows Validium to achieve higher throughput - but these centralizations come at a cost: Validium's operators can freeze users' funds while zkSync is completely decentralized.

(IV) StarkNet

1. Project Introduction:

StarkNet is a decentralized, permissionless ZK-Rollup (based on ZKP) and uses ZKSTARK technology to scale exponentially without compromising privacy. StarkNet is an iteration of zk-Rollup that the StarkWare team is committed to launching. It becomes the first fully composable zk-Rollup network that supports general-purpose smart contracts.

Team
The StarkWare team is known for its "technical abilities," and StarkNet is one of the products of the StarkWare team.

●Eli Ben-Sasson: Co-Founder and Chief Scientist. He is the world's top cryptography scientist. He jointly invents the current two most mainstream zero-knowledge proof systems, SK-SNARKs, and ZK-STARKs. Eli is also a founding scientist of the Zcash project and a professor of Computer Science at the Technion-Israel Institute of Technology.
●Alessandro Chiesa: Co-founder and Chief Scientist, Professor of Computer Science at UC Berkeley. He is the co-inventor of ZK-SNARKs and the co-founder of Zcash.
●Michael Riabzev: Co-founder and Chief Architect, Ph.D. from Technion-Israel Institute of Technology.

Fundraising Status
Because of its technical expertise and ability to deal with venture capital institutions, investment institutions favor StarkWare. Vitalik is their seed round investor. In addition to Vitalik, the list includes repeat investors such as Paradigm, Sequoia Capital, Pantera Capital, and Founders Fund.

So far, StarkWare has completed 6 rounds of fundraising, namely seed round, Grant, round A, B, C, and D, with a total of 273 million U.S. dollars. Especially in the latest fundraising round, when it received 100 million U.S. dollars, StarkWare's valuation quadrupled to 8 billion U.S. dollars to rank first among all Layer 2.

As a technology-driven project with a solid technical background and a core technology of a hot spot in the zero-knowledge proof system, Starknet has won the attention and support of many investors and investment institutions, including Vitalik, and the market is scorching hot.

2. Technology and Product Performance:

The StarkWare team was once considered one of the ten strongest technology teams in China, and the STARK technology it uses is currently the most advanced ZK technology. Since the amount of computation required to verify STARK proofs is exponentially smaller than that needed to verify the original data, StarkNet will scale Ethereum by several orders of magnitude. The performance in terms of tps and gas far exceeds OP rollups like Optimism and Arbitrum.

Source: Xiang｜W3.Hitchhiker, the premise of the above calculation is that the current ETH price is 2500u, the block gas limit is 30000000, the gas fee is 30Gwei, and the average block time is 13 seconds. The limit TPS means that the corresponding operating environment occupies all Ethereum Block space (500,000 gas is spent on proof verification), and ordinary TPS implies that the corresponding operating environment occupies 1/3 of the block space of all Ethereum.

Even compared to the zkSync platform in the current same ZK-rollup category, StarkWare has obvious technical advantages:
zksync uses SNARK technology, while Starkware uses STARK technology. Compared with SNARK, STARK outperforms in scalability and transparency, and zk-STARK also has higher security.

Moreover, Starkware is the inventor of STARK technology. On the contrary, zksync's technology stack is built by others (PLONK created by Aztec), which shows that Starkware also has obvious advantages in understanding technology.

In addition, Starkware also has a technical innovation that combines the validium system (off-chain data availability) and rollup system (on-chain data availability), allowing users to choose between the two systems independently for each transaction. Validium can support higher throughput while sacrificing data availability to meet some users' specific needs.

Finally, an innovation of Starkware opens up the imagination space for the future: the STARK algorithm realizes the recursive characteristic, which can prove the proof. In short, the prominent feature of StarkNet is that it has almost unlimited computing potential.

Due to the above background, although Starkware has yet to launch a highly completed product, it has received much attention. Vitalik himself has reviewed most of the articles published by StarkWare, and many respectable investment institutions have participated in its fundraising.

Roadmap
StarkNet is built in four steps, namely: Infrastructure Construction, Planetary Project (Single-App zk-Rollups), Constellation Project (Multi-App zk-Rollups), and Universe Project (Decentralized zk-Rollups).

Considering the difficulty of zk development, it is estimated to take several years to complete this plan. Currently, it has launched two product lines:

In June 2020, StarkWare first launched StarEx, marking the planetary stage in the roadmap. This is a to B product with a model of "scaling as a service," It achieved profitability right from the year it went online. Well-known projects such as dydx, Immutable, Deversifi, and Sorare are all users of StarEx, but later dydx announced that it would leave to build its own application chain. It's an understandable move since to have an application chain with self-sovereignty, the development of the application can no longer be affected by the development progress of the chain.

In November 2021, the mainnet Alpha version of another product, StarkNet, was released, a general-purpose L2. Any smart contract can be deployed, unlike StarEx, which needs to be customized for specific applications. It is currently under development and testing. In the future, it is expected to delegate operational authority to the community and become a fully decentralized version.

3. Token Economy:

StarkNet has yet to issue tokens, and StarkNet's ERC-20 token contract has been deployed to Ethereum, but the StarkNet Foundation still needs time to determine the token distribution mechanism.
Ten billion tokens have been minted off-chain by StarkWare, and the team has announced the token distribution plan:
17% — StarkWare Investors32.9% — Core Contributors: StarkWare and its employees and consultants, and StarkNet software developer partners
50.1% granted by StarkWare to the Foundation, earmarked as follows:

●9% — Community Provisions — for those who performed work for StarkNet and powered or developed its underlying technology
●9% — Community Rebates — rebates in StarkNet Tokens to partially cover the costs of onboarding to StarkNet from Ethereum.
●12% — Grants for research and work done to develop, test, deploy and maintain the StarkNet protocol
●10% — a strategic reserve, to fund ecosystem activities aligned with the Foundation's mission.
●2% — Donations to highly regarded institutions and organizations, such as universities, NGOs, etc, as decided by StarkNet Token holders and the Foundation.
●8.1% Unallocated — the Foundation's unallocated treasury is in place to further support the StarkNet community in a manner to be decided by the community.

4. Development Trend and Ecosystem Prospect:

StarkNet still needs to be completed, but even now, developers can create meaningful and complex applications using it. Today, hundreds of developers rely on StarkNet, many dApps, and some external teams to develop tools and infrastructure for the StarkNet ecosystem.

Source: orbiter.finance

Now, the StarkWare team's resources should be mainly poured into product development, and the ecological operation has yet to start on a large scale. It is certainly not like deploying a leading project on an immature chain at this stage. There are some original projects on it, but generally, there is a need for star projects to bring traffic and activity, so it isn't easy to form an ecology.

Source: geniidata.com

In conclusion, L2 is undoubtedly the most promising track in the current crypto industry. It is still a blue ocean and is also expected to provide an opportunity for the industry to accelerate its development. Such a bright prospect also predicts fierce competition will occur. More than pure technological leadership is needed to build long-term success. Zk-rollup technology will likely be the ultimate solution for L2 in the future, but it does not mean that the current project adopting the zk-rollup technology is the final winner when other projects may also follow up the technology and execute the same product. After all, technology cannot stop the offensive of talents and funds. Therefore, in addition to technology, the execution ability, operation ability, and ability to grasp the continuous evolution of the market are also crucial. Right time, appropriate products to obtain market share, constant technological iteration, and ecological construction are potent weapons in a rapidly changing industry that can make a project to the endgame.