zkSync is an Ethereum Layer 2 blockchain that uses Zero Knowledge rollup technology to solve the current problem of Ethereum, that is, scalability.
Developed by Matter Labs since 2019, the chain is now in baby alpha stage, undergoing internal mainnet testing.
Thanks to ZK technology, zkSync should be able to handle over 20,000 TPS, making it one of the most efficient Layer 2 EVM compliant. The implementation of Layer 3 technology and account abstraction will allow the project to reach its ultimate goal of mass adoption.
To achieve such results, ZkSync is backed by $458 million raised from the most prestigious venture capital and business angels. The team was also able to leverage its 500k+ member community to meet mass adoption and conduct thorough stress testing.
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Let’s take a closer look at this exciting project and see what impact the zkSync initiative will have on the cryptocurrency industry.
Ethereum is the most used and trusted chain in the crypto ecosystem. It managed to outperform all other chains due to its thousands of dApps and DeFi protocols. Ethereum is also known for its security and decentralization, but unfortunately, it faces the common blockchain trilemma of only being able to achieve two.
To solve Ethereum’s scalability issues (speed and transaction costs), many Layer 2 protocols are built on top of the chain in an attempt to scale it.
Created in 2019, zkSync is one of the contenders on this track with one goal: to bring about mass adoption.
To this end, zkSync is using Zero Knowledge rollup technology to improve transaction throughput, cost and privacy.
Currently, the second version of zkSync is live, and it differentiates itself through several features, such as low transaction costs (a few cents per transaction), security while benefiting from the security of Ethereum, and through the use of ZK SNARK technology. decentralized.
zkSync also offers interoperability thanks to its V2 launch in February 2022, making it the first EVM-compatible ZK-Rollup, an achievement that should have taken years.
The protocol is not yet fully deployed to continue improving and testing as much technology as possible before going live fully. The mainnet is actually in the Baby Alpha stage, which is a period when a team tests the chain with real assets and funds.
To stand out from other chains, zkSync focuses on 5 main Ethereum-related properties such as:
· As a general agreement
Compatible with EVM (Support Solidity language)
· Pay gas in ETH
· Open source and decentralized
By focusing on these 5 elements, zkSync meets the goals of not only the Ethereum community, but the market and crypto as a whole.
To bring innovation, the chain is also looking to build tools for mass adoption, such as account abstraction, which will reduce the complexity for users to get started.
Layer 3 is also part of the project, a new way of building and communicating across chains while putting privacy and scalability at the center.
zkSync will be governed by a DAO called zkDAO, which aims to facilitate the growth of its ecosystem by funding various projects and initiatives. Through the partnership with BitDAO, the entity will focus on 5 main areas such as:
· Provide strategic capital for agreements in the ecosystem
· Develop chains and public welfare tools based on bonuses
· Research and development to continue to improve the protocol and ecosystem
· Education, organizing events and workshops to raise awareness of ZK technology.
Continuously implement the highest standard of security in the ecology
Attracting and retaining users in the ecosystem will be one of zkSync’s key growth challenges, and BitDAO’s experience will be greatly used for reference.
The next key challenge will be the implementation and development of zero-knowledge technologies, so let’s take a deeper look.
zkSync has managed to attract attention by implementing and developing cutting-edge mechanisms. The main innovation of the chain is still the use of zero-knowledge technology combined with the rollup function. It imparts greater security and efficiency than other L2 technologies, with predicted performance exceeding 3000 TPS.
Reaching mass adoption remains complicated due to practical UX/UI and onboarding issues. The chain had to improve this process by implementing an account abstraction that confers many benefits such as improved user experience. Account abstraction makes managing onboarding and wallet creation easier by gaining an email-like connection. User experience will also be improved through improved transaction flow and routing, as illustrated in the diagram below.
To go a step further, ZkSync will develop a layer 3 or “fractal hyperchain” designed to scale L2 and provide new features such as privacy and anti-MEV transactions.
Each L3 will have native and secure bridging (this is the reason for billions of hacks every year). The scalability possibilities of the blockchain become infinite while maintaining the security of the underlying chain.
The main challenge of ZK rollup is to be compatible with EVM, which means that developers can communicate and develop under conditions similar to the Ethereum main chain. The EVM was considered impossible until years of development, but in 2022 zkSync released the first Type 4 ZK EVM compatible rollup, making Yul and Zinc compilers 99% compatible.
Once the compiler is complete, they plan to focus on making Zinc more expressive and functional, and then build a Rust compiler to allow smart contract programming using native Rust.
zkSync has developed the arguably major innovation ZKPorter, a feature that will allow users and developers to choose between validity rollup (on-chain data availability) and expiration (off-chain data availability). This allows each project to choose the format they prefer based on their needs, e.g. a game project might not need to have the same level of security compared to a DeFi project and choose validity over validity.
By definition, zkPorter will become more efficient than Optimistic and zkRollup because their data is stored off-chain and does not require transactions on Ethereum. Stakeholders of the protocol will be invited by the protocol to run a form of proof-of-stake consensus and form a group called Guardians. This will drastically reduce transaction fees on zkPorter and allow up to 20k+ TPS! This would be a huge improvement.
We mentioned earlier the concept of the blockchain trilemma, which is that it is difficult to achieve scalability, security, and decentralization at the same time. However, when it comes to scaling Ethereum, according to zkSync, there is another important aspect to consider: programmability.
Programmability refers to the possibility and convenience of coding and creating smart contracts, and the resulting dApp development and ecology.
All current scaling solutions trade some level of security, decentralization, and programmability for scalability, and zkSync 2.0 aims to overcome this tradeoff by leveraging ZKporter and zkEVM to achieve full scalability.
In the face of the problems faced by Ethereum, many projects are trying to bring scalability to the chain. L2Beats lists over 10 different Layer 2 blockchains with TVLs ranging from a few thousand dollars to over $2 billion.
There are several Ethereum Layer 2 solutions and technologies that have gained significant traction in the ecosystem, each with their own unique tradeoffs and use cases.
Some of the most important of these include:
Optimistic Rollup: It allows for fast and cheap transactions by batching off-chain transactions and then publishing the results on-chain periodically, with a level of security and decentralization for transactions as it always assumes that transactions are valid (optimistic of). Additionally, transactions are subject to a 7-day delay before they are validated. The main blockchains are Optimism ($1.7 billion TVL) and Arbitrum ($2.7 billion TVL).
ZK-Rollup: It works by allowing users to create and publish zero-knowledge proofs of their transactions that can be verified by smart contracts on the Ethereum main chain. zk-Rollup allows for greater privacy, scalability, and transaction costs, but is at risk due to its relatively new deployment and complexity. Major projects are zkSync ($64M TVL), Starknet ($7M TVL), Loopring ($108M TVL) and Polygon Hermez.
This enthusiasm is not only manifested in builders and users, but also in large investors. In 2022, Layer 2 investment has grown by more than 150% to $1.25 billion.
Blockchain is benefiting from large valuations and fundraisings due to the major problems it is designed to solve and the financial opportunities it opens up.
Seeing all existing technologies and upcoming technologies such as Scroll, Taiko, etc., zkSync will have to constantly provide valuable innovations and tools to maintain its edge.
The Ethereum blockchain, being one of the most secure and decentralized chains, has proven its necessity in the crypto industry over the years.
The question being raised is whether zero-knowledge proof systems, such as zkSync, can be relied upon as a long-term solution for Ethereum transactions.
At least for now, zkSync has shown increased efficiency, seamless transactions, and reduced costs for DApps.
As mentioned above, the Layer 2 ecosystem is huge, with multiple competitors already having existing adoption and significant resources. In order to distinguish it from other scaling solutions, zkSync provides a variety of innovations to improve user experience and ecological technologies.
Using zero-knowledge technology is one of them, and because SNARK rollup technology has better backtesting effect than STARKs , it was selected by zkSync.
As shown, SNARKs are faster (verifier time) and cheaper (verification gas cost) than STARKs, requiring less computing power than the hash functions used to compute STARKs.
In fact, zero-knowledge technology provides greater privacy by verifying information without revealing the underlying data. This allows for private transactions while still remaining secure and protecting the user’s identity.
In keeping with the value of Ethereum, zkSync announced that transaction fees will be paid in ETH, while also supporting the conversion of any other token to pay transaction fees.
Further in line with the values of Ethereum and the blockchain, zkSync aims to achieve complete decentralization once the chain will be able to run without any third parties. At that point, Matter Labs, the company behind zkSync, will hand over the protocol to validators and guardians.
Composability is another important feature of zkSync, as it allows applications to build and swap on top of each other. This implementation cannot be used for zkRollup yet, but it is very necessary for chain development.
Germany-based Matter Labs, the company behind zkSync, was launched in 2018 by Alex Gluchowski and quickly grew to more than 50 employees. The team is comprised of experienced blockchain developers, researchers, and entrepreneurs who have come together to create a more efficient, cost-effective, and secure way to transact on Ethereum.
· CEO: Alex Gluchowski . Over 15 years of development experience, growing as a CTO and entrepreneur. He is passionate about personal freedom, self-ownership, and decentralization.
· COO: Zoe Gadsden . Former Google employee, Zoe has 10+ years of growth and product leadership experience.
· Chief Financial Officer: Ankur Rakshit . Has 15 years of experience in finance, having served as Head of Financial Planning and Analysis at Kraken.
· CPO: Steve Newcomb. A successful entrepreneur and product manager with over 15 years of experience in the industry and accelerator programs.
· Director of Marketing and Communications: Shazia Hasan. Various experience in finance and communications over the past few years.
Due to their diverse backgrounds, the team is well-versed in several key aspects of building a blockchain and running a company. These are very important points as this project aims to become mass adoption.
The team’s ability to ship is undeniable, and they can rely on their experience to achieve continuous innovation.
Since 2018, zkSync had the opportunity to raise funds through 5 funding rounds. In total, $258 million has been raised from the largest investors, venture capital and investment firms, plus BitDAO’s $200 million funding commitment.
Such an amount guarantees sufficient funds to develop projects and infrastructure, while also making it the most funded Layer 2.
The most famous of those funds come from:
· In November 2022, $200 million in Series C financing, led by Dragonfly and Blockchain Capital
200 million committed funds from BitDAO in January 2022
· In November 2021, the B round of financing is 50 million US dollars, led by a16z
· February 2021 Series A funding round of $6 million led by Union Square Ventures
A $2 million seed round led by Placeholder in September 2019
Interestingly, multiple VCs and investors repeated investments in subsequent rounds, showing real traction for the project.
The USD 200 million from BitDAO will be used to start the zkSync ecosystem, and USD 40 million will be released in 5 batches when certain milestones are reached (see the Ecology section for more details).
As a result, ZkSync now has a lot of funding, which will help them develop several important points, such as growing the team, growing the ecosystem, attracting protocols, users, and creating Matter University, a learning center.
The team clearly has enough cash to cover their burn rate and come up with the first product development. It is also important to note that a major portion of the funds raised will be used to grow the ecosystem and distribute grants for onboarded developers and users.
As of now, zkSync has not released any information about its token and tokenomics, fueling speculation among users and investors.
According to the team, only 30% of the tokens will be allocated to the team and investors, and the rest will be used for community and ecological development.
Therefore, it is reasonable to expect an airdrop to early adopters and consistent community members. Airdrops have become a regular tactic for everything from major funding projects to onboarding and attracting users.
In fact, Airdrop Hunter helps the project by bringing TVL and activities on the industry chain, which leads to rapid development. As such, zkSync should surf the airdrop wave and leave an aura of suspicion in the community, as Arbitrum is currently doing.
Even though the team has announced that gas fees will be paid in ETH, we can imagine multiple uses for the token in the future:
Use it as gas and convert it into ETH
· Delegate governance rights over the protocol and DAO
· Stake or delegate to verify transactions and become a Guardian
Overall, it is clear that tokens will be released thanks to the numerous investors and supporters of zkSync over the past few years, the only remaining question is when and by what criteria.
In terms of the roadmap, the team is continuing to deliver continuous and solid innovation to the community, which has led to some key stages such as the bridge from testnet to mainnet development.
The Baby Alpha release in late October 2022 will help the team stress test with real money scenarios and ensure it performs as expected.
The next step, Fair Onboarding Alpha, is scheduled for Q1 2023 and will include welcoming all ecological projects in a user-closed test. The purpose of this phase is to implement a fully working system while deferring optimizations for performance and cost. At the same time, the team will develop the SDK and block explorers in parallel with bug bounties or documentation improvements.
The most anticipated step is the Full Launch alpha, which should arrive in the second quarter of 2023 with the verification of the previous stages. Once security audits, contests, and bug bounties are completed, and ecological projects are fully tested on the system, zkSync 2.0 will be open to all users. At this stage, zkSync 2.0 will be available to all projects and users, and will improve TPS performance to at least an order of magnitude higher than Ethereum.
Overall, 2023 will be similar to 2022 for the team, with a bunch of crazy new developments and key implementations running throughout the year, which should lead to a full chain of work by the end of the year.
As mentioned above, zkSync is not yet fully launched, but there are already several projects and protocols deployed on-chain.
Matter Labs claims that more than 150 projects have already deployed or are willing to deploy on the chain. These first movers brought in $65 million in TVL, and most of the apps have yet to go live on mainnet.
Deploying such a large number of applications on mainnet will make the zkSync “big bang” the largest Layer 2 launch in history, once again helping to bring large-scale applications on-chain.
Attracting major protocols like Uniswap, AAVE, Curve , etc. should not be a problem, the chain has the potential for mass adoption and the cash the team is ready to deploy to attract these protocols.
BitDAO’s $200 million funding commitment will play an important role in the ecosystem’s development. The DAO is committed to expanding the zkSync ecosystem through active funding in various areas:
70% of the funds will be used for strategic capital investment in areas such as DeFi, NFT, gaming, privacy, interoperability, and even provide liquidity.
· 7.5% of funding will be allocated to grants to develop tools for migrating from L1 to L2 to accelerate adoption and encourage further investment and research by industry players.
7.5% of funds will be used to fund the hiring of security audit firms to ensure the security of the ecosystem and create security knowledge and standards.
· 5% of funds will be used for research and development to improve zkProofs and related technologies.
· 5% of funding will go towards education and training to understand the opportunities offered by technology and its impact.
· 5% of funds will be used for operations such as legal setup, compliance and payroll.
Investments will be selected by a decision-making committee based on the goals and objectives identified in the first phase. These milestones may include the number of investments, grants awarded, impact of funded public goods, contributions to the DAO’s core tools, and any other metrics the Steering Committee and Fundraising Team decide to include.
Wisely managing investments and cash outlays is critical for ZkSync, as it will undoubtedly spend a lot in acquiring users, driving growth, and reaching mass adoption before becoming self-sustaining (a strategy employed by Polygon).
Even though zkSync is not yet fully deployed and running at its best capabilities, a recent update allows users to bridge real assets and start testing the chain.
Over the past few months, the project has bridged over $60M, with some peaks over $150M, generating 800K + 4M transactions + unique users since its development.
Since 150 protocols will be launched at the same time, the full alpha launch is expected to build an important value bridge for the industry chain. To manage such development and forecasting activity, Mysten Labs is actively working to onboard developers and increase the number of commits.
This strategy appears to be starting to bear fruit, as Mysten Labs has seen a steady increase in active developers and weekly commits over the past few years, although the bear market and recent bankruptcy likely took some developers away.
Even though zkSync is not yet running at full capacity, user transactions on mainnet have shown impressive results in terms of cost, being more efficient than multiple $1 billion optimistic rollups of ETH transfers .
Regarding swap functionality, zkSync is the second cheapest solution on the market, and once fully developed, has exciting results.
In order to struggle hard in the market and receive adoption, zkSync will need to offer and develop what I call the “principle of preaching”. The term is basically to discern the narrative and gameplay that a project should be able to surf.
Let’s review which narratives zkSync should be able to leverage to gain a competitive advantage.
First, the Layer 2 narrative is an important one. Ethereum faces key issues in terms of transaction speed and cost. We all remember that during the last bull run some swap and minting prices were in the hundreds of dollars. Layer 2 rollup is currently the most popular rollup in the market, and there are multiple chains, such as Arbitrum, Optimism, Metis, etc.
Value keeps flowing to L2, even in difficult times like bear markets.
The community is looking forward to zero-knowledge proofs to provide better security, scalability, and cost to users compared to optimistic rollup. Most of the largest investment funds and experts agree that Zero Knowledge is a major development in the blockchain ecosystem, attracting solid funding and investor attention.
The advantage of zkRollup is also that it becomes cheaper to use as more users transact on the network, whereas traditional blockchains become more expensive as usage increases.
EVM compatibility becomes a must for every blockchain as over 60% of total TVL is on Ethereum, forcing projects to be compatible with this chain if they want to attract users, developers and TVL. With the main protocol on-chain, its adoption and development will be much faster than without any incentives or on-ramp facilitation.
zkSync’s $458 million in funding will have a big impact on its own growth and chances of reaching mass adoption. By being the most funded chain, ZkSync gains a significant competitive advantage over its competitors, and as ever, cash is king.
As with every company and project, being first to launch has the greatest chance of success. zkSync is actually one of the most advanced ZK technologies and is likely to be fully released in the second quarter of 2023.
We mentioned earlier the impact of the airdrop and rumors in the short hunter industry. Optimism and Aptos have been prime examples of what growth and TVL traction airdrops can bring right now. However, precisely analyzing the impact of airdrop rumors is quite complicated.
zkSync has many narratives and possibilities to develop itself, the crypto industry is still young and surfing trends and arcs is one of the most important abilities a project can have.
Community and Market Analysis
In order to work within the Layer 2 market, projects need a thorough communication strategy and implementation instructions as quickly as possible.
The market is irrational, and a direct result of this irrationality can be seen in the projects with the highest market capitalization, gaps between the top 10 are found, based on the fundamentals and innovations they bring to the industry. The tokens shown on the leaderboard should not be included in this ranking from a purely fundamental point of view. Yet here they are.
This precise view shows that in a project, the basics matter, but the communication, the narrative, and finally the community, are what count.
We saw earlier that zkSync’s fundamentals are strong and provide a lot of value to the ecosystem, now it’s time to see how they build their communication strategy, especially the community.
When analyzing social media and stats for November, zkSync had one of the largest followers on its Twitter account with over half a million followers.
So, zkSync is the most followed Layer 2 in the market, and when we look at how and when these followers are attracted, we see some interesting numbers .
As you can see, zkSync gained over 60k followers in a single week in late October, which is also the period when they released their baby alpha update.
If we take a deeper look at the announcement message, the numbers are pretty disturbing, it gets more RTs than likes, and there’s a huge gap in engagement between the first and second tweet .
Other tweets posted on the same day had 200 times less engagement than the announcement.
Even though pumping out engagement and followers seems to be the norm in the industry, the marketing agencies hired to execute the communications strategy may be a little far behind the numbers.
At the same time, it is undeniable that zkSync has acquired a large community and strong brand awareness thanks to its multiple appearances at AMA sessions, spaces, and events.
Ethereum daily recently published a survey about the most well-known Layer 2s and user attitudes towards them. Thanks to recent narratives and seasons of Arbitrum, the chain is #1 among investors, while zkSync is #2, ahead of Optimism with over 1 billion TVL and millions of users.
This is quite an impressive feat when we consider that zkSync has yet to hit the full mainnet and only has a TVL of $60M.
More recent users seem to be more interested in financial opportunities, while more experienced ones seem to come for the technology. As zkSync targets mass adoption, a complex and significant marketing strategy must be managed to convince and engage both communities.
Regarding other social platforms, zkSync has 300,000+ members on their discord, and specific roles can be obtained through their participation. The protocol also runs a crew3 round that helps users discover chains and main features through quizzes. Guild activity is active, but primarily as the ecosystem grows and the protocol develops on-chain.
Matter Labs is also partnering with live events like ETH Denver, which combine their alignment with the ETH community with increasing their presence at physical events, where builders and investors often meet.
Marketing and communication are critical to crypto projects, and the immaturity of the market does not reward only the most innovative or performing projects, but those that mix innovation and communication. Relying on complex technology, ZkSync will have to implement thorough educational materials as well as UX/UI to get the masses on board, thankfully the large amount of money should help a lot at this point.
That said, several factors may affect the adoption and success of zkSync:
· Zero-knowledge technology is still young on the blockchain and has not been backtested for as long as traditional verification techniques. It relies on complex mathematical assumptions and cryptography, and if any of these assumptions are broken, or errors are made in its implementation, it can make them vulnerable. The difficulty of understanding ZK-Rollup can also make it unacceptable to ordinary users and limit its adoption.
· SNARKs are not quantum resistant, and are not as scalable, secure, and transparent as STARKs.
· EVM compatibility is done at the language level, which means it goes from Solidity to SNARK virtual machines. It adds risk on the part of the compiler because of this process. The EVM’s focus also limits the scaling and development of mainstream activities that could be accomplished with other types of virtual machines.
· Communication and marketing require special attention to deliver the expected value and get users on board. zkSync’s desire to bring about mass adoption is ambitious and will require a real strategy as the technology and concept are quite complex.
· Competition will be fierce with other Layer 2 and zero-knowledge blockchains such as Starknet, Scroll, and Polygon that have better technology, security, scalability, or adoption than zkSync.
· Regulatory risk due to privacy provided by ZK technology. Monero has been delisted from many exchanges, and Tornado Cash developer Alexey Pertsev has been jailed for his privacy-focused protocol. Cooperation and education with regulators is necessary to ensure the operational possibility of ZK technology.
In order to become a leader, ZkSync will have to face many challenges in two main areas, namely technology and communication. What makes the chain stand out from the competition will also be a major challenge it needs to overcome. These risks and threats are of course the reason for raising $458 million to the market leader.
zkSync has a lofty goal, and bringing mass adoption to the blockchain ecosystem is one of the biggest imperatives right now. With great power comes great responsibility, and the most capitalized blockchains will have to use their funds wisely to attract and onboard the desired community as smoothly as possible.
Matter Labs is focused on developing a blockchain system that is not only capable of handling a high volume of transactions but is also ready to cater to a large number of users. Their solution, zkSync, promises trustless, confidentiality, and speed.
The main innovations and value propositions will greatly help the team solve the current challenges of mass adoption, which are complex onboarding through account abstraction, and the scalability, transaction cost and speed issues that zero-knowledge and Layer 3 technologies will solve.
The team is made up of experienced developers, researchers, and entrepreneurs who have come together to create a more efficient, cost-effective, and secure way to use the Ethereum blockchain. The technology is still in its early stages, but the progress made so far is promising, and with the support of the Ethereum community, zkSync has the potential to become a major player in the blockchain space.
Still, the race for the development of Layer 2 and zero-knowledge will offer significant innovations and twists to best enjoy the technology enjoyers.
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