Author: CloudY,
Editor: Vincero, YL
Reviewer: Natalia
Layer 2, as an optimized scheme of the Ethereum public blockchain, has been a hotspot of attention, discussion and R&D. For example, R&D teams have made active attempts at the technical solutions of layer 2, such as the Ronin where Axie is in, and Starknet, Arbitrum, Optimism and ZKSync used by DYDX. So what is layer 2? The Ethereum public blockchain itself is called layer 1, main net, or main blockchain layer, and layer 2 means moving transactions from the main blockchain layer to a separate layer that can communicate with the main chain to achieve faster transactions with a lower gas fee. As shown below, layer 2 is like a sort of expressway established on the Ethereum main net to shunt the volume of transactions and ease the congestion of transactions on the main blockchain layer of Ethereum. Currently, there have been several technical solutions for layer including the status channels, sidechains, Plasma, Rollups, and so on. Sidechains and Rollups, two common solutions to the people, differ as follows: the former needs to be verified by its own independent nodes, with its safety mainly depending on itself (Polygen is one of the sidechain cases), while the latter processes transactions in batches and in a centralized way under the chain based directly on layer 1, and releases the updates to the main blockchain along with the transaction data on its chain, and its safety still relies on layer1.
(Fig. 1: Schematic diagram of Layer0, Layer1 and Layer2)
Despite the higher safety than sidechains, Rollup still has a limited effect on the current optimization of the Ethereum main net. However, it is undeniable that Rollup is truly optimized based on the Ethereum main net, and the project on the Ethereum main net can enter the chain using Rollups without making any changes,and users donot need to take the risk of using a cross-chain bridge to transfer assets; that is, any possible transaction on the Ethereum can be executed in the Rollup technology. The principles are shown below. A chain based on the Rollup technical solution will establish a Rollup contract on the Ethereum main net to monitor the state of the Rollup chain, including the account balance of the user carrying on transactions on the chain and the smart contract code of the contract herein. The information is recorded in a “state root” composed of a key-value mapping, where the key is the address and the value is the account. Each account has a maximum of four attributes: balance, random number, code (for smart contract only) and storage (for smart contract only). Since the Rollup only releases the transaction data on the main chain rather than executes the transaction on the chain, the transaction data and state root released on the main chain may be fraudulent. Therefore, the Optimistic Rollup and ZK Rollup solutions are proposed to solve the key problem.
(Fig. 2: Schematic diagram of technical principles of Rollup)
Different from the Optimistic Rollup which is optimistic about the reliability of all submitted state roots and keeps it safe by submitting the fraud-proof, the ZK Rollup is another situation. In the ZK Rollup, ZK-Sync uses the encryption proof of ZK-SNARK to release the state root and uses ZK proof technology (one party is allowed to prove something without disclosing the information required to prove this thing) to verify the authenticity of the state root, thereby avoiding the access to the data itself and ensuring the privacy. Compared with the Optimistic Rollup which takes one week to withdraw, assets can be withdrawn within only 10 minutes with the ZK Rollup. Nevertheless, ZK-SNARK, as a new technology with incredibly complicated mathematics, leads to the ZK Rollup still being under development, and thus the ZK Rollup is less adaptable than the Optimistic Rollup. Yet, the ZK Rollup also has its notable advantages; with no need for the witness of transactions, ZK-SNARK greatly reduces the data stored on the chain and increases the expansibility, and ZK-SNARK’s being able to verify each transaction and makesit safer.
Similarly, StarkWare also adopts the ZK Rollup but is based on the ZK-STARK. Since the ZK-STARK technology is improved in the expansibility, and reliability set of skipping initialization and post-quantum computing, compared to the ZK-SNARK, it is not as mature as the latter and cost higher gas fees. In addition, StarkWare uses the Cairo language, making it hard to be compatible with EVM once Turing Completeness is achieved. In response to this problem, the StarkWare team has developed a code translator Warp to seamlessly convert the Solidity smart contract into Cairo. What’s more, StarkWare has now achieved the ZK Rollup dedicated to dydx, Immutable, and Deversifi through StarEx.
Layer 2 and Rollup, one of the technical solutions to Layer 2, have been briefed above. We believe that the ZK Rollup, one of the directions of the Rollup, has more obvious advantages and better expansibility and that the chains based on the ZK Rollup are more likely to be widely used in the future. However, can the ZK Rollup chain really stand out in the numerous sidechains and Arbitrum and Optimism after launch on the main net, and occupy a position as high as its technical level? In this paper, an attempt is made to evaluate and analyze, from four dimensions, public blockchains that perform better in each dimension and speculate the development potential of the ZK Rollup chain based on this, and then the corresponding suggestions are given.
Four dimensions:
Crypto Native
On-Chain Asset
Ecosystem
Community
1. Crypto Native
The concept of the crypto native measures the importance of blockchain technology, such as the groundbreaking progress in concept and technological innovations. For instance, Ethereum has pioneered a Turing-complete virtual machine, which expands the blockchain from a payment network of Bitcoins to a network of complex interactions, making concepts such as DeFi possible. There are also many other public blockchains with unique technologies, novel concepts and different attempts. In this paper, Cosmos, Polkdaot and Solana are selected as the representatives of the crypto native to illustrate how public blockchains secure a place in the crypto native through their innovation or performance improvement.
（1）Cosmos
Cosmos perceives the future as a multi-chain universe of blockchains focusing on different functional applications. Based on this conception, Cosmos has developed three basic components: 1) Tendermint consensus protocol, 2) Cosmos SDK, 3) IBC (Inter Blockchain Communication) protocol, which has settled the inter-blockchain problem and made the multi-chain universe possible. It has streamlined the development process of blockchain applications and developed a rich SDK and Tendermint engine to enable developers to focus on the applications themselves rather than underlying protocols. More importantly, Cosmos has realized active inter-blockchain, where atomic transactions can be carried out on each chain via Cosmos’s Hub, unlike other mainstream cross-chain bridges which create pools of capital in different chains to realize the so-called cross-chain.
（2）Polkdot
Polkadot realizes inter-blockchains by “relay chains” (main chain) and “parallel chains” (chard chain). Each parallel chain is connected with the relay chain to realize its communication with other parallel chains, while each relay chain supports about 100 parallel chains. Polkadot uses Wasm as the meta-protocol, which allows parallel chains to define their own logic and language, and they only need to provide their own state transition functions for verifiers of relay chains to execute before they are connected with relay chains. Polkdot’s applications can be stored in a certain parallel chain or deployed across parallel chains. Although relay chains can be connected with each parallel chain, they have limited interfaces and parallel chains need to bid for slots by auction, which is often referred to as “slot auction”.
（3）Solana
Solana intends to expand throughput while keeping costs low. To this end, Solana uses an innovative hybrid consensus model, which combines the unique proof-of-history (PoH) algorithm with a lightning sync engine (which is another version of proof-of-stake, PoS). PoH is the core part of the Solana protocol, which can provide a timestamp for each transaction on the network to confirm the transaction that occurs at any point in time on the network. PoH, which relies on the PoS that uses the tower Byzantine Fault Tolerance (BFT) algorithm, is an optimized version of the practical Byzantine Fault Tolerance (pBFT) protocol. In addition, Solana uses unique Rust language to write the smart contract and uses BPF bytecodes to achieve a higher execution efficiency, i.e. TPS.
2.On-Chain Asset
The on-chain asset is the collection of mainstream tokens issued on the blockchain that have relatively stable purchasing power, such as BTC, ETH, BNB,USDT, USDC and DAI. The number of high-quality assets on a public blockchain determines the expandable space for its on-chain asset. There is no universal credit mortgage method currently in the blockchain, and leverage can only be increased by the pledge of assets, while the pledged assets are generally high-quality assets to ensure safety. Therefore, we have chosen three public blockchains with more high-quality assets currently as representatives: BSC, Solana and Terra. As shown in the table below, the mainstream on-chain assets on the three public blockchains are $10 billion and are mainly the public blockchain tokens, BTC and ETH, as well as stablecoins such as USDT, USDC and UST on the public blockchain. The abundant on-chain assets greatly promote the development of the on-chain ecology.
(As of April 17, 2022)
(Sources: BSCScan, SolanaExplorer, Terrascop)
3. Ecosystem
The quantity and quality of ecosystem projects are another important factors that determines the development of the public chain in addition to capital. High-quality projects can attract a large number of active users, generate considerable assets and bring massive funds. Also, establishing a perfect ecosystem requires a certain number of high-quality projects, which can create good interactive experiences for users and developers, can resist external risks to a greater extent and expand the use scope of funds. Based on this, we selected BSC, Solana and Cosmos to judge their ecosystem development through the TVL on the chain, the number of projects and the number of transfers. It can be seen from the following table that BSC has the largest number of projects, Solana has the largest number of transfers, and Cosmos has the highest TVL. That reflects the three public chains have their own advantages in an ecosystem: 1 As the Ethereum side chain, BSC is compatible with all EVM-based projects; 2. Solana can maximize transfer efficiency and optimize interaction experience through high TPS; 3. Cosmos connects all IBC chains through IBC protocol, including the TVL of all IBC chains.
(As of April 17, 2022)
(Data sources: DeFiLama, Nansen, DappRadar, BSCScan, SolanaExplorer, Atomscan, Terrascop)
These three public chains also have developer incentive plans or are supported by the tokens of the exchange to encourage developers to come to develop projects ontheir own public chain and give more resources to early high-quality projects. For example, BSC has the most valuable developer (MVB) speed plan to help high-quality start-up projects to conduct more innovation and transformation, gain mature experience and financial support in the industry, and accelerate the coordinated development of communities and projects. In addition, users naturally expect high-quality projects on BSC to go listed on the exchange. Similarly, Solana is supported by Hackathon and FTX. Therefore, on Solana, high-quality projects will also receive support and development assistance from Solana Ecosystem Fund with the prospect to get listed on FTX Exchange. Cosmos uses the SDK to make development less difficult, and it relies on the resource exchange between chains and the pledge airdrop in the ecosystem to drive the development of the project. For example, the new chain can obtain the capital of the Terra chain by introducing LUNA and UST, while the projects on the Terra chain, such as Anchor, can also cooperate with other chains to include the chain token as a pledged asset to increase the use scenarios of the token.
4. Community
Community refers to the activity of the public chain community and the support of investment institutions. A public chain needs enough attention and funds to develop in a long-term and sustainable way. We mainly observe the total number of users, the number of posts, and the content of messages on social media. Investment institutions mainly observe the early investors of the public chain and the resources they invested in the public chain, such as capital, publicity and cooperation. After a comprehensive investigation, we selected BSC, Solana and Avalanche. As shown in the figure below, the three public chain communities are large and highly active. The focus is on the interaction and ecosystem of the public chain in addition to the rise of the token price. Specifically, because of its advantages in the early stage, BSC has a rich ecosystem and accumulate a large number of high-quality active users, which is also reflected in its largest number of Twitter followers and discord weekly speeches. Solana and Avalanche have acquired many telegram and discord users based in emerging markets. The content of the message mainly includes the popularization of on-chain information science, the question about the on-chain operation, the prevention of fraud, and the consultation of ecosystem projects.
(Note: The data are all from English community, and the number of users is calculated at 11:00 am Beijing time on April 18, 2022)
Unlike the capital and resource-driven Binance, the prosperous Solana and Avalanche communities also benefit from the strong publicity of well-known institutional investors, especially SBF for Solana and Suzhu for Avalanche. They frequently introduce and recommend ecosystem projects of relevant public chains on their social media. Because they have certain decision-making power, they often promise some incentive activities, which attract a large number of new users and improve user engagement. Therefore, in addition to financial support, celebrity influence also helps make public chains popular.
The main investment institutions of the above three public chains are as follows:
The future of ZK
1. Crypto Native
From the perspective of crypto natives, the importance of ZK Rollup is self-evident. Rollup takes an important part in Ethereum towards modular blockchain to expand capacity, that is, to transfer the consensus to Ethereum, and to transfer the execution and data availability to run on Rollup. Among them, zero-knowledge proof, as a highly recognized original crypto scheme, is in essence just to reduce the amount of computation, and ensure the correctness of data. The principle of the technical solution has been described in detail above, and the highly recognized results can be seen from the current fundraising of the two major ZK Rollups (StarkWare/zkSync). What's more, even Vitalik, the founder of Ethereum, mentioned in his article that in the medium and long term, with mature ZK-SNARK technology, ZK Rollup will play its advantage in all use cases. In this way, the crypto native of ZK Rollup is obvious.
2. On-Chain Asset
The second part is about ZK's on-chain funds. We can first judge from the stock funds on Ethereum. There is no doubt that the mainstream currency with relatively stable purchasing power on Ethereum is the largest stock fund of all public chains with smart contracts. The market value of ETH remains in second place among all cryptocurrencies. Secondly, the mainstream US dollars stable currency such as the USDT issued by Tether, the USDC issued by Circle, the US dollar stable currency Dai and MIM based on digital currency collateral, and various algorithmic stable currencies such as Frax and Fei. Moreover, the anchor currency of BTC such as WBTC, HBTC, renBTC, and the above-mentioned mainstream currency with absolute purchasing power on the chain, has its main public chain circulated in Ethereum. Based on this, ZK Rollup is regarded as the much-anticipated expansion solution of Ethereum, and the natural advantages of Rollup make the above on-chain funds staying in the first layer of Ethereum come to the second layer without taking the risk of the current mainstream cross-chain bridge, and can naturally accept many overflow funds from the first layer of Ethereum.
3. Ecosystem
The birth of Ethereum has produced the most mature blockchain ecosystem in the world at present due to the first-mover advantage of web 3.0. It is in the blockchain public chain, whether it is the developer ecosystem, infrastructure and project ecosystem, or even the user ecosystem in Ethereum. For the expansion of ZK Rollup's ecosystem, except for the funds on the chain, whether it can attract the high-quality web3.0 project currently on the first layer of Ethereum to transfer its main activities, capital lock-up, and users to its second layer of the network will become the top priority. Secondly, whether users can really reduce the cost of using gas fees to the level of BSC/Avalanche or even Solana will determine whether ZK Rollup can attract back the funds and traffic overflowing from Ethereum in 2021. Finally, from the history of the public chain, whether the public blockchain can have exponential growth of public blockchain transactions depends largely on new forms of narrative stories, such as DeFi in 2020, NFT and GameFi in 2021. Therefore, whether there is a new form of web 3.0 product landing will also be a key factor for ZK Rollup to leadEthereum to a new high as ZK Rollup will bring exponential growth in Ethereum. We will describe the current ecology of zkSnyc/Starkware respectively hereunder.
Many excellent Web3.0 projects invest in zkSync according to the disclosed fund-raising news, and several CEX has also announced the opening of zkSync-based cash withdrawal channels; more importantly, any token can be used inzkSync to pay for its expenses without purchasing ETH or customized tokens like MATIC. Compared with other layer 2 and even other public chains, this function will make the threshold of zkSync's use as king's bomb. Furthermore, to reduce the difficulty of developers, zkSync2.0 has emphasized that developers can use Solidity to achieve 99% EVM compatibility through the combination of its zkEVM and compiler since its birth. This makes DeFi's large-scale application in zkSync2.0 more likely to happen.
For Starkware, StarkEx was launched in June 2020 as its L2 scalability engine, approving the creation of application-specific ZK Rollup supported by Cairo and STARKs. At present, there are projects, such as dydx, Immutable, Deversifi and Sorare based on StarkEx in operation. Now, the amount locked on the chain has reached $1.16 billion, more than 140 million transactions have been processed, and the cumulative transaction amount has exceeded $518 billion. According to their official development path, they will focus on running the same global L2 of multiple applications on the same StarkNet, to achieve interoperability between different applications, and reduce their gas fee costs due to the improvement of economies of scale, and finally realize the third stage of decentralized operation.
（Figure Source: https://medium.com/starkware/on-the-road-to-starknet-a-permissionless-stark-powered-l2-zk- rollup-83be53640880）
（Starkware: TVL$1.16B; 145M Tx; Biological Project: 85）
（Data Source: https://ecosystem.zkSync.io/, https://l2beat.com/, https://zkScan.io/ and https://starkware.co/starkex/）
4. Community
For the community, the current two projects of ZK Rollup are close to BSC, Solana and Avalanche in terms of the community activity indicators, such as the total number of social media speakers, message content, etc. Even in terms of the number of Discord speakers, zkSnyc is even ahead of other public chains, based on the fact that the main network has not yet been online. From the perspective of investment institutions, in March 2022, StarkWare carried out the latest round of fundraising with a scale of $6 billion, opening up its previous investors. This is definitely superbly top in financing. There are also well-known top investment institutions in the crypto market except for the founder of Ethereum, Vitalik Buterin, such as Paradigm, and Sequoia Capital in the era of web 2.0. On the other hand, the fundraising process of zkSnyc seems to be closer to developers and users. Except for VC, such as Union Square Ventures and A16Z, there are also a series of DeFi projects and exchanges' investments, which are also expected to bring rapid integration after the main online line of zkSync2.0.
Investment institutions and fund raising are shown in the following table:
Because ZK has attracted much attention due to its technical advantages, as seen from the above chart, two top projects of ZK Rollup have also been favored by many investment institutions. In particular, zkSync earns massive investments from exchanges and web 3.0 project parties. It is not difficult to see that many well-known centralized exchanges and web 3.0 projects are quite optimistic about ZK Rollup.
Finally, ZK Rollup has proven to us that it is feasible to exponentially reduce the gas fee in Ethereum and significantly improved the scalability. Op research urgently expects ZK Rollup to bring a new Ethereum to the community and users in the foreseeable future. If all goes well, we can boldly imagine that web 3.0 products for large-scale applications are at hand.
Reference
https://www.pcmag.com/encyclopedia/term/layer-2-blockchain
https://www.preethikasireddy.com/post/a-normies-guide-to-rollups Binance (BNB) Blockchain Explorer
https://explorer.solana.com/
https://terrasco.pe/
