Layer 2 is here, and the race is on

In March 2024, the long-awaited Cancun upgrade was finally completed, and Ethereum entered a new stage. This upgrade greatly reduced the Rollup fee. Rollup is mainly divided into two directions: Optimistic Rollup and zkRollup. The representative projects of Optimistic Rollup are Optimism and Arbitrum, and the representative projects of zkRollup are zkSync and StarkWare (although the latter is not just zkRollup).

zkSync is a trustless protocol based on zkRollup technology, which is used to expand low-cost transactions on Ethereum. StarkWare is divided into the permissioned StarkEx and Starknet. StarkEx launched its mainnet in June 2021, and Starknet launched its tokens in February 2024. As of May 15, 2024, Starknet's TVL exceeded 900 million, while zkSync, which has not issued any tokens, has 780 million TVL.

This article will briefly outline the underlying Rollup technologies and differences between zkSync and StarkWare, as well as the current development trends of their respective ecosystems.

zkRollup

zkRollup is a type of Rollup technology that uses validity proof to scale computations, i.e., each batch of transactions comes with a cryptographic proof that the Ethereum smart contract verifies the validity of the transaction. In the design of zkRollup, the smart contract on Ethereum holds all funds, while the Ethereum Layer 2 is responsible for performing computations and storage. The basic process is that the user signs the transaction and submits it to the validator, who can aggregate up to thousands of transactions and submit the root hash of the latest state to the smart contract on the Ethereum mainnet, along with a SNARK or STARK proof to verify that the new state is indeed the result of applying some correct transactions to the old state iteration.

Compared with other existing Ethereum L2 expansion solutions, zkRollup technology is particularly outstanding in terms of security and availability. zkRollup combines complex cryptography with on-chain data availability, and is the only L2 expansion solution that does not require any third-party operations to ensure the security of funds. Specifically, in zkSync, any inflow and outflow of funds relies on a purely mathematical proof of validity. The verifier of zkSync cannot forge a proof of validity to destroy the state or steal funds, so zkSync does not require third-party online monitoring; even if the verifier stops working, users can initiate a request to withdraw their funds from the zkRollup smart contract at any time. In addition, the congestion of the Ethereum network does not affect the asset security of zkSync, which avoids the security risk that the Optimistic Rollup based on fraud proof cannot prevent fraudulent transactions in time when the network is severely congested.

Another advantage of zkRollup is that its withdrawal speed is faster than other Rollup solutions. When assets are withdrawn from L2 to L1, thanks to the validity proof, zkRollup does not need to set a challenge period of up to a week to prevent fraud. Its withdrawal speed is usually ten minutes to a few hours. The more transactions, the faster the withdrawal speed.

Below, the author will analyze zkSync and its key ecological projects.

zkSync Overview

zkSync based on zkRollup also relies solely on mathematics to inherit the security of L1. It does not rely on economic guarantees or third parties like other expansion solutions, so it provides stronger security properties. However, the zero-knowledge used by zkRollup is still in the early stages of cryptography, and many infrastructures are not yet complete. The development threshold is relatively high, and it requires stronger development capabilities from developers. Matter Labs, the development company behind zkSync, is a pioneer in Ethereum's zero-knowledge proof technology and has strong R&D capabilities.

In June 2020, zkSync1.0 was officially launched on the Ethereum mainnet, mainly used for payment. According to data from https://l2fees.info/, the transfer cost of zkSync1.0 is about 1/50 of that of the Ethereum mainnet. zkSync1.0 has been running stably for nearly two years and has been connected to more and more applications. For example, zkSync has been selected as the main payment method in recent rounds of Gitcoin donations.

In November 2021, zkSync received US$50 million in financing in its Series B round, including from a16z. The background of the investment institutions is quite luxurious, making it a hot commodity in the eyes of leading institutions.

In February 2022, the zkSync 2.0 public testnet was officially launched, making zkSync the first zkRollup capable of executing native Ethereum smart contracts. Specifically, this version supports Solidity 0.8.x, and the provided Web3 API is fully compatible with Ethereum, allowing developers to easily test and develop smart contracts on zkSync, allowing developers to pass data from Ethereum L1 to smart contracts on zkSync, and provide the information needed to run various smart contracts.

In February 2023, zkSync 2.0 was renamed zkSync Era, and 1.0 was renamed zkSync Lite. The zkSync Era mainnet was officially launched, the first zkEVM mainnet of Ethereum, open for registration and deployment, and open source code base.

zkSync Key Ecosystem Projects

Below I will list several zkSync ecological projects

DEX project ZigZag

Website: https://info.zigzag.exchange

ZigZag is a decentralized order book exchange powered by zkRollup that enables users to seamlessly and securely trade limit or market orders at near-zero fees.

Cross-chain bridge project Orbiter

Website: https://www.orbiter.finance/

Orbiter Finance is a decentralized cross-Rollup Layer 2 bridge that currently supports multiple Layer 2 protocols, including token transfers including zkSync, with low fees and fast transfer speeds.

StarkWare Overview

StarkWare has officially launched StarkNet, a decentralized, permissionless, and censorship-resistant STARK-powered L2 ZK-Rollup protocol that supports general computation on Ethereum. It is based on the Turing-complete Cairo language.

Developers, users, and StarkNet nodes will do everything one would expect from a permissionless L2 Rollup: developers can build applications that implement their own business logic and deploy them on StarkNet; users can send transactions to StarkNet for execution just as they interact with Ethereum today; StarkNet nodes and participants will be crypto-economically incentivized to ensure the network runs efficiently and fairly.

StarkEx is the first practical case of using STARK-based ZK-Rollup to expand the capabilities of applications. It is its L2 scalability engine, which projects can use to implement cheap off-chain computation, that is, the STARK proof that proves the correctness of the execution is generated off-chain. Such proofs can support up to 12,000–500,000 transactions (depending on the transaction type), and the proof is sent to the STARK validator to be accepted on the chain; this means that all transactions are verified once, that is, the gas cost of each transaction is extremely low. Since June 2020, StarkEx has served multiple users in areas such as processing logically complex transactions (spot trading, derivatives and NFTs) and payments, including DeversiFi, dydx, ImmutableX and Sorare.

It is worth noting that StarkWare has become a company that has started to make continuous profits before issuing coins. This is closely related to StarkEx, which provides zkRollup SaaS services. In the future, perhaps more DApps and traditional institutions will use its customized services.

StarkNet is a permissionless Layer2 network where any user or developer can deploy smart contracts developed in the Cairo language. Unlike StarkEx, StarkNet applications are responsible for submitting transactions, and its sorter is responsible for batching transactions and sending them for processing and proof. StarkNet supports the Rollup data availability mode, which means that the state of the Rollup will be written to Ethereum together with the STARK proof.

StarkNet Alpha was released to the public testnet in June 2021 and to the mainnet in November. In January 2024, Starknet v0.13 was launched on the mainnet, which can significantly reduce costs through more efficient transactions. The sorter will be handed over to community management in the future, and decentralization will be gradually achieved. In addition, full nodes will enable anyone to save and verify the state of the network locally, and track exactly what is happening. Three teams, Erigon, Nethermind, and Equilibrium, are developing full nodes.

In terms of financing, on May 25, 2022, StarkWare announced the completion of a $100 million Series D financing at a valuation of $8 billion. This round of financing was led by Greenoaks Capital and Coatue, with participation from other existing and new investors including Tiger Global. After the completion of the Series D financing, StarkWare's total financing amount has reached $262 million.

As of May 18, 2024, the TVL through the StarkEx platform is 111 million US dollars, the total number of Tx is 692 million times, the cumulative transaction volume is 1.26 trillion US dollars, and 134 million NFTs have been minted.

In addition to the star projects supported by StarkEx, StarkNet is also developing very rapidly. A large number of projects and DApps choose to develop and deploy on its main network, and will also be developed and deployed on zkSync. Below I will list several projects in the Starkware ecosystem.

1. Infrastructure layer project Nethermind

Website: https://nethermind.io/

Nethermind.io is a company specializing in Ethereum and Layer 2 software solutions, providing multiple decentralized infrastructure building blocks: Nethermind client (customizable Ethereum client), Warp-open source EVM to Cairo translator, and Voyager, which enables direct deployment of smart contracts on StarkNet, making it easy to browse and interact with StarkNet.

2. Wallet projects

Braavos

Website: https://braavos.app/

The self-hosted wallet on StarkNet allows users to manage their own funds and NFTs in a user-friendly manner. It supports Firefox and Google Chrome and is currently developed to version 2.0.

Argent

Website: https://www.argent.xyz

Argenty was originally a non-custodial wallet based on zkSync, designed to provide ordinary users with the simplest and most secure experience in DeFi and Web3, including zkSync's payment function. In early 2024, Argent decided to stop supporting zkSync Era and focus on the development of Starknet. In order to solve the problem of high threshold for encrypted wallets, Argent proposed a method of recovering accounts off-chain without mnemonics. Based on this method, Argent can encrypt the user's private key and save it in cloud storage, and the password for the encrypted private key, KEK, is saved in Argent. Once the user loses his mobile phone and needs to restore his account on a new device, Argent can detect whether the user's cloud storage has an encrypted private key, then verify the user's identity through SMS and email, and finally send the KEK to the user's device. In this way, users can use KEK to decrypt the encrypted private key on their cloud storage.

3. NFT Marketplace Project Aspect (prev. PlayOasis)

Website: https://testnet.aspect.co/

Aspect is an NFT Marketplace built on StarkNet. It runs on the StarkNet testnet and is currently in the alpha stage. It supports creation, buying and selling. In addition, it can be realized in Argent X Wallet and Braavos wallet.

4. Metaverse Project Altzone

Website: https://www.altzone.io/

Altzone is a protocol that replaces smart contract interactions with 3D interfaces and integrates with existing protocols to build a disruptive user experience, using 3D experiences to convey many complex and abstract concepts in a simple visual way. Altzone applications include cross-chain bridges, composable DeFi strategies and DEXs, and can even create disruptive on-chain data visualizations. In terms of product form, Altzone has a 3D version of the NFT shopping experience gallery, DeFi interaction venues such as banks, and cooperates with JediSwap.

5. Cross-chain bridge project Layerswap

Website: https://www.layerswap.io/

With LayerSwap, users can bridge their crypto accounts directly to the Layer 2 network. When users transfer cryptocurrencies from Coinbase, Binance, or FTX, the 8 currently supported centralized exchanges, to Arbitrum, zkSync, Loopring, Starknet, and other L2s, they can save up to 10 times the fees.

6. Lending project zkLend

Website: https://zklend.com/

zkLend is an L2 money market protocol built on StarkNet, combining the scalability of zkRollup, superior transaction speed, cost savings and guaranteed security. Not only serving DeFi users, zkLend also targets institutional users, allowing licensed participants to deposit, borrow and lend without affecting the compliance and security of StarkNet.

zkSync vs. StarkWare, competition in the zkRollup space

zkSync and StarkWare are the two main players in the zkRollup space. Both are based on zkRollup, have similar architectures for submitting proof of validity, and have corresponding zkRollup technical advantages, but are slightly different in specific technologies.

StarkWare uses the cryptographic technology of STARKs proof they invented, while zkSync uses SNARKs proof. STARKs means that the system runs without trust settings, and the speed of generating STARKs proof is 10 times faster than SNARKs. But on the other hand, STARKs technology is relatively less mature than SNARKs.

In terms of data availability, zkRollup projects can store transaction data in Ethereum through calldata, allowing transaction records to be found on L1, but the maximum TPS of this data on-chain method is around 2,000; however, users can also choose to store data off-chain to reduce handling fees, in which case TPS can be expanded 10 times. Both zkSync and StarkWare provide their own off-chain data storage solutions, namely zkPorter and Volition.

zkPorter will be secured by zkSync token stakers in a PoS manner. zkPorter is still under development. Once zkPorter is live, it can provide constant transaction fees as low as 1-3 cents by moving data off-chain.

In terms of EVM support, StarkWare does not natively support EVM and can only translate Solidity into StarkWare's new language Cairo through a code translator called Warp. At present, zkSync focuses its main efforts on supporting the development of smart contracts and launches an efficient, Turing-complete, SNARK-friendly virtual machine zkEVM for executing Ethereum smart contracts. zkEVM is a virtual machine that retains EVM semantics but is also ZK-friendly. It executes smart contracts in a way that is compatible with zero-knowledge proof calculations. By then, Ethereum applications can be seamlessly migrated to run on zkSync.

Summarize

zkSync and Starkware based on zkRollup technology use zero-knowledge proof and on-chain data availability to ensure the security of user funds, which is equivalent to Ethereum. In addition, under the premise of ensuring security, the transaction costs of zkSync and Starkware are still very low compared to Ethereum. Therefore, zkRollup is likely to become the main way for Ethereum to expand in the medium and long term as Vitalik said.

As a star project of zkRollup, zkSync focuses on the user and developer experience, hoping to reduce the complexity of the entire platform. Judging from the performance in the past few years, its team Matter Labs has made steady progress in protocol development, zkSync 2.0 has been released and updated, and the entire ecosystem is thriving. Starkware has accumulated very strong development and ecological experience in the early StarkEx Saas service, so StarkNet has developed rapidly. At present, its development focus is on further optimizing and improving performance, and at the same time, its attitude towards decentralization is clearer.

In addition, Layer2's profit-making methods will further test the breadth and depth of the ecological content of the two. The two major ecosystems, zkSync and StarkNet, are also competing for incentives in terms of technology, ecology, and user-friendliness.

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