Original post by Osgur Murphy O Kane, Nansen Researcher
Original compilation: ChinaDeFi
zkSync is arguably the most exciting L2 out there. It has already deployed the mainnet "Baby Alpha" and expects to launch its full mainnet in early Q1 2023. This will be the first EVM-compatible Validity Rollup, and 150 projects have already indicated that they will deploy on zkSync, including most of the DeFi blue chips.
Additionally, zkSync will launch the first L3 proof-of-concept in 2023. The prospect of L3 is purely hypothetical so far, and it will be very interesting to see how it works out in practice.
zkSync's focus on EVM compatibility is a key design choice that could make or break it. It has advantages and disadvantages, and the advantage lies in the infrastructure and ecosystem of EVM. Other projects are also focusing on developing new VMs that they hope will be better at building applications suitable for mass adoption. While the native account abstraction in zkSync will provide a great user experience, it remains to be seen whether it will be consistent with the EVM in the long run.
It remains to be seen how customizable and performant L3 will be, and how much autonomy they will have in arbitrarily designing how they operate. But one thing is for sure, zkSync deserves to be watched closely as it approaches and deploys on mainnet.
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Introduction
What is zkSync?
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Source: zkSync
On October 28th, zkSync released their "Baby Alpha", which was limited to teams using the mainnet. After that, "Fair Onboarding Alpha" will be limited to projects that have registered to participate. This means they will be able to test their product for any bugs or issues before real users come in. At this stage, all code is open source. Finally, a full Alpha release will be released (expected early Q1 2023).
financing
financing
Matter Labs has raised $458 million, most recently in a Series C round of $200 million co-led by Blockchain Capital and Dragonfly. Previous funding includes a $200 million ecosystem fund, a $50 million Series B round led by a16z, and $8 million in Series A and Seed rounds.
zkSync is so well capitalized that it is a force to be reckoned with in the L2 wars.
Starkware: $273 million in total funding Fuel: $81.5 million in total funding
Fundraising does not mean success, but zkSync has raised a significant amount of capital to continue to fulfill its vision. zkSync is expected to be the first real-time universal Validity Rollup compatible with Ethereum, which may give it a very significant advantage. In addition, it has been consistent with the Ethereum community, which can help it build a strong ecosystem and a competitive moat, while other Rollups may need to work hard to overcome difficulties when they are deployed to the main network.
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culture
zkSync positions itself as a scaling solution focused on Ethereum. It does its best to stay in tune with the Ethereum community. Of course most Rollups are consistent with Ethereum, because it has many excellent developers and huge user activity. However, some are still open to the possibility of deploying on other chains and different configurations (the point makes sense; why limit yourself to one network?)
zkSync is fully focused on Ethereum and takes pride in demonstrating its alignment with the Ethereum community on 5 key qualities:
EVM Compatibility
EVM Compatibility
Support Solidity
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open source
Source: zkSync
EVM Compatibility
EVM Compatibility
zkSync achieves EVM compatibility by having a VM that adapts to EVM development tools and works well with validity proofs. It's not exactly equivalent to the EVM, as Matter Labs chose a design that handles validity proofs more easily.
This design relieves Matter Labs of the burden of building a system compatible with all EVM opcodes, which are much more complex (such as Scroll).
This means that dApps ported to zkSync may need to make some adjustments instead of using the same design as the EVM.
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Different Validity Rollup Designs
While zkSync's EVM compatibility happens at the language level, Hermez and Scroll go a step further by building a VM that can interpret EVM bytecode (an approach that is significantly more complicated to build and has long been considered infeasible).
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Deploy on zkSync
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Token economics
Token utility is a questionable subject. There is no consensus yet on how to incorporate satisfactory value-add mechanisms into Tokens to give them fundamental value. The reason for this is due to the desire for the project to avoid falling within the scope of safety regulations.
For example, a protocol like Uniswap (arguably the golden boy of DeFi) has a token whose fundamental value is uncertain. While it is used for governance and rewards, it has no real value-added properties that give it long-term fundamental value (except for governance (which itself is of questionable value)).
Layer 2 Tokenology has an additional caveat that they are built on top of another Tokenology protocol (such as ETH). Adding additional tokens on top adds additional risk and friction points. However, incentives are also necessary to grow and maintain the ecosystem.
zkSync chose to pay gas fees in ETH, which is a strong signal of loyalty to Ethereum and the Ethereum community. Some Rollups have taken certain actions to appease the Ethereum community, but without showing real loyalty, paying for gas with ETH is a strong statement in the real sense.
Doing so also helps avoid additional friction (given that transactions need to be settled in base-layer ETH anyway). Using native tokens as fee tokens may detract from user experience. Ultimately, user experience will win out in the increasingly competitive Rollup space.
Other than that, Matter Labs remains silent on the usage of the token. Governance of Rollups is also potentially problematic as this introduces additional risk of governance capture. In terms of ownership, most tokens are effectively centralized, with only a few participants able to influence governance decisions. This increases the risk.
The method of using a typical PoS Token will bring additional censorship risks to the second layer, so it is also considered undesirable.
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moat
How strong is the first-mover advantage?
While being first to market will undoubtedly give zkSync a first-mover advantage, how strong is that advantage and how sustainable is it? To explore this, it is necessary to study EVM-compatible chains.
In the 2020/21 bull market, EVM-compatible chains have risen rapidly due to the fact that they provide an alternative for users of the Ethereum mainnet, which at the same time is very expensive.
This brings up the following players:
BNB Chain
Polygon
Avalanche
Fantom
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Will zkSync be attacked by mercenary developers/users?
zkSync may be different because it is closely connected to the Ethereum community. It is generally believed that Validity Rollup is one of the most promising scaling technologies, and zkSync cooperates with Ethereum, especially using ETH as a gas token, which may make developers inclined to develop on it. In fact, 150 Ethereum projects have indicated that they plan to deploy on zkSync, including Aave, Uniswap, Chainlink, Curve, and more.
account abstraction
account abstraction
Account abstraction refers to the goal of reducing two account types on the blockchain to one, which reduces complexity for users as they will no longer need to distinguish between different account types.
Ethereum has been working on it since 2017, however, it was a very challenging task and was also put on hold by supporting the scaling roadmap. Now, zkSync (and other L2s like Starkware and Fuel) will incorporate the account abstraction by default. Essentially, accounts can implement arbitrary logic.
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Approve multiple transactions at once
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social recovery
One of the biggest UX issues in the crypto space is seed phrases, and the whole ramifications of forgetting them.
Social recovery enables users who have lost their private keys to authorize a new wallet as the rightful owner.
can be:
A hardware wallet; a trusted friend/relative; a third-party service; or even a combination of the two.
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multi-factor authentication
The account abstraction allows users to set up their accounts to: 1. require signatures from multiple keys; 2. execute transactions only when specified conditions are met. While this sounds similar to using a multisig like Gnosis safe, account abstraction can provide wallets with better customizability and usability than typical multisigs.
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Any Token can pay gas fee
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session key
This allows the wallet to pre-approve certain rules for interacting with the dApp so users can use it as often as they want without having to sign transactions. This especially applies to blockchain games.
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plug-in
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limited time deal
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Volition
zkSync is also intended to operate as a Volition, known as zkPorter. zkPorter allows users to choose between Validity Rollup (on-chain data availability) and Validium (off-chain data availability). This allows users/developers to choose the desired security for their specific application. For example, gaming applications may choose Validium because the additional cost of Validity Rollup security is unnecessary for them, while DeFi applications may choose Validity Rollup because of its enhanced security and on-chain data availability.
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L3
What is L3?
In order to understand the meaning of "Layer-3", it is necessary to understand L2 Rollup first. L2 Rollup refers to a blockchain scaling solution that handles transactions on Ethereum L1, settlement and data availability on L1. L3 is to L2 what L2 is to L1.
L3 enables custom extensions for specific applications that require computation outside the EVM. The general consensus is that L3 enables custom features for applications and leverages L2 for scalability, such as privacy.
L3 is for Validium which may be suitable for specific application use cases such as gaming and enterprise applications.
L3 places state and execution on multiple servers, which is necessary for compute-intensive applications. Expected benefits include:
Solutions to prevent MEV may result in little or no MEV.
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Fractal Hyperchain
Fractal Hyperchain is the term Matter Labs uses to describe their vision for L3 on zkSync. All Fractal Hyperchains will be constrained by the same circuit technology and verified by the same prover. Its meaning is:
There is a native bridge between Hyperchains by having the same prover. Bridges have been a key factor in ecosystem failure, and native, trustless bridges will be the key to scalability, secure composability, and interoperability. Matter Labs says that in the future, there will be no bridges between Hyperchains at all. However, this is purely hypothetical. Despite claims of "unlimited" performance, no single solution is likely to scale infinitely, so it will be interesting to see how much scalability L3 offers when it is released.
L3 will be highly customizable, with many specific application chains envisioned.
L3 users can choose from 3 data availability options based on their needs:
Validity Rollup (highest security, highest cost)
Validium (data off-chain availability, fastest and cheapest)
Volition (app/user can choose between Validity Rollup and Validium for transactions).
zkSync expects to launch a L3 proof of concept in the first quarter of 2023, and claims that some big brands are looking to deploy on zkSync's L3.
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The Importance of Scalability and L3
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The main battleground in the Validity Rollup war may be prover
While there are many Validity Rollup solutions competing to launch their mainnet products and trying to build the best ecosystem, Matter Labs' Chief Product Officer believes that the focus should be on which project can build the best prover.
In order to realize the vision of L3 Hyperchain, zkSync's prover needs to be recognized as the best in the industry. If this happens, it could spur a slew of builders looking to deploy L3 in composable and interoperable networks enabled by a shared prover.
If projects/networks use the same prover, they will be able to interoperate with each other (protected by cryptography (in theory)). Our vision is that most on-chain activity will utilize the same prover, which will enable huge advances in the potential of Web3 technology.
On the Bankless podcast, the Chief Product Officer of Matter Labs used the metaphor of SSL to describe the potential of zkSync. SSL, which stands for Secure Sockets Layer, is the protocol used by browsers and servers to authenticate, encrypt, and decrypt on the Internet. Before SSL, e-commerce was niche and many people didn't believe it was possible to put their credit card details online. However, with the widespread adoption of SSL and confidence in the technology, e-commerce has grown and flourished.
decentralized
decentralized
By implementing proto-danksharding and danksharding, Ethereum will move from a bandwidth-constrained environment to one with abundant bandwidth. Nansen’s report explains Ethereum’s scaling roadmap.
There is an argument that Rollup today is overly focused on data optimization rather than bandwidth optimization, causing problems around the state of growth. In turn, it also brings the challenge of decentralizing prover/sequencer in the future.
L3/Fractal Hyperchain may provide a satisfactory solution for reducing state growth. However, this remains to be seen, and if they live up to their potential to carry a lot of on-chain activity, there may be problems at the L2 layer in the future.
Composability
Composability
Validity Rollup can be combined with settlement layers, such as Ethereum L1. In order to achieve this, a proof of validity needs to be generated for each block. Of course, Validity Rollup technology has not yet reached this level; nevertheless, the speed of its development surprised even Vitalik Buterin. This will allow L3 to be composited with the underlying L2.
However, this requires waiting for the next block combination to come back. For most applications this should not be a problem. One way to solve this problem is for L2 to provide L3 transaction pre-confirmation, which should make L3 and L2 transactions atomically composable. Ultimately, it is possible for n L3s to form the same unified state, and a simple proof of validity can verify all L3s. This leads to full composability.
Polynya believes this is a viable path forward in terms of maximizing security, decentralization, and scalability.
in conclusion
in conclusion
zkSync's latest round of financing is $200 million, and the total ecosystem financing is $485 million, making it one of the best capitalized L1/L2 with a decent expansion roadmap.
Its consistency with Ethereum is notable, as evidenced by paying gas fees in ETH. While this will appeal to Ethereum builders, it's unclear how strong their first-mover advantage as a general-purpose EVM-compatible Validity Rollup will be.
Native account abstraction can help significantly improve the user experience, potentially pushing encryption technology into mainstream use.
L3 will be a key battleground for ZK-Rollup, and zkSync is looking to become the accepted standard for hosting L3. Their L3 PoC will be live in the first quarter of 2023, which is something to keep an eye on.
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