January 13, 2023 - 20 min read
Ethereum is by far the world’s most popular blockchain for smart contracts, dApps, DeFi, and NFTs. However, it comes as no surprise to most that Ethereum has a tremendous scalability and pricing problem. As of early 2023, the blockchain can only process a maximum of 15 transactions per second (TPS), and, during times of peak activity, gas fees have ranged upward of $1,000.
While gas fees have fallen significantly since their heights in early-to-mid 2022, Ethereum’s slow transaction times and difficulties handling large amounts of data still make it ripe for disruption. That’s why, in the previous few years, a variety of Ethereum Layer-2 blockchains have sprung up with the intention of making Ethereum-based blockchains that are faster, cheaper, more expensive, and more environmentally friendly. Layer-2s are networks built on top of the main Ethereum blockchain, which generally inherit the security guarantees of Ethereum while introducing new ways of processing and proving data.
But how do Layer-2s achieve these greater speeds and lower costs? Much of the progress that Layer-2s have achieved is a result of zero-knowledge rollups (ZK-Rollups), a form of zero-knowledge proof. A ZK-Rollup combines a large number of Layer-2 transactions, executes the off-chain (while holding any assets in an on-chain smart contract) and sends only one transaction to the Ethereum mainnet. This permits the Layer-1 blockchain to store only a small amount of the data that would be required if the transactions were executed on it, rather than the Layer-2.
As we just mentioned, ZK-rollups are a form of zero-knowledge proofs (ZKPs), cryptographic proofs that permit an entity to prove that a condition is true without actually communicating it directly to the blockchain. The other major form of rollup-based scalability solution is referred to as an Optimistic rollup, which we’ll dive deeper into later in this article.
ZK-Rollups utilize two smart contracts, a verifier contract and a main contract. The verifier contract authenticates ZK-Rollups that are submitted to the Ethereum mainnet. In contrast, the main contract stores rollup blocks, tracks fund deposits/withdrawals, and monitors the blockchain’s state. The second layer of a ZK-Rollup uses an off-chain virtual machine, instead of the core Ethereum Virtual Machine (EVM) which is the main way that Layer-2s improve scalability and reduce costs.
As previously mentioned, ZK-Rollup-based Layer-2s get their security from the main Ethereum blockchain, as Ethereum ensures data correctness and confirms data updates, acting as a settlement layer of the ZK-Rollup.
The Ethereum merge of mid-2022 was expected (by some) to drastically increase TPS and reduce gas fees, however, this did not occur. If it had, it could have significantly decreased demand for Ethereum Layer-2s as well as the ZK-Rollups they often implement. This means that Layer-2s, and particularly those that use ZK-Rollups, will likely still remain competitive and continue to grow significantly.
As previously mentioned, Optimistic rollups are the main alternative to ZK-Rollups on Layer-2 blockchains. ZK-Rollups create cryptographic proofs which are used to prove the validity of transactions, with each transaction batch utilizing its own validity proof. In comparison, Optimistic rollups automatically assume the validity of all transactions. Instead of using an upfront cryptographic proof, they provide for a “challenge period” where the legitimacy of the data of the batch can be challenged. If fraud is alleged, a “fraud proof” is executed and the correct transaction computation is run. Optimistic rollup-based blockchains de-incentivize fraud by requiring nodes on the Layer-2 blockchain to stake ETH, which will be slashed (taken away) if they submit a fraudulent transaction.
Overall, this means that it is often easier for Optimistic rollup-based Layer-2 blockchains to reach a higher number of transactions per second (TPS), though finality times can be longer due to the necessity of the “challenge period.” It’s also easier for Optimistic rollups to execute full smart contracts, while this can be more challenging for ZK-Rollup based Layer-2s, which are sometimes confined to processing simpler transactions. Some of the top Optimistic rollup-based Layer-2s include Arbitrum, Optimism, Boba Network, Cartesi, OMG Network.
Below, we list some of the top ZK-Rollup based projects on the market today. We begin by listing all major Layer-2 blockchains that use ZK-Rollups as part of their scaling strategy, and then go on to list some of the most prominent protocols and dApps that have incorporated functionality for one or more of these ZK-Rollup-based blockchains.
Many large protocols, including borrowing and lending protocols and decentralized exchanges (DEXs) are now multi-chain, so some incorporate functionality for several ZK-Rollup based Layer-2s to give users a wide array of options they can use to reduce transaction fees and achieve both faster transaction times and faster finality.
Polygon is currently the largest Ethereum Layer-2 blockchain both by TVL (total value locked in DeFi protocols) and by native token market cap via its popular $MATIC token. Polygon uses a proof-of-stake (Pos) consensus mechanism and currently has over 80 active dApps.
Polygon uses ZK-Rollups to greatly improve scalability, however, typical ZK-Rollups have certain downsides, such as being somewhat time intensive. By using recursive proofs, Polygon sidesteps this issue. Unlike other ZK-Rollup-based blockchains, which can only create proofs for a single transaction at once, Polygon can create proofs for every transaction in a batch at once prior to sending the batch to the Ethereum mainnet.
Overall, the design of Polygon’s ZK-Rollups makes the network cheaper and faster than most other ZK-Rollup scaling solutions, and also means that validators do not need specialized hardware. In fact, some Polygon proofs on the in-development network Polygon Zero are as small as 45kb, putting far less strain on blockchain performance than other scaling solutions.
Unlike ZK-Rollups on most other Layer-2s, Polygon’s ZK-Rollups are fully Ethereum compatible, meaning that developers do not have to learn alternative languages to program Polygon smart contracts, as they do on other Layer-2s like StarkNet.
Polygon works by generating multiple “commit chains,” which are somewhat like sidechains, but work differently, and generate a greater degree of their security from the Ethereum mainnet. They also sidestep the issue of sidechain centralization, as most sidechains can only handle a limited number of validators, whereas the Polygon network allows anyone to stake the blockchain’s native token ($MATIC) and act as a validator for the network.
It’s important to note that Polygon actually has created blockchain networks, including the fully operational and (compartivaley) highly-decentralized Polygon Hermez, as well as the in-development networks Polygon Zero, Polygon Miden, Polygon Nightfall, and Polygon ZkEVM. Polygon claims that Polygon Zero is world’s highest-performance ZK-Rollup-based Layer-2, with ZK proofs generated in 170 milliseconds on a regular consumer laptop.
It should be noted that while Polygon mainly uses ZK-Rollups as a scaling solution, it intends to increasingly incorporate Optimistic rollups in the future.
Polygon, initially referred to as Matic Network, was initially launched in 2017 by Ethereum developers Sandeep Nailwal, Anurag Arjun, Jaynti Kanani, and Mihailo Bjelic.
StarkNet is another decentralized ZK-Rollup based Layer-2 blockchain. Unlike Polygon, StarkNet developers need to learn the Cairo programming language (instead of Solidity), which can make onboarding new developers somewhat more of a challenge. Despite this, transpilers from Solidity to Cairo and other, better-known programming languages are being created to sidestep this issue.
Like other ZK-Rollup-based chains, StarkNet bundles many Layer-2 transactions into a single transaction on Ethereum, which significantly increases speed and reduces gas fees.
StarkEx is another blockchain created by the team behind StarkNet. Unlike StarkNet, which is a blockchain intended for public dApp development, StarkEx operates as a SaaS (software-as-a-service) scalability solution specifically for decentralized crypto exchanges (DEXs), which helps exchanges reduce costs while improving speed and liquidity.
StarkEx provides support for ETH, ERC-20 tokens, and tokens on other EVM-compatible chains, as well as ERC-721 NFTs (currently the world’s most popular NFT token standard). It is also in the process of supporting off-chain minting for ERC-1155 semi-fungible ‘dynamic’ NFTs. StarkEx has been deployed on Ethereum since mid-2020. StarkEx is also one of the largest Layer-2 solutions by TVL (total value locked). StarkEx is currently used by a wide scope of dApps and protocols, including dYdX, Immutable, DiversiFi and Sorare.
StarkNet and StarkEx were both developed by Starkware, a company founded in 2017by Alessandro Chiesa and Eli Ben-Sasson.
ZKSync is an Ethereum Layer-2 scaling solution designed to accommodate high speeds (2,000+ TPS) while ensuring low gas fees and high security. Unlike many Layer-2s, ZKSync allows nearly instantaneous withdrawal of funds to the Ethereum Layer-1 mainnet. It should be noted that ZKSync is currently the sole zk-rollup protocol with full EVM compatibility, meaning that developers can easily redeploy live smart contracts from Ethereum without rewriting or customizing them for ZKSync. This significantly increases interoperability and decreases development time.
ZKSync is similar to StarkNet and StarkEx in some ways, with the main difference being the type of proofing protocols used. ZKSync utilizes SNARKs (Succinct Non-Interactive ARgument of Knowledge), while StarkEx uses STARKs (Scalable Transparent ARguments of Knowledge).
ZK-SNARKs involve an initial one-time setup in which a small group of developers need to be trusted to properly and securely develop code, which increases centralization and reduces trustlensses. In contrast, ZK-STARKs utilize publicly verifiable randomness to create trustless verifiable systems. They are also believed to be resistant to quantum attacks, while SNARKs are not. STARKs also offer greater scalability. All of this means that ZKSync does have some downsides when compared to StarkNet.
A few of the largest projects that have been deployed on the ZKSync blockchain include Argent, Gitcoin, Yearn Finance, Gnosis Safe, Snapshot, Tally, and 1inch Network.
Matter Labs, founded by Alexandr Vlasov and Alex Gluchowski is the company behind ZKSync, which launched in 2020.
Loopring is a ZK-Rollup-based Layer-2 blockchain protocol specifically designed for creating decentralized exchanges and payment systems. Loopring helps enable non-custodial trading by matching sellers and buyers without actually holding any user’s funds. Instead of most DEXs, which use AMM (automated market maker) technology, which requires significant liquidity, Looping enables DEXs to use the order book method, which requires less liquidity and is more similar to the experience of trading on more traditional centralized exchanges.
In addition to its Layer-2 protocol that helps enable independent DEXs, Loopring also has its own DEX, Loopring Exchange. Loopring Exchange was the first publicly accessible zkRollup exchange created on Ethereum. Looping also has a native token, Loopring ($LRC). While Looping has a variety of unique benefits for DeFi applications, it’s also somewhat slower than some other Layer-2s, processing an average of 200 TPS.
Aztec Network describes itself as “the first smart contract platform with privacy by default and secured by Ethereum.” Like ZKSync, Aztec Network utilizes SNARKs (Succinct Non-Interactive ARgument of Knowledge) and is built on PLONK, a zero-knowledge proof algorithm utilized by a variety of well-known crypto and DeFi projects, including the privacy coin Zcash. The network is planning to use its own, customized, privacy-based programming language, Noir, which is based on Rust. The Noir testnet is coming online in Q4 2022, with the mainnet expected to follow soon after. Like some other Layer-2 blockchains, Aztec offers grants for developers, and allows them to propose bridge contracts. It also provides bug bounties to reimburse developers for finding and identifying vulnerabilities within the Aztec Network infrastructure.
In addition, the network integrates with a variety of Ethereum protocols via its DeFi aggregator zk.money. Major integrations include the borrowing and lending protocol AAVE, the major Ethereum staking service Lido, and Element Finance, an increasingly popular fixed-rate yield market protocol. Aztec’s Aztec Connect service allows users to privately interact with these protocols while achieving the cost savings of traditional Layer-2 blockchains, and says that users, on average, experience 100x cost savings when using the network.
However, Aztec Network, while promising, isn’t without its growing pains. In August 2022, FTX blocked accounts that have sent crypto through zk.money, identifying it as a “mixer” which could lead to high-risk activity. This may be a reaction to the U.S. Treasury Department’s harsh crackdown and sanctions on the crypto mixer Tornado Cash, leading major exchanges to block accounts that have interacted with Tornado Cash.
Aztec Network was founded in 2017 by Joe Andrews, Thomas Pocock, and Zachary Williamson.
Immutable X is a high-throughput Ethereum layer-2 scaling solution that focuses specifically on inexpensive and secure NFT minting and trading. The platform can reportedly process an impressive 9,000 TPS. Immutable X’s ZK-Rollup solution utilizes ZK-SNARK technology developed by StarkWare.
The Immutable X ecosystem consists of three main parts; the Immutable X platform, which provides the core Layer-2 infrastructure, the Immutable X marketplace, which provides a highly-efficient exchange which permits gas-free NFT minting and trading, and the Immutable Immutable X token (IMX) an ERC-20 utility token which operates as the platform’s native token. The IMX token can be staked or used to pay transaction fees. In addition to its own marketplace, Immutable X provides a global order book service, permitting NFTs to be traded on every marketplace that utilizes their infrastructure, meaning that an order issued on one Immutable X-supported marketplace may be filled in another, greatly increasing NFT liquidity and reducing transaction times and fees.
In addition to this, Immutable X provides APIs which allows the transfer and minting of NFTs without a developer needing to directly interact with smart contracts. When used with the network’s SDKs (software development kits), this can rapidly speed up the development time for NFT projects like play-to-earn games.
Immutable X was founded in 2018 by Alex Connolly, James Ferguson, and Robbie Ferguson.
Announced in April 2022 after one year of development, Scroll is perhaps the newest Ethereum ZK-Rollup-based Layer-2 blockchain to hit the market. Unlike most Layer-2s, Scroll has been personally reviewed by Ethereum co-founder Vitalik Buterin and was created in collaboration with the Ethereum Foundation. Scroll is intended to be the most Ethereum-compatible Layer-2 in the industry, as it has bytecode compatibility with Ethereum, and code can be deployed on the Ethereum mainnet without any changes.
While most ZK-Rollups are application-specific, making it somewhat challenging for developers to build compatible dApps, Scroll’s ZK-Rollups are verifiable on the general EVM (Ethereum Virtual Machine) allowing for the easy migration of existing Ethereum dApps. In addition, the Scroll team is in the process of developing a decentralized market for proofs which allows the generation of zero-knowledge proofs for outside developers.
The Scroll team has raised $30 million, with some of those funds coming from members of the Ethereum Foundation.
Fox is yet another ZK-Rollup-based Ethereum Layer-2 scaling solution. Unlike other Layer-2 blockchains, it uses a unique variation of ZK-Rollup technology, which it refers to as ZK-FOAKS (Zero Knowledge-Fast Objective Argument of Knowledges). Fox utilizes ZK-EVM, meaning that it is highly compatible with current Ethereum dApps. Fox claims that their ZK-FOAKS proof method is superior to ZK-SNARK technology, as it’s reportedly faster and transparent.
For additional security, Fox requires proofs for every state transaction, which would normally slow down transaction times, if it weren’t for the implementation of their ZK-FOAKS technology.
Fox’s ZK-EVM aims to address the difficulties inherent in ZK-Rollups, as it can be challenging for developers to create more complex dApps using traditional ZK-Rollup-based Layer-2 blockchains. Like some other Layer-2s, it claims that existing Ethereum dApps can be seamlessly migrated onto their network.
Unlike the other Layer-2 blockchains on this list, Orbis is a Layer-2 for the increasingly popular alt-Layer-2 blockchain Cardano, rather than Ethereum. Cardano currently has a TPS of 250, which is far superior to the Ethereum mainnet, but still significantly slower than most Ethereum Layer-2 blockchains. This is only one of several issues that Orbis hopes to address. Like many Ethereum Layer-2s, Orbis uses ZK-SNARK ZK-Rollups. Orbis utilizes the Halo 2 ZK test system, built on the Zcash Blockchain. Orbis supports three programming languages; Cardano Plus, Pluto, and Plutarch.
Much like some Ethereum Layer-2s, the protocol utilizes a smart contract on the Cardano Layer-1 mainnet to lock funds, which is utilized to pay for transactions. Orbis claims to be as decentralized as the Cardano mainnet, while inheriting all of Cardano’s security guarantees. Orbis is still in the development stage, and developers are in the process of developing stacks specifically for NFTs, supply chain management, DeFi, and smart payment.
Orbis is led by CEO Ryan Matovu and CTO Tom Sydney Kerchove.
dYdX is an extremely popular DEX (decentralized exchange) on Ethereum which specifically focuses on trading perpetuals. Perpetuals, or perpetual futures, are futures (a type of derivative), which, unlike traditional futures, do not have set expiration dates. Like traditional futures, perpetual futures allow traders to profit from speculating on the future price of cryptocurrencies, and also allow them to use leverage (borrowed money) to buy a significant amount of crypto with only a relatively small amount of money down. dYdX allows for up to 10x leverage for perpetuals contracts.
dYdX engaged StarkWare to help dYdX build out their Layer-2 trading platform, significantly reducing gas costs and greatly increasing transaction speeds, and also allows traders to make much smaller trades while remaining profitable. According to dYdX, the protocol chose a ZK-Rollup-based Layer-2 development strategy due to the fact that ZK-Rollups are more battle tested than Optimistic rollups, allow reduced withdrawal times, and offer a higher degree of decentralization and better cryptographic guarantees than Optimistic rollups.
In addition, since StarkWare has a well-developed infrastructure, the dYdX team was able to build their Layer-2 platform in a matter of months, rather than years. While the platform has seen significant success with their transition to ZK-Rollup-based Layer-2 infrastructure, they do plan to build their own standalone blockchain in the near future. In general, dYdX believes that Layer-2 technology also provides superior privacy for traders, as trading information is not published directly on-chain, helping keep traders’ transactions and any proprietary trading strategies away from prying eyes.
dYdX is backed by major crypto VCs a16z, Polychain Capital, and Paradigm. dYdX was founded by Antonio Juliano, who currently serves as the company’s CEO.
As of Mid-2022, Uniswap was the world’s largest DEX (decentralized exchange) by trading volume. As of May 2022, it had 43% of the worldwide DEX market share in trading volume. As of August 2022, the exchange had an estimated 34,000 active users. Overall, Uniswap is one of the industry’s largest DeFi platforms and is among the platforms with the largest amount of TVL (total value locked).
Uniswap also created their own token ($UNI), which has become a popular crypto asset and can be used to pay transaction fees on the protocol. Like most DEXs, Uniswap utilizes liquidity mining, in which individuals stake asset trading pairs to provide liquidity to the DEX in exchange for a percentage of transaction fees.
Uniswap was initially built on Ethereum, but it has now created three versions of the platform, V1, V2, and V3, which provide functionality for different Layer-2s. While Uniswap started on Ethereum alone, Uniswap V3 has expanded to multiple Ethereum Layer-2s as well as another Layer-1, Celo. Polygon is the most popular Layer-2 supported by Uniswap. In fact, Uniswap on Polygon is so popular that it accounts for approximately 50% of all total value locked (TVL) for all DEXs operating on the Polygon blockchain. Polygon is currently the only ZK-Rollup-based Layer-2 compatible with Uniswap. Other Layer-2s on Uniswap V3 include the popular blockchains Optimism and Arbitrum, which both utilize Optimistic rollups.
AAVE is an extremely popular DeFi borrowing and lending protocol which allows users to borrow and lend a wide variety of crypto assets. AAVE is currently the third-largest DeFi platform terms of TVL, second only to Lido and MakerDAO, and the largest DeFi lending platform that supports a significant variety of cryptocurrencies, as users can currently borrow and lend about 30 cryptocurrencies. Like Uniswap and other DeFi protocols, some users provide liquidity to the platform in exchange for a portion of the interest generated by the lending pool. Unlike some lending platforms, AAVE also provides flash loans, non-collateralized loans that must be paid back in the same transaction, which are sometimes utilized by traders for various strategies, including arbitrage trading.
AAVE is relatively decentralized, as it’s governed by a DAO (decentralized autonomous organization), with governance powers allotted to those who own $AAVE, the protocol’s native token. Like many DeFi tokens, AAVE is an ERC-20 token, which makes sense, as the platform, much like Uniswap, was initially deployed only on Ethereum. Also like Uniswap, AAVE’s V3 has been deployed on a variety of Layer-1s and Layer-2s. Polygon is currently the only ZK-Rollup-based Layer-2 that AAVE is deployed on. AAVE is also deployed on the Layer-2s blockchains Arbitrum, Optimism, and Harmony and the Layer-1s blockchains Avalanche and Fantom.
As of September 2022, Polygon is the second-most popular blockchain on AAVE V2, with more than $290 million in TVL, and the third-most popular blockchain on AAVE V3, with more than $70 million in TVL.
Curve is another decentralized exchange and another one of the most popular DeFi platforms on the market today. Curve is an automated market maker (AMM), and unlike Uniswap and traditional DEXs, it focuses only on creating liquidity pools for similar assets, like stablecoins or various versions of the same asset wrapped on different blockchains.
This strategy results in Curve having significantly reduced slippage and fees when compared to other DEXs. Curve’s highly-efficient AMM model means that assets are traded between liquidity pools instead of matching individual borrowers. Like other DeFi protocols, liquidity providers earn a portion of transaction fees in exchange for staking their tokens. Curve is particularly known for trying to provide users a lower-risk way to earn returns by staking stablecoins on a decentralized platform. In general, Curve attempts to prioritize financial stability over high levels of risk and speculation.
Like Uniswap and AAVE, Curve is governed by a DAO and has its own token, the CRV token, which acts as a governance token for the Curve DAO. CRV tokens can be purchased traditionally through exchanges, and are also provided as an additional reward for liquidity providers, on top of the fees and interest they already receive.
Just like many other popular DeFi platforms, Curve was initially only deployed on the Ethereum blockchain, but is now deployed on several Ethereum Layer-2s, including the ZK-Rollup-based Layer-2s Polygon and ZKSync. As of January 2023, Polygon has more than $70 million in TVL on Curve.
Curve is also deployed on the Optimistic-rollup-based Layer-2s Arbitrum and Optimism. Curve is additionally deployed on the Layer-1 blockchains Avalanche, Fantom, xDai, and Harmony.
MakerDAO is currently the largest DeFi protocol by TVL, and is one of the largest crypto lending platforms in the industry today. MakerDAO acts like a decentralized ‘central’ bank, as it allows users to mint its native stablecoin DAI in exchange for staking ETH. $DAI is currently the largest decentralized stablecoin on the market today, with a market cap of more than $5 billion (as of January 2023), and is one of the largest stablecoins in the world, though its market cap is significantly smaller than centralized stablecoins like $UDST and $USDC.
As one might imagine, MakerDAO is governed by a DAO, which itself is governed by holders of the protocol’s native token, $MKR. For a long time, MakerDAO was only deployed on the Ethereum Layer-2 mainnet, but in late April 2022, MakerDAO announced that it was planning to deploy on the ZK-Rollup-based Layer-2 StarkNet, with the intention of reducing transaction costs and improving network transaction speeds.
MetaMask is currently the world’s most popular non-custodial crypto wallet, passing 30 million active monthly users in March 2022. MetaMask isn’t just designed as a simple wallet; it’s also designed for users to easily interact with dApps via its built-in browser, supports NFTs, and has an internal swapping mechanism. MetaMask was initially designed for the Ethereum ecosystem, but has now branched out to a variety of Layer-1 and Layer-2 blockchains. MetaMask was developed by crypto development and consultancy firm Consensys. MetaMask currently supports over 450,000 coins and tokens across various blockchains.
In addition to the Ethereum Network, MetaMask supports the Layer-1 blockchains BNB Chain (formerly Binance Smart Chain) and Avalanche. ZK-Rollup-based Layer-2s blockchains supported by MetaMask include the Polygon, Loopring, and StarkEx. MetaMaks also supports the Optimistic-rollup based Layer-2s Abitrum and Optimism.
MetaMask is reportedly in the process of launching a DAO to promote decentralized governance and will soon launch its own native token. In mid-2022, Consensys announced that MetaMask would undergo a major redesign in Q4 2022, though it’s unclear how far this initiative has gone.
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