Table of Contents
An Overview of Zero Knowledge Technology
1.1 What is Zero Knowledge?
1.2 On-Chain Data on Zero Knowledge Technology
1.3 Off-Chain Data on Zero Knowledge Technology
1.4 Social Data/Engagement on Zero Knowledge Technology
1.5 A Brief Comparison of Optimistic vs ZK-Rollups
A Deeper Dive into the Development of Zk Technology
2.1 zkSnark vs zkStark
2.2 Starkware
2.2.1 StarkNet
2.2.2 StarkEx
2.3 Scroll
2.4 Polygon zkEVM
2.5 ConsenSys zkEVM
2.6 Zcash
2.7 Loopring
2.8 Taiko
zkSync
2.1 A Brief Description on zkSync
2.2 The Current State of zkSync
2.3 zkSync Era Ecosystem & Some Data
2.4 zkSync Era Applications
2.4.1 UniDex
2.4.2 SyncSwap
2.4.3 Mute.io
2.4.4 Mint Square
2.4.5 Nexon Finance
Food For Thought
1. An Overview of Zero Knowledge Technology
There are a few Layer 2 Solutions to scale Ethereum's network, mainly being Zero Knowledge and Optimistic Rollups.
1.1 What is Zero Knowledge?
To put it simply, Zero Knowledge Proofs is a way of proving the validity of a statement without revealing the statement itself. The ‘prover’ is the party trying to prove a claim, while the ‘verifier’ is responsible for validating the claim. No other additional information other than the fact that statement is true, is revealed.
1.2 On-Chain Data on Zero Knowledge Technology
We present an overview of the on-chain and off-chain data for Zero-Knowledge System.
We note that zkSync and StarkEx is by far the leader in terms of utilization of the chain for Zero-Knowledge Technology.
1.3 Off-Chain Data on Zero Knowledge Technology
1.4 Social Data/Engagement on Zero Knowledge Technology
1.5 A Brief Comparison of Optimistic vs ZK-Rollups
Let us express the key differences of ZK Rollups and Optimistic Rollups, without going into too much technical detail.
2. A Deeper Dive into the Development of Zk Technology
Let us have a quick overview of the different types of ZK Technology and their key differences.
2.1 zkSnark vs zkStark
zkSNARKs is by far more efficient and cheaper than zkSTARKs but that all come at a cost that many are not willing to risk.
zkSNARKs relies on a trusted setup ceremony where private keys that will be used to create proof required for private transactions and the verification of those proofs are created. If the secrets used to create the keys are not destroyed, it could be used to forge transactions and essentially mint tokens out of thin air. Because of the privacy feature of zkSNARKs, there is no way to verify if the tokens are legitimate or created out of thin air. There are security measures in place to prevent this from happening.
Another big issue of zkSNARKs is that it is not quantum-resistant. But then again many argued that if quantum computing is widely available we will have bigger problems on our hands.
Invented by Starkware, zk-STARKs is an advanced cryptographic-proof technology that is more transparent, scalable and secure for blockchains than zk-SNARKs.
zk-STARKs technology allows blockchain to move storage and computation off-chain. STARK proof can also be done by off-chain services and then posted on-chain so that anybody can verify it. These significantly improve scalability as transactions can be batched together and use a single STARK proof to confirm the transactions’ validity on-chain.
2.2 Starkware
Starkware is the company behind the layer two scaling solution StarkNet and StarkEx. StarkNet is a smart contract layer 2 network whereas StarkEx is an application-specific scaling engine.
Invented by Starkware, zk-STARKs (Zero-Knowledge Scalable Transparent Arguments of Knowledge) which is different from zk-SNARKs is an advanced cryptographic-proof technology that is more transparent, scalable and secure for blockchains than zk-SNARKs.
zk-STARKs technology allows blockchain to move storage and computation off-chain. STARK proof can also be done by off-chain services and then posted on-chain so that anybody can verify it. These significantly improve scalability as transactions can be batched together and use a single STARK proof to confirm the transactions’ validity on-chain.
2.2.1 StarkNet
StarkNet is a layer 2 network that harnesses STARK-based scaling solutions to provide scalability, low gas costs and security. The Starknet token is live on mainnet but is still unavailable to the public.
StarkNet will eventually become a fully decentralized rollup where permissionless layer of sequencers and provers ensures the network will be censorship-resistant and anybody can be able to verify the StarkNet chain without the need to trust a third party.
One downside is that it uses Cairo but those who are familiar with Rust shouldn't have an issue as Cairo 1.0 is the upgraded Rust-inspired version of Cairo.
2.2.2 StarkEx
StarkEx is an app specific layer 2 scaling engine built on the Ethereum blockchain. The beauty of StarkEx is the ability to dramatically improve Ethereum scalability without compromising on security.
Some popular protocol like dYdX and Sorare integrate with StarkEx to reduce gas fee and increase transaction speed. ImmutableX a layer 2 scaling solution also leverages on StarkEx to provide lightning fast transaction speed and gas free NFT minting and trading.
2.3 Scroll
Scroll is a zkEVM-based zkRollup that enables native compatibility for Ethereum applications and tools. It aims to build a fully EVM-compatible zk-Rollup and support direct verification of an Ethereum block through one succinct proof.
It is using ZK Snark, and its priority is in security.
Its ultimate goal is to advance the end goal of Ethereum scaling, which is to "zk-SNARK everything".
The Integrity of Layer 2 Transactions are guaranteed by succinct zero-knowledge proofs verified in a smart contract on the Ethereum base layer, making it as secure as transactions on Ethereum itself.
There are several key aspects of Scroll.
Full layer 1 security
Remove security reliance on Layer 2 nodes, even when transacting on layer 2. The integrity of Layer 2 Transactions are guaranteed by succinct zero-knowledge proofs verified in a smart contract on the Ethereum base layer, making it as secure as transactions on Ethereum itself.
EVM-equivalent, not simply EVM-Compatible.
An EVM-equivalent environment behaves exactly the same as the Ethereum Virtual Machine specification.
Efficiency & Low Transaction Fees
Cheaper transaction fees than base layer, and instant pre-confirmation on layer 2 with fast finality on Ethereum.
Decentralization
Decentralization in all aspects of Scroll. This includes node operators, provers, and the community of developers and users
Sources:
https://scroll.mirror.xyz/N7cAie4ul0PdSxNdv2FTqgMV2JEkhOJocsxfeqe4SFE
2.4 Polygon zkEVM
Polygon zkEVM Beta was launched on 27 March 2023. Polygon claims that its Zero technology is the fastest ZK proof in the world. Polygon zkEVM is built around the four main pillars - low cost, high performance, EVM equivalence and security.
The network will be fast and low-cost because it harnesses the power of ZK proofs to reduce transaction costs and increase network finality. The network will support the vast majority of existing tools and developers can deploy them onto EVM without changes in code. It will come with Ethereum security and layer 2 benefits.
2.5 ConsenSys zkEVM
ConsenSys zkEVM is built with three key pillars in mind - zero switching costs, easy onboarding and best-in-class performance.
Zero switching cost allows existing dapps to migrate with no code changes or smart contract rewrites. It is easy to onboard as there’s native integration with industry-leading tools like Infura and MetaMask. The R&D team spent four years perfecting its very own recursion-friendly, lattice-based zkSNARK prover. The prover is built with award-winning zkSNARK libraries and is able to deliver ultra-low gas fees.
The public testnet is expected to launch on 28 March 2023.
2.6 Zcash
Those who have been in crypto since the early days should have heard of ZCash. Started in 2016, Zcash (ZEC) is a fork of Bitcoin but with added features like enhanced user security and anonymity.
It uses zk-SNARK technology to encrypt information so that it cannot be tracked. This technology also allow users to shield their transactions such that the sender, recipient and amount are encrypted.
It still uses the POW (proof-of-work) system and new coins are produced through mining. Theres a hard cap of 21 million coins and about 10 million is in circulation.
The privacy coin have seen better days. With the crack down on Tornado Cash, privacy related tools and crypto also took a hit. US can easily sanction these tools for facilitating money laundering and it will start to lose their user base.
2.7 Loopring
Loopring is Ethereum’s first zkRollup Layer 2, using ZK-Snarks.
As at 31 March 2023, it has almost $117.44m of TVL.
Loopring ensures there is no misappropriation of users' crypto-assets deposited to an exchange. In certain circumstances, such as the exchange's UI stopped functioning, or the exchange's operators are out of reach, users can still claim their rightful assets by providing valid Merkle proofs that are derivable from data on Ethereum.
It is important to note that the Loopring Exchange's relayer system was developed as a closed source project, and its application offers swaps, staking, liquidity providing and even NFTs.
Loopring relayer is a closed source zkRollup relayer, and it is the backend (operator) that does all the off-chain duties to make a zkRollup roll.
To operate a decentralized exchange on Loopring, the exchange owner needs to stake LRC for reputation & extra safety.
Stake up > 250,000 LRC, enabling the operator to run an exchange that uses its on-chain data proofs.
An operator must stake 1 million LRC to run an exchange without data availability
Source:
https://loopring.io/#/trade/lite/LRC-ETH
https://blogs.loopring.org/on-what-loopring-is-and-isnt/
https://blogs.loopring.org/lrc-utility-in-loopring-3-0/
2.8 Taiko
Taiko is the newest kid on the block. It aims to be Ethereum-equivalent type 1 zkEVM. It is currently in Alpha testnet with Beta testnet coming out in Q3/4 of 2023 and Mainnet launching on early 2024.
Taiko uses zkSNARK for their rollup and it prioritizes EVM-equvilance over speed. This make Taiko slower than other ZK rollups as it takes a longer time to achieve finality.
3. zkSync
3.1 A Brief Description on zkSync
Matter Labs just launched zkSync Era Mainnet Alpha, the very first zkEVM on mainnet that is available for the wider public. Ethereum devs can now easily port over applications to zkSync and enjoy the benefit of zero-knowledge technology.
Security was one of the focal points. The team spent a total of $3.8M on zkSync Era audit which include 7 independent audits by Tier 1 auditors (OpenZeppelin, code4rena, Immunefi), 3 internal audits, 2 public security contests, bug bounty program and open sourcing the codes.
Important things to note. Because it is still in Alpha stage, security measures like withdrawal delay will be in place. Withdrawal delay is implemented to prevent quick drain of the protocol if it was exploited. The time lock will give the team time to verify the transaction before the block is finalized. There will be a 24-hour delay and it will gradually decrease as the system matures.
We also note that there are several big protocols that have been confirmed to launch on zkSync Era:
3.2 The Current State of zkSync
We can view a short timeline of zkSync.
zkSync Era v2 (We are here, as at time of writing, 2023-03-30)
The nonce is basically the number of transactions (starts from 0).
3.3 zkSync Era Ecosystem & Some Data
At the time of writing (UTC 2023-03-28), there are over 250 different applications in the zkSync ecosystem but only about 15 applications live in the zkSync Era.
Do note that because zkSync Era has only recently gone live, these “trending” or “most popular” applications could change soon!
3.4 zkSync Era Applications
Let's take a deeper dive into some trending applications on zkSync Era. Take note that some of the quantitative data such as the APY are subject to volatile changes because many apps on Era are still new.
3.4.1 UniDex
UniDex is the first leverage perpetual futures DEX on zkSync. It is not only a prep DEX but a meta-aggregator of everything from option aggregation to cross-chain trading.
Currently, it supports 14 different chains and 11 different hot wallets. Traders can choose from 14 crypto trading pairs with max leverage of 100x. It also offers Forex, TradFi, Indices which offers much higher leverage.
Looking at the LP pool, the APY of Unidex is quite volatile.
This is because the yield calculated from the losses of traders on Unidex, fee revenue from trades, and liquidations.
Therefore, it is important to note that profitable trades that are closed will be taken out of the pool and paid to traders. This means the pool is subject to negative APR if traders are net positive in PnL.
UniDex just launched its zkSync chain support on 26 March and in 2 days it garner over 700k in volume with over 1000 trades. The traders lost 1,354 USDC and paid over 1k in fees.
There are two modes on UniDex: Instant mode and Gasless mode. As the name suggests, the instant mode will swap normally but the gasless mode will use the new V3 swap aggregator where orders will be submitted on the shared cross-chain orderbook rather than broadcasted to the public mempool. The gasless mode also protects the trade from MEV bots.
Another key function of UniDex is that it allows traders to use limit orders when swapping. This function is not widely seen on other DEXs out there and it is good for traders that do not want to swap at market price. The trading interface is similar to popular aggregators like DefiLlama Swap where traders can choose which aggregator they want to use.
3.4.2 SyncSwap
SyncSwap is a decentralized exchange that aims to be an easy to use DeFi hub. The mission is to be a community-centric project where the community gets to vote on the future of SyncSwap.
At the core, it's a multi-pool AMM model that is efficient, flexible and composable. There are three different pools: Classic pool, stable pool and concentrated pool. The classic pool uses the normal AMM x*y=k model. The stable pool is optimized for pegged assets and uses the x+y=k model and will fall back to AMM x*y=k when the price de-peg. The concentrated pool is similar to the stable pool but supports dynamic prices. This pool will be introduced at a later date.
SyncSwap currently charges a 0.1% trading fee on classic pools. The LP holders will receive 70% of the fees and the protocol will collect the other 30%. There’s no need to manually claim fees as it is automatically auto-compounded to the LP position.
3.4.3 Mute.io
Mute.io is the first zkDEX on zkSync. It is similar to SyncSwap but it is more established with more functions. The team behind Mute has a proven track record with zero-knowledge products as they created the first zk Atomic Swap protocol between BTC and UTXO-based chains. It started out as NIX - A privacy tool for BTC & altcoins but rebranded as a new project, MUTE - zkRollup DeFi platform.
The pool fee on Mute is dynamic and can be adjusted by anyone that owns at least 50% of the LP vote weight. Currently, the pool fee of USDC/WETH is 0.5% which is 0.4% more than SyncSwap.
There are a few items on the roadmap that the team is trying to implement on Mute - Limit order, amplifier program, porter additions and NFT support.
3.4.4 Mint Square
Mint Square is an NFT marketplace for zk-rollups. Its on both StarkNet and zkSync Era. Not only just an NFT marketplace, but it also allows users to mint their own NFT.
The NFT market is not regulated and it is flooded by a lot of random NFT projects by the community. But some of the bigger NFTs like zkRocks and zkAnimals are very liquid and there’s a transaction every few minutes.
3.4.5 Nexon Finance
Nexon Finance which recently went live on 28 March 2023, let us compare the rates with other similar platforms, such as AAVE
Do note that the total supply has been capped at $1m currently and the only market available is USDC, but it seems that they have recently added ETH too at the time of writing (31 March 2023).
Therefore, if you are just looking to borrow, it seems that it would still be better to take the AAVE’s 3.03% borrow APY as compared to 4.26% borrow APY on Nexon Finance for the USDC Market.
As a lender, it would still be better to be on AAVE as it offers 1.88% APY as compared to Nexon’s 0.59%.
The liquidity on AAVE is more too, but do note that this is subject to change as Nexon Finance is still new.
Food For Thought
It seems that most of the recent current surge of users using zk-related apps are more than likely not to be genuine users, because of the surge in users right after the $ARB airdrop from Arbitrum.
The users there are probably trying to farm the potential airdrop.
One way to identify organic users is to see if these users have been users of other chains with airdrops before.
As at UTC 2023-03-28,
We can see that 35.6% (43,840) of zkSync Era users have not used Arbitrum before, and 52.4% (63,780) of Optimism Users have not used Optimism before.
Therefore a good estimation is (43,840 + 63,780) / 2 =
53,810 “Real Users” on zkSync Era.
Do note that this might not be the best metric to determine organic users as it does not take into account new wallets.
zkSync Era Notable Live Applications
We look at some notable applications that are live on Era, and naturally, the applications that do not have a token yet would attract certain users to their platform to “farm” the airdrop.
What are your thoughts on Zero Knowledge Technology, and have you tried out the multiple apps that are live so far?
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