Before reading the article, sign up for Cryptogram, a free weekly newsletter on Web3 and crypto.
Quick brief: We have heard of Polygon (MATIC). We have observed (even profited from) the airdrops of Optimism (OP) and Arbitrum (ARB). We are preparing for an upcoming airdrop from zkSync. Now we are wondering which Layer 2 solution on Ethereum will eventually win the race? Rather what differentiates them and which ones we can invest in for the next bull run?
The transaction processing power of layer 1 blockchains are currently limited. Layer 2 (L2) solutions are ideally a scaling solution built on top of layer 1 blockchains (like Ethereum) to improve the base layer performance. The layer 1 blockchain will remain the settlement layer, while scaling solutions (L2) will continue to manifest their place as execution layers for the growing ecosystem.
Within L2, rollups have been the most successful scalability approach and has aided the growth of Ethereum. Rollups can be classified as Optimistic and ZK based. Without going into the technicalities, zero-knowledge (ZK) is an upcoming field that is driving new developer resources into it whereas Optimistic rollups are a standard implementation of transactions and integration onto Ethereum.
While ZK can be faster, they can be computationally complex. Among the ones we are tracking today, Optimism and Arbitrum are optimistic rollups while zkSync and Polygon have a ZK play.
Source: Galaxy Digital
Note: EVM is Ethereum Virtual Machine
Knowing the above, let us identify some trends on ZK-rollups in the market currently.
Polygon and zkSync launched their ZK Rollups in late March (named Polygon zkEVM and zkSync Era) and have shown promising growth. The networks have garnered a total value locked (TVL) of $4.2M and $246M respectively in a short span of 3 weeks. dYdX and Loopring are the other major contributors to zkRollup TVL.
Source: L2Beat
Do note that the high buzz surrounding zkSync in comparison to Polygon might be attributed towards surrounding news about an impending airdrop for the zkSync early users. However, according to Dune analytics, 85% of the users in zkSync have only done one deposit - hoping for airdrop rewards.
Source: Dune
Polygon’s proof-of-stake chain has had issues over the years. In December 2021, a $24B bug was discovered in PoS chain smart contracts which was patched later. The network also seems to be suffering from “reorgs” or rollbacks of previously finalized transactions frequently.
As zkEVM solutions mature, we may see Polygon look to transition to validity proofs or hybrid solutions, leveraging their existing user bases to attract dApp development and maintain their market dominance.
Polygon zkEVM may get a much-needed boost from Uniswap, Ethereum’s leading decentralized exchange by volume. A vote to launch Uniswap on Polygon zkEVM was passed last Friday, with 42 million voting in favour of the move.
On similar lines, 1inch, Ethereum decentralized protocol, has deployed its aggregation and limit order protocols on zkSync to tap into faster and cheaper transactions.
In his 2021 rollup primer, Vitalik Buterin of Ethereum wrote, “In general, my own view is that in the short term, Optimistic rollups are likely to win out for general-purpose EVM computation and ZK rollups are likely to win out for simple payments, exchange and other application-specific use cases, but in the medium to long term ZK rollups will win out in all use cases as ZK-SNARK technology improves.”
Use promocode TNM51 at www.giottus.com/profile#promo after registration to get Rs.51 worth free Bitcoin.
Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.