Ethereum Layer 2 Scalability Battle: Who Can Break Through Among ZKSync, Loopring, Optimism, and StarkWare?

This article was published on Babit Information, author: Sa Tuo Xi.

War is a matter of deception; hence, when capable, one must appear incapable; when using, one must appear not to use; when near, one must appear far; when far, one must appear near ------ "The Art of War: Planning"

Ancient sages proposed some tricks for winning wars with great wisdom, and these techniques are equally applicable in today's crypto network wars.

Recently, the Ethereum network has been severely congested, and the fees charged by miners have skyrocketed, leaving users in distress. The Layer 2 solutions, hailed as the hope for scalability, have failed to alleviate the congestion. In the meantime, competing chains (such as BSC and Heco) are seizing the opportunity, all based on replication and attracting new users with low fees. This simple and crude strategy has indeed had a very noticeable effect. Now, people are beginning to worry whether Ethereum's scalability measures will be effective, fearing they are merely visible but intangible fog.

The author attempts to convey through this article that such worries are unnecessary; Ethereum's Layer 2 solutions are gradually gaining momentum, and their success will impact competing chains.

What is the true Ethereum Layer 2?

Before diving into the main content, let's clarify a concept: what is Ethereum's Layer 2?

Currently, there are too many projects claiming to be Ethereum's Layer 2, but in essence, they are in competition with the Ethereum network. So, which ones are the true Ethereum Layer 2?

In simple terms, they are scalability networks that migrate computation and data storage to sidechains while leaving settlement to the Ethereum mainnet, with the former and latter being in a symbiotic relationship.

The most promising Ethereum Layer 2 scalability solution is Rollup (mainly divided into Optimistic Rollup and ZK Rollup). Several Rollup projects frequently mentioned by Ethereum founder Vitalik Buterin include ZKSync (Matter Labs), Loopring, Optimism, StarkWare (StarkNet), and Offchain Labs.

Theoretically, these solutions can scale TPS to thousands while minimizing the sacrifice of decentralization and security attributes, thus being hailed as the best scalability solutions. Note: Even if Ethereum 2.0 is successfully launched, these Layer 2 networks still hold significant relevance.

Next, let's take a closer look at these emerging Ethereum Layer 2 projects.

Option 1: ZKSync (Matter Labs)

ZKSync (Matter Labs) has recently attracted a lot of attention, one reason being that it just completed a Series A funding round led by Union Square Ventures (USV), with previous investors Placeholder, 1kx, and Dragonfly participating in this round as well. Additionally, the project has announced a number of heavyweight ecological partners, including Aave, Balancer, 1inch, Curve, Binance, Coinbase Ventures, Huobi, Loopring, Argent, MYKEY, imToken, Flexa, MoonPay, Ripio, and CoinGecko. According to insiders, ZKSync's valuation in this round of financing is $120 million, with the funds sufficient to last until Ethereum 2.0 goes live.

ZKSync aims to challenge the current ultimate Layer 2 scalability solution ------ ZK Rollup that supports general smart contracts, which is a very daunting task. The project mentioned in its latest blog post:

"The recursion of PLONK and custom gates are key elements that make almost complete compatibility possible. Our benchmarks indicate that the prover cost is still negligible compared to the on-chain gas portion, and we will release more technical details separately. The public testnet for smart contracts on zkSync will be available in a few months."

From the perspectives of the solution, team, and ecosystem, ZKSync (Matter Labs) can be considered a heavyweight player in the Ethereum Layer 2 arena. We might as well try to interact with this protocol (there may be airdrops). Currently, the functionalities supported by ZKSync are still very limited, with only deposit, transfer, withdrawal, and interaction with Curve on the Rinkeby testnet.

Visit "https://zksync.io/", then connect your wallet to interact with ZKSync for deposit, transfer, and withdrawal operations. Currently, both deposits and withdrawals involve a transaction on the Ethereum mainnet. Based on the current network gas fee of 105 gwei, the fee for a deposit is approximately $14.7, while a transfer costs about 0.0000871 ETH (approximately $0.13).

To experience the zksync version of Curve on the Rinkeby testnet, you need to switch to the Rinkeby testnet and then visit https://zksync.curve.fi/. Note that testing this application requires claiming some test tokens, and the other steps are no different from those on the Ethereum mainnet Curve.

Option 2: Optimism

Optimism is another Ethereum Layer 2 seed project worth paying attention to. On February 24, it announced the completion of a $25 million Series A funding round, with investment from the well-known VC Andreessen Horowitz (a16z), which previously also received $3.5 million in seed funding from Paradigm and IDEO.

Optimism may be the most talked-about Ethereum Layer 2 scalability project recently, as its use of the Optimistic Rollup solution makes it easier to support general smart contracts. This means that some popular DeFi projects can achieve seamless migration to Layer 2 more quickly. According to Vitalik and others, Optimism's mainnet could go live in March, at which point Synthetix could achieve a complete migration, significantly reducing transaction fees.

According to official data, Synthetix demo transaction fees can be optimized by 143 times, with a transaction confirmation time of 0.3 seconds, while Uniswap demo (Unipig) transaction fees can be optimized by 10-100 times, with a transaction confirmation time of about 0.169 seconds.

Overall, as an Ethereum scalability solution, Optimism inherits the security, composability, and developer moat of the Ethereum mainnet while improving performance without significantly impacting the costs or trust requirements for Ethereum users.

Currently, one issue with Optimism is that withdrawals to the Ethereum mainnet have a long challenge period (previously stated to be calculated weekly), which is not favorable for user experience. However, as market makers get involved and provide faster exit services (simple and quick withdrawal solutions), this concern may become unnecessary.

Option 3: Loopring

Loopring, as one of the earliest Ethereum Layer 2 projects to adopt the ZK Rollup scalability solution, has achieved notable results. According to statistics from Dune Analytics, the value of assets locked in the Loopring Layer 2 network is currently close to $210 million, with over half of the assets being blue-chip assets like ETH, USDT, and WBTC.

Recently, the daily trading volume of Loopring DEX has been around $8 million to $30 million, with AMM-type trading volumes far exceeding order book-type trading.

Currently, if users want to use Loopring products, the fee for depositing funds is approximately 0.01575 ETH (about $24.4), while the transfer fee is fixed at 0.000096 ETH (about $0.144). In terms of fees, the difference between Loopring and ZKSync does not seem very significant. If you want to experience AMM-type Rollup Layer 2 network trading in advance, Loopring is already a relatively feasible option.

However, if you are hoping for airdrop rewards, you may be disappointed, as Loopring has already issued tokens, and most of the tokens are already circulating in the market.

So how did Loopring attract over $200 million into its Layer 2 network from scratch?

The answer lies in liquidity mining. Loopring officially provides LRC token subsidies for major asset pairs to attract users to move funds into the Layer 2 AMM pools. When liquidity is sufficient, the project does not need to provide incentives anymore.

We can imagine what it would be like for those Rollup Layer 2 networks that have not yet issued tokens if they also adopt this method to distribute their tokens.

Option 4: StarkWare (StarkNet)

StarkWare is another Ethereum Layer 2 scalability project that cannot be ignored. It received $6 million in funding from institutions like Bitmain and Vitalik Buterin early on, followed by a $30 million funding round led by Paradigm. Other notable investors include Intel Capital, Coinbase Ventures, and Multicoin Capital. In February 2020, StarkWare secured another $40 million in strategic funding from Intel Capital and Sequoia Capital.

In addition to the support from well-known investors, the prominent derivatives protocol dYdX has announced that it will use StarkWare's StarkEx as its Layer 2 scalability engine, which can be deployed as either a ZK-Rollup solution or a Validium scalability solution. The latter has the advantage of better scalability but compromises on trust assumptions, thus not being as secure as the Rollup solution.

According to the StarkNet roadmap released by StarkWare at the end of January this year, StarkWare's Layer 2 scalability plan will be divided into four phases. The foundational construction of Phase 0 has been completed, and the subsequent phases 1 to 3 are codenamed Planet, Constellation, and Universe, corresponding to single-operator single-application Rollup, single-operator multi-application Rollup, and decentralized multi-application Rollup, respectively.

According to the plan, StarkNet's Phase 1 is expected to be completed in a few months, with Phase 2 and Phase 3 expected to be realized by the end of the year.

Conclusion

Starting in March, a war surrounding Ethereum Layer 2 scalability will officially commence. Currently, related seed projects have completed their financing and have gathered a number of well-known Ethereum ecosystem projects.

The issuance of tokens has already become the biggest bargaining chip in this war. Loopring has demonstrated the appeal of liquidity mining in Layer 2 networks, while projects like ZKSync (Matter Labs), Optimism, StarkWare (StarkNet), and Offchain Labs, which have not yet issued tokens, will undoubtedly see a rush of users and funds once they officially announce their token issuance plans. At that time, the battlefield of DeFi will complete its migration.