zkSync: How to find an irreplaceable development direction?

1. zkSync is in the early stage of development, and a large number of applications have not been launched. The online applications are mainly DEX, DeFi, bridge, infrastructure, and NFT that provide basic functions.

2. zkSync 1.0 is positioned as a payment solution, and 2.0 solves the “combinable” problem. To achieve breakthrough development, zkSync needs to find an irreplaceable development direction, and it also needs to build differentiated advantages for StarkWare.

3. The originality and innovation of the zkSync ecological project, and the “privacy” to be achieved in the next stage can become the scalable advantage of zkSync.

4. zkSync has a relatively high possibility of becoming a unicorn with a valuation of more than 1 billion US dollars.

Ethereum Layer2 has obvious security and decentralization advantages over alt L1. Competing public chains are often exposed to downtime and security incidents, and Layer2 rarely has such news.

Among all Layer2s, the Layer2 of the ZK Rollup system is the most orthodox among the Ethereum branches. It is the safest of all Layer2. Moreover, as the number of transactions increases, the transaction fee allocated to each person will be reduced, which has a better expansion effect.

For these reasons, ZK Rollup is widely supported for Layer 2. For example, the wallet project Argent has expressed its preference for the ZK series. Argent said that it will not support the Optimistic Rollup ecosystem because it will focus on zkSync and StarkNet of the ZK series.

Everyone’s expectations for ZK Rollup Layer 2 are mainly pinned on zkSync and StarkWare. Bibi News has studied more than 100 projects in these two ecosystems. This article will analyze the status, characteristics, challenges, development directions, and future prospects of the zkSync ecosystem.

zkSync: How to find an irreplaceable development direction?

Source of 60 zkSync ecological projects: Beep News

zkSync overview

1 Introduction

zkSync is Layer 2 developed by Matter Labs and uses ZK Rollup technology. zkSync initially focused on the expansion of payment scenarios. Because of the low gas fee, many users use zkSync 1.0 to make Gitcoin donations.

In June 2021, Matter Labs launched zkSync 2.0, which is committed to solving the problem of composability between DAPPs and further improving the expansion effect.

As far as the development stage is concerned, zkSync has already achieved the goals of “expandable payment” and “smart contract” in the roadmap, and now the official focus on upgrading version 2.0 (still in the testnet stage), the “smart contract”, “composability” “Attempts should have more effort and improvement.

zkSync: How to find an irreplaceable development direction?

In the future, zkSync will gradually unlock the “privacy” and “decentralization” phases. The ZK (zero-knowledge proof) part of ZK Rollup has natural advantages in privacy protection, and zkSync can release this part of the feature. Decentralization means that Matter Labs removes control of zkSync.

2. Financing Information

Crunchbase shows that Matter Labs has completed a total of 3 rounds of financing (seed round, A round, B round), and a total of 58 million US dollars.

The 3 rounds of financing took place in September 2019, February 2021, and November 2021. Placeholder, 1kx, and Dragonfly Capital participated in the 3 rounds of financing, and Union Square Ventures and a16z participated in the 2 rounds. The names of these venture capital circles are enough to show the recognition of zkSync by authoritative investment institutions.

3. On-chain data

TVL: $58.33 million. Among them, ETH and stable coins are the main force of lock-up amount. The total lock-up value of the zkSync ecosystem is at the lower-middle level in the mainstream Layer 2.

Number of unique addresses: more than 330,000. The number of zkSync independent addresses ranks second in Layer 2, second only to Optimism, but the daily active ratio of addresses is very low, currently only about 0.04%.

zkSync: How to find an irreplaceable development direction?

Source: Dune Analytics

In the past two weeks, the zkSync ecosystem has only a few hundred active addresses per day on average, and the number of daily transactions is only a few hundred, far lower than Optimism’s level of tens of thousands of transactions per day.

This shows that users are optimistic about the overall development of zkSync and have deployed zkSync addresses in advance, but the ecology has not yet developed to the stage of continuous prosperity and daily transactions by users.

Gas fee: The average cost of transfer is $0.02, and the average cost of swap is $0.04. The gas fee advantage of zkSync is obvious, and the interaction cost is only about 2%-5% of the Ethereum main network.

zkSync: How to find an irreplaceable development direction?

Layer2 gas fee comparison source: l2fees.info

The data of various dimensions of zkSync, such as the number of ecological projects, daily transaction volume, TVL, and agreement revenue, are still relatively skinny, mainly because the zkSync ecosystem is still in the early stage of development, and there are not many online projects.

zkSync ecological application

zkSync is still in the early stage of development, which is reflected in the dimension of ecological application, mainly because a large number of projects have not been launched, and the projects that have been launched are mainly DeFi and infrastructure applications, and the track is relatively limited.

According to statistics, less than 40 non-development tool projects have been launched on the zkSync 1.0 mainnet or 2.0 testnet. Among them, 7 are related to NFT, which are NFT markets or NFT projects that are relatively easy to develop. 5 are infrastructures such as oracles and browsers, and 4 are wallets. DeFi and DEX occupy 8 and 4 seats respectively.

1,DEX

There are 11 DEX projects counted by Bibi News, of which only 4 have been launched on the mainnet or testnet.

DEX projects are dominated by order book DEX and AMM, represented by Zigzag, Sat.is, CryptSwap and SyncSwap. As a token swap platform, DEX is not only an ecological rigid demand, but also has a reference model in terms of functions, protocol income, income distribution and other dimensions, so it is one of the most widely used tracks in the zkSync ecosystem.

zkSync: How to find an irreplaceable development direction?

4 DEXs already available on zkSync Source: Beep News

In addition to the basic token swap function, DEXs are also expanding some additional functions, such as Zigzag supports cross-chain, SyncSwap supports stablecoin packaging, staking, governance, and WardenSwap (not listed) provides NFT section.

2,DeFi

DeFi is the most explorable track at the current stage of zkSync. DeFi goes beyond the basic DEX scenario, and there is a certain room for innovation for the project side. In terms of lending, portfolio management, perpetual contracts, etc., there are already some cases for zkSync ecological projects to learn from.

In the zkSync ecosystem, many innovative DeFi projects have been deployed in other networks, such as Gro Protocol, which focuses on stablecoin revenue, and Babylon Finance, an asset management protocol. Most of these projects are offline in zkSync.

zkSync’s native DeFi applications such as Mute.io and Trustless’s attempts to DeFi mainly focus on basic functions such as staking and farming. Increment is committed to building a sustainable swap, which is a relatively bold attempt and has not yet been launched.

DeFi is also the most popular track for investment institutions. Among the 16 projects counted by Beep News, 7 have financing information, and the proportion is higher than other tracks. Most of the DeFi projects deployed by institutions are also not online.

Therefore, on the whole, zkSync is relatively high-quality, potential, and even killer-level projects have not yet been put in place, and the ecology is on the eve of the outbreak.

zkSync: How to find an irreplaceable development direction?

Source of 7 DeFi projects that have received institutional investment: Beep News

3. Infrastructure

Infrastructure and wallets are the other two tracks where institutions are keen to invest. The infrastructure is mainly the general-purpose infrastructure of the whole chain such as ChainLink and The Graph. These projects have very high website traffic, reflecting high usage rates.

Wallets in the zkSync ecosystem are special compared to other ecosystems. Some general-purpose wallets deployed on multiple chains, such as Coinbase Wallet, are not suitable for Layer 2 of the ZK Rollup system. Argent is the most important wallet in Layer 2 of ZK Rollup series, and is unique to Layer 2 of ZK Rollup series.

The same feature is also present on the cross-chain bridge circuit. General-purpose cross-chain bridges such as Hop, Multichain, etc. are also not applicable to Layer 2 of the ZK Rollup system. Orbiter and LayerSwap are mainly used as cross-chain bridges in the zkSync ecosystem.

zkSync ecological features and advantages

1. A large number of projects are not online

As mentioned many times above, there are a large number of projects in the zkSync ecosystem that are not online. The projects that have been launched are mainly DAPPs that provide basic functions, such as AMM, cross-chain bridges, DeFi supporting farming and staking, wallets, etc.

This is related to the difficulty of developing Layer 2 of the ZK Rollup system. zkSync is not as compatible with Ethereum as Optimism and Arbitrum (the zkSync 2.0 testnet is also compatible with EVM, but not as fully compatible or equivalent to EVM as OP and Arbitrum), which leads to resistance for projects in the Ethereum ecosystem to migrate to zkSync. It is difficult to deploy in zkSync.

Therefore, we see that there are relatively few projects that have been launched, and the track is relatively limited. Among the 60 projects counted by Beep News, less than 60% have been launched.

Applications are also mainly located in tracks such as DeFi, infrastructure (wallets, bridges, oracles, etc.), NFT markets, and NFT projects that are easy to deploy. Open tracks such as GameFi and SocialFi are still relatively poor.

2. More native applications

The poor compatibility of EVM also brings the second feature of the zkSync ecosystem, that is, there are more native projects. In the zkSync ecosystem, we have not seen a large number of projects like Arbitrum and Optimism migrated from the Ethereum ecosystem. Apart from infrastructure, most projects are native to zkSync or ZK Rollup.

On the one hand, the composable implementation between DAPPs is relatively slow. On the other hand, it also means that there are certain technical thresholds for project deployment, and projects deployed to zkSync generally have relatively strong technical capabilities.

Compared with migrating projects directly from Ethereum (or plagiarizing open source code to make a forked version) + directly realizing nesting and composability between projects, projects in the zkSync ecosystem are required to be more “self-reliant”, which provides soil for innovation.

Among the 60 projects counted by Beep News, only about 23% are deployed to ZK and OP systems at the same time. The proportion of projects specifically deployed to zkSync (not deployed to Arbitrum, Optimism, StarkWare) is close to 50%.

Layer 2 of ZK Rollup system has its own independent wallet and bridge system, which is the commonality of zkSync and StarkWare. In the fields of NFT, derivatives, and DeFi (some DeFi projects are also deployed in other ecosystems), zkSync is even “different” compared to the ZK Rollup series Layer 2, with obvious ecological uniqueness.

zkSync valuation

At present, there is no clear statement on the valuation of zkSync, but the following data can provide some reference significance.

StarkWare has a total financing of $273 million, and its latest round of financing is $100 million at a valuation of $8 billion.

Arbitrum has a total funding of $123.7 million, and its latest round of financing is $100 million at a valuation of $1.2 billion.

Optimism has a total financing of $178.5 million, and its latest round of financing is $150 million at a valuation of $1.65 billion.

So far, zkSync has raised a total of $58 million in financing. As the four seeded players of the Layer 2 track and an important ecology of the ZK Rollup track that has more potential in the long run, zkSync embodies the market’s expectations for the development of the ZK series Layer 2. Whether it is funds or market sentiment, zkSync has enough support.

In addition, zkSync also promises that there will be ecological native tokens. In the future, zkSync will operate in a decentralized manner, and users can become network verifiers by staking tokens. This has a relatively large incentive effect on the market.

From the above dimensions, zkSync should be able to develop into a unicorn with a valuation of more than one billion dollars.

Challenges and future prospects of zkSync

The challenges faced by zkSync mainly come from alt L1 and Layer2 which is highly compatible with EVM.

Competing public chains have sufficient funds, and because the operation is relatively centralized, it brings a better user experience. These advantages have attracted enough users and funds for competing public chains. We have witnessed the development of Solana and Avalanche in recent years. However, the downtime of competing public chains and frequent security incidents, security and decentralization are the biggest advantages of zkSync over competing public chains.

In the Layer 2 track, in the short term, zkSync’s main competitors are Arbitrum and Optimism. In the long run, zkSync and StarkWare will compete in the ZK Rollup series Layer 2.

Arbitrum and Optimism use Optimistic Rollup, which is technically better than ZK Rollup, so the compatibility with Ethereum and the development of the ecosystem itself are faster than zkSync.

Arbitrum and Optimism have already gained a first-mover advantage. Projects, users, and transaction data in both ecosystems are superior to zkSync. And zkSync is still stuck in development progress. The technical difficulty of ZK Rollup is the biggest obstacle in the development of zkSync. But once overcome, the ZK line will burst out with the potential to outperform the OP line.

In addition, zkSync also needs to build a moat and develop ecological features. Just as Optimism emphasizes the development of public goods, and Arbitrum emphasizes the first-mover advantage and ecological incentives, zkSync also needs to find an irreplaceable development direction or application track.

The original intention of zkSync is to provide a low-cost payment solution, and it has been recognized by the market. Many users participate in Gitcoin donations through zkSync 1.0. In the payment scenario, zkSync has also specially developed the zkSync Checkout tool, which supports users to make batch transfers to different payees. Therefore, the positioning of zkSync 1.0 for payment scenarios is very clear and effective.

With the expected launch of zkSync 2.0 on the mainnet, zkSync’s goal of “composability” has also been put on the agenda. In the 2.0 testnet, the biggest feature of zkSync is that the ecological project is native, unique, innovative and high-quality. These may be scalable advantages.

In the future, “privacy” will also be written into the zkSync ecological gene. The only Layer2 that currently emphasizes privacy attributes seems to be Aztec. This is also a development direction.

However, the premise of all this is that zkSync can expand the ecology, get rid of the initial ecological barren situation, and make up for the shortcomings of EVM compatibility and DAPP composability. Ecological incentive programs may be able to help.

Finally, the current development data of StarkWare is better than that of zkSync, especially the data of StarkEx. How to build a differentiated advantage in ZK Rollup Layer2 is also a question that zkSync should think about.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/zksync-how-to-find-an-irreplaceable-development-direction/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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