Author: Kernel Ventures Stanley
Reviewed by: Mandy, Kernel Ventures, Joshua, Kernel Ventures
TLDR：
ZK Fair’s TVL reached 120 million USD in just a few days, and is currently maintaining a stable level of 80 million USD, making it one of the fastest growing Rollups. How did this “three-no” public chain with no financing, no market makers, and no institutions achieve this? This article will introduce the development of ZK Fair and analyze the flywheel of this round of Rollup market from the essence.
Rollup track background
Track Introduction
Rollup is one of the Layer2 solutions. It transfers the computation and storage of transactions on the Ethereum mainnet (i.e. Layer1) to Layer2 for processing and compression, and then uploads the compressed data to the Ethereum mainnet to expand Ethereum performance. The emergence of Rollup makes the Gas fee of Layer2 much lower than that of the mainnet, saving Gas consumption, faster TPS, etc., making transactions and interactions smoother. Some mainstream Rollup chains that have been launched, such as Arbitrum, Optimism, Base, and ZK Rollup such as Starknet and zkSync, are all commonly used chains on the market.
Data Overview
Rollup chain data comparison, image source: Kernel Ventures
From the data, we can see that OP and ARB still dominate the current Rollup chain, but up-and-coming chains such as Manta & ZK Fair can accumulate a certain amount of TVL in the short term. However, in terms of the number of protocols, it will take some time to grow. The mainstream Rollup protocols need to be developed and improved, and the infrastructure needs to be improved. Other emerging chains still need to develop.
Track Analysis
This article will classify each chain and introduce some of the more popular Rollup chains and old Rollup chains.
Old Rollup Chain
ARB
Arbitrum is an Ethereum Layer2 scaling solution created by the Offchain Labs team based on Optimistic Rollup technology. Although Arbitrum transactions are still settled on Ethereum, Arbitrum only submits raw transaction data to Ethereum, and execution and contract storage occur off-chain, so the gas fee required by Arbitrum is very low compared to the mainnet.
ON
Optimism is built on Optimistic Rollup, which uses a single-round interactive fraud proof to ensure that the data synchronized to Layer1 is valid.
Polygon zkEVM
Polygon zkEVM is a zkEVM scaling solution for Ethereum Layer 2 built on ZK Rollup. This solution uses ZK proofs to reduce transaction fees and increase throughput while maintaining the security of Ethereum L1.
Emerging Rollup Chains
ZK Fair
The main features of ZK Fair as a Rollup are:
Built on Polygon CDK, the DA layer will use Celestia (currently maintained by the self-operated Data Committee), EVM compatible
Use USDC as Gas fee
Rollup token ZKF is 100% distributed to the community. 75% of the tokens are distributed to participants in the Gas consumption activity in four phases within 48 hours. In essence, participants participate in the primary market sale of tokens by paying Gas to the official sorter. The corresponding primary market financing valuation is only 4 million US dollars.
ZK Fair TVL growth trend, image source: Kernel Ventures
ZK Fair's TVL has risen rapidly in the short term, partly due to its "ownerlessness". We learned from the community that the listings on mainstream exchanges such as Bitget & Kucoin & Gate are all initiated by the community and users to establish connections with the exchanges, and then invite the official team to conduct technical docking. These are all spontaneous actions of the community, including izumi Finance on the chain, which is all led by the community and supplemented by the project party. The docking model has strong community cohesion.
We learned from the ZK Fair development team Lumoz (formerly Opside) that the team plans to launch new Rollup chains with different themes in the future, such as the current hot Bitcoin-based Rollup chain, as well as social and financial derivatives. In the future, new chains may be launched in the form of cooperation with the project parties, similar to the current popular Layer 3 concept, that is, one Dapp and one chain. We learned from the team that some subsequent chains will also have a Fair model, and the team will distribute part of the original chips to the participants on the chain.
Blast
Blast is a second-layer network based on Optimistic Rollups technology and compatible with Ethereum. In just 6 days, the TVL on the chain has exceeded 500 million US dollars, approaching 600 million US dollars, and has directly doubled the price of Blur tokens.
Blast began when founder Pacman believed that the hundreds of millions of dollars in the Blur bid pool had been passively dormant and failed to earn any income, and this situation existed on almost every application on every chain, which meant that these funds were suffering from passive depreciation caused by inflation. Specifically, when users deposit funds into Blast, Blast will immediately use the corresponding ETH locked on the Layer 1 network for network native staking, and automatically return the ETH staking income obtained to users on Blast. In short, if a user holds 1 ETH in an account on Blast, it may automatically grow over time.
Forget
Manta Network is a gateway for modular ZK applications. It uses modular blockchains and zkEVM to establish a new paradigm for L2 smart contract platforms. It is a modular ecosystem built for the next generation of dApps and currently provides two networks:
This article mainly introduces Manta Pacific, a modular L2 ecosystem built on Ethereum. It solves the usability problem through modular infrastructure design, allowing modular DA and zkEVM to be seamlessly integrated. Since Manta became the first Ethereum L2 integrated into Celestia, Manta Pacific has helped users save more than $750,000 in gas fees.
put
Metis has been in operation for 2 years, but its recent decentralized sequencer has attracted attention again. Metis is a Layer2 based on the Ethereum chain. It is the first innovative use of decentralized sequence pool (PoS Sequencer Pool), mixed OP and ZK Rollup to improve the security, sustainable operation and decentralization of the network.
In the design of Metis, the initial sequencer nodes are created by whitelisted users, and there is also a parallel staking mechanism. Users can become new sequencer nodes by staking the native token $METIS, while allowing network participants to supervise the sequencer nodes, improving the transparency and credibility of the entire system.
Technical core analysis
Polygon CDK
The Polygon Chain Development Kit (CDK) is a modular, open-source software toolkit for blockchain developers to launch new L2 chains on Ethereum.
Polygon CDK leverages zero-knowledge proofs to compress transactions and enhance scalability. It also prioritizes modularity and facilitates the flexibility to design application-specific chains. This enables developers to choose virtual machines, sorter types, gas tokens, and data availability solutions. It has the following features:
High modularity
Polygon CDK allows developers to customize L2 chains according to specific requirements. It can meet the unique needs of various applications.
Data availability
Chains built using CDK will have a dedicated Data Availability Committee (DAC) to guarantee reliable off-chain data access.
Celestia YES
Celestia first proposed the concept of modular blockchain, decoupling the blockchain into three layers: data, consensus, and execution. In a single blockchain, all three layers are completed by one network. Celestia focuses on the data and consensus layers, and L2 allows Celestia to be responsible for the data availability layer (DA) to reduce interaction gas fees. For example, Manta Pacific has adopted Celestia as the data availability layer. According to Manta Pacific's official news, the cost of DA has been reduced by 99.81% after migrating from Ethereum to Celestia.
For specific technical details, please refer to Kernel Ventures’ previous article: Kernel Ventures: An article discussing DA and historical data layer design
OP vs ARB
Optimism is not the only existing rollup solution. Arbitrum also offers a similar solution. In terms of functionality and popularity, Arbitrum is the closest alternative to Optimism. Arbitrum allows developers to run unmodified EVM contracts and Ethereum transactions on layer 2 protocols while still enjoying the security of Ethereum's layer 1 network. In these aspects, it offers very similar characteristics to Optimism.
The main difference between Optimism and Arbitrum is that the former uses a single-round fraud proof, while Arbitrum uses multiple rounds of fraud proofs. Optimism's single-round fraud proof (FP) relies on L1 to execute all L2 transactions. This ensures that FP verification is instantaneous.
Since its launch, ARB has been significantly better than OP in various business data of L2, but this has gradually changed after OP began to promote OP stack. Although OP still cannot reach the size of ARB, it has shown a rising trend, and the increase in this round of OP tokens is huge, nearly doubling in three months. Op stack is an open source L2 technology stack, which means that other projects that want to run L2 can use it for free to quickly deploy their own L2, greatly reducing the cost of development and testing. L2s that adopt OP stack can achieve security and efficiency with each other due to the consistency of technical architecture. After the launch of OP stack, it was first adopted by Coinbase. Its L2 Base built with OP stack had the demonstration effect of Coinbase, and then Op stack was adopted by more and more projects, such as Binance's opBNB, NFT project Zora, etc.
Future prospects of the track
Fair Launch
The Fair model of this round of Inscription track has a wide audience, allowing retail investors to directly obtain the original chips, which is why Inscription is still popular today. ZK Fair uses the essence of this model, that is, public launch, and more chains may follow this model in the future, which will lead to a rapid increase in TVL.
Rollup swallows L1 market share
In terms of user experience, there is no substantial difference between Rollup and L1. In fact, its efficient transactions and low fees are often more attractive to users, because most users do not care so much about technical details and only make decisions based on the user experience. Some fast-growing Rollups have excellent user experience, extremely fast transaction speeds, and generous incentives for users and developers. With the precedent of ZK Fair, future chains may follow this method to further absorb L1.
Clear plan & healthy ecosystem
In this round of Rollup narrative, chains such as ZK Fair & Blast have given generous incentives, making the ecosystem healthier and reducing a lot of hair-pulling and meaningless TVL. For example, zkSync has not issued any coins after being online for many years. It relies on high financing and technology to continuously "PUA" participants. Although its TVL is very high, new projects on the chain, especially projects with new narratives and new themes, rarely emerge.
public product
In the new round of Rollup, many chains have proposed the concept of fee sharing. ZK Fair shares 75% of the fees with all ZKF token stakers, and 25% of the fees with Dapp deployers. Blast also has fee sharing for Dapp deployers. As a result, many developers are not limited to the income from the project or the income from the ecosystem fund Grants. With the income from Gas, they can develop more free public products.
Decentralized Sorter
The collection of L2 fees and the payment of L1 costs are both performed by the L2 sequencer, and the profits also belong to the sequencer. Currently, the sequencers of OP and ARB are both officially operated, and the profits also belong to the official treasury.
The mechanism of decentralized sorters is likely to run on a POS mechanism, that is, decentralized sorters need to pledge L2's native tokens such as ARB or OP as a credit deposit, and the deposit will be slashed when they fail to perform their duties. Ordinary users can pledge themselves as sorters, or use a pledge service like that provided by Lido, where users provide pledge tokens, and professional, decentralized sorter operators perform sorting and uploading services. Staking users can share most of the L2 fees and MEV rewards (90% under Lido's mechanism) obtained by the sorter. This model can make Rollup more transparent, decentralized, and credible.
Breakthrough in business model
Almost all Layer2s make profits through the “sub-landlord” model. The so-called sub-landlord rents a house directly from the landlord and then rents it to other tenants. The same is true in the blockchain world. The Layer2 chain collects Gas fees from users (tenants) and then pays Layer1 (landlord). Therefore, in theory, the scale effect is very important. As long as enough people use Layer2, the fees paid to Layer1 will not change much in essence (unless the volume is huge, such as op arb). Therefore, if the transaction volume of a chain cannot reach expectations within a certain period of time, it may be in a state of loss for a long time. This is also the reason why chains such as zkSync mentioned above like PUA users. With enough TVL, there is no need to worry about a lack of users to trade.
However, this business model cannot be continued, because the focus is on zkSync, which is a chain with excellent financing conditions, but for some smaller chains, PUA users may not have much effect. Therefore, some of the above-mentioned rise of ZK Fair, a "grassroots", is worth learning for other chains. When blindly paying attention to TVL, we should think about the long-term continuation of TVL. And as more and more L2s are born, the handling fees of L1 will decrease, thereby reducing the biggest advantage of L2. This is also one of the problems facing L2, how to acquire users not only from the perspective of low prices.
Summarize
The article takes ZK Fair’s TVL reaching 120 million USD in a short period of time as the starting point. It discusses the Rollup track, including old brands such as Arbitrum, Optimism and new ones such as ZK Fair, Blast, Manta, and Metis.
At the technical level, he explained the modular toolkit of Polygon CDK and the modular concept of Celestia DA. He compared the differences between Optimism and Arbitrum, and mentioned that decentralized sorters may adopt the POS mechanism to make Rollup more transparent and decentralized.
In the future outlook, the broad audience of the fair launch model was emphasized, and Rollup may swallow up the L1 market share. It was pointed out that Rollup has no substantial difference from L1 in terms of experience, and efficient transactions and low fees attract users. The importance of public products and the concept of fee sharing proposed by the new round of Rollup midchain were emphasized. Finally, the business model was mentioned to break through, and attention was paid to the long-term continuation of TVL.
Simply put, the characteristics of this new round of Rollup are: the project is new, there are tokens, it is modular, and it gives generous incentives to make the project's initial business and coin price flywheel turn faster.
Kernel Ventures is a crypto venture capital fund driven by the research and development community, with more than 70 early-stage investments, focusing on infrastructure, middleware, dApps, especially ZK, Rollup, DEX, modular blockchain, and verticals that will carry billions of future crypto users, such as account abstraction, data availability, scalability, etc. Over the past seven years, we have been committed to supporting the development of core development communities and university blockchain associations around the world.
References:
Rollup Summer Thoughts: https://www.chaincatcher.com/article/2110635
ZK Fair official documentation: https://docs.zkfair.io/
