In this report, we will start from Binance and explore why Binance can become the leader of centralized exchanges in the Crypto industry. It discussed that with the update and iteration of technology, it is possible to realize "decentralized Binance" through decentralized order book exchanges. It also introduces StarkEx, zkLink, StarkNet, zkSync, Arbitrum and Cosmos in detail, analyzes and compares them in terms of user experience, security, performance and cost, guiding readers to have an in-depth understanding of these infrastructures.
Here are some key points from the report:
Why do we need a “decentralized Binance”?
Binance is the largest Crypto exchange in the blockchain field today, with more than 120 million registered users. As the leader of centralized exchanges, it has a rich variety of assets and sufficient liquidity. Its trading experience and trading performance are also far ahead of other competitors.
However, in the blockchain industry, centralization is the "original sin". As a centralized exchange, Binance has certain risks in asset security, business transparency, and regulation. This has exacerbated people's concerns about it, and they began to desire to create a Crypto exchange that combines the user experience of CEX and the advantages of DEX self-custody - that is, to build a completely decentralized Binance.
The road to a "decentralized Binance"
There have been many attempts to build a decentralized Binance.
The pioneer of decentralized exchanges is Uniswap. It was first deployed on Ethereum and uses the AMM mechanism to trade using a constant price formula and a liquidity pool. However, this mechanism has problems such as capital inefficiency, slippage, and impermanent loss. This means that while achieving decentralization, it has to sacrifice some liquidity and trading experience. After the initial attempt of AMM, many high-performance Layer1 began to emerge. The improvement in trading performance brought by them made the order book mechanism DEX possible. However, while Layer1 improves performance, it also sacrifices the security and mature ecosystem of Ethereum. At the same time, they cannot support transactions with a large user base like Binance. With the continuous advancement of technology, Ethereum's scaling solution Layer2 came into being. They help decentralized exchanges further increase transaction speed and reduce transaction fees. As a scaling solution for Ethereum, these Layer2s retain the security of Ethereum and inherit its mature ecosystem. However, general Layer2 networks have some limitations in high-frequency trading. They lack seamless interoperability between blockchains other than Ethereum. Recently, a new generation of application-specific, transaction-centric order book infrastructure solutions have entered the crypto market. Each solution can improve the user's trading experience by providing a high-performance and secure trading environment. They further innovate on the basis of Layer1 and Layer2 and open up the possibility of building a "decentralized Binance". Trading Infrastructure Overview
When analyzing the infrastructure for building a “decentralized Binance”, we considered four main factors that influence trading:
User experience Security Performance Cost
We analyzed several of the hottest infrastructures based on the above four dimensions and combined them with examples of decentralized order book trading protocols.
Click to view the original image StarkEx
StarkEx is a trading infrastructure designed to serve specific applications. It is based on the STARK zero-knowledge proof technology developed by StarkWare, runs as the Layer2 expansion engine of the Ethereum mainnet, and provides specific ZK-Rollup services for independent applications. StarkEx was officially launched on the Ethereum mainnet in 2020. Its services are currently used by many well-known decentralized derivatives trading protocols such as dYdX v3, immutableX, and ApeX.
zkLink
zkLink is a multi-chain middleware based on ZK-Rollup technology and centered on transactions. Its biggest feature is that it can connect multiple Layer1 and Layer2 blockchains, aggregate liquidity in different ecosystems, and thus make it possible to trade and combine native DeFi assets on different chains. It realizes multi-chain functions and expands the classic ZK-Rollup through the "ZK-Rollup + Oracle Network" mechanism.
StarkNet
StarkNet, developed by StarkWare, is a general-purpose Layer2 scaling solution based on ZK-Rollup. StarkNet supports the deployment of any smart contract, and developers can create different types of decentralized applications on it, and the applications can be combined with each other. It uses Rollup based on STARK technology to execute transactions, with high scalability and low transaction costs.
zkSync
zkSync is a series of general-purpose Layer2 Ethereum expansion protocols based on ZK-Rollup, with two main products: zkSync 1.0 (later renamed zkSync Lite) and zkSync 2.0 (later renamed zkSync Era). zkSync Lite uses the SNARK proof program, but is not compatible with EVM. That is, it does not support smart contracts, but only supports basic transactions such as transfers. zkSync Era has achieved EVM compatibility based on zkSync Lite.
Decision
Arbitrum is an Ethereum Layer2 expansion solution based on Optimistic-Rollup, which currently includes two products: Arbitrum One (general purpose) and Arbitrum Nova (exclusive for games/social applications). Among them, Arbitrum One is Arbitrum's main product, and most DeFi applications are concentrated on Arbitrum One.
Cosmos
Cosmos is a network of Layer1 blockchains with a mesh structure based on the Tendermint consensus mechanism. Each blockchain in its network is an independent, fully functional PoS blockchain. Chains can achieve cross-chain communication through the IBC protocol while sharing security and liquidity. At the same time, Cosmos also provides a custom blockchain development toolkit - Cosmos SDK, which allows developers to use existing modules to develop blockchains that meet different needs with a high degree of freedom.
Infrastructure Comparison Application-Specific ZK-Rollup
StarkEx and zkLlink have a clear advantage in terms of technical usability by using a specific type of ZK-Rollup infrastructure. And because they use ZK technology, they also have certain advantages in transaction security compared to the Cosmos network and Optimistic solutions. However, application-specific infrastructure may be subject to greater restrictions in functional development. In contrast, StarkEx's applications are currently deployed on Ethereum, which has better basic security. zkLlink supports native multi-chain, with richer sources of transaction assets and liquidity.
Universal ZK-Rollup
Representatives of the general type ZK-Rollup infrastructure are Starknet and zkSync. They both support Turing-complete programming languages, so they are more flexible in function development and can implement the deployment of order book applications. However, as a general Layer2, there will be many applications running at the same time. Therefore, the problems currently faced by Ethereum, such as expensive gas fees and on-chain congestion, will also be unavoidable for Starknet and zkSync in the future.
Optimistic Rollup
As a representative of the Optimistic Rollup infrastructure, Arbitrum's advantages lie in its flexibility in function development and compatibility with Ethereum. It is highly compatible with Ethereum and supports the Solidity language, so it is developer-friendly and convenient for function development. Compared with the ZK-Rollup infrastructure, Arbitrum has some cost advantages due to the elimination of expensive zero-knowledge proof computing fees; but compared with ZK-Rollup, it lags behind in transaction finalization time. And from the perspective of security, it is slightly inferior to the ZK-Rollup infrastructure with multi-chain functions.
Cosmos Layer-1
As a mature Layer 1 infrastructure, Cosmos has great advantages in transaction performance and cost. Its Tendermint consensus can provide faster transaction confirmation speed for order book applications. At the same time, its other two core technologies, Cosmos SDK and IBC protocol, are of great help in improving user trading experience. However, in terms of decentralization and security, Cosmos' performance is relatively average. And because the entire Cosmos ecosystem is still in its early stages compared to Ethereum, it has certain disadvantages in key indicators that affect trading experience, such as asset categories and liquidity.
The above is some of the key content of the entire report. For detailed content, please download the full report.