Layer 2 solutions have emerged as a response to the scalability limitations of blockchain networks, particularly the Ethereum network. Layer 2 refers to a secondary framework built on the main blockchain that addresses scalability issues by processing transactions off-chain while maintaining the underlying blockchain's security and decentralization benefits.
While layer 2 solutions come in various forms, they generally involve aggregating multiple transactions into a single transaction on the main blockchain. This helps reduce the overall load on the main chain and increases transaction throughput, resulting in faster and cheaper transactions.
One unique layer 2 solution is zkSync, which uses zero-knowledge proofs (zk-proofs) for enhanced scalability and privacy. zkSync allows for secure, trustless, and low-cost transactions by bundling multiple transactions and submitting them as proof on the Ethereum blockchain.
By leveraging zk-proofs, zkSync validates all transactions and keeps information private, while also significantly reducing the computational requirements and costs associated with on-chain transactions.
In February 2023, Matter Labs, the brains behind zkSync, rebranded, renaming zkSync 2.0 to zkSync Era and zkSync 1.0 to zkSync Lite. This strategic move aimed to more closely align their products. On the same day, zkSync announced the start of onboarding for registered projects onto the zkSync Era mainnet. The onboarding set the stage for the full mainnet launch. As expected, zkSync Era became available to all users on March 24, 2023, marking the first of many impactful launches related to zkEVM.
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zkSync Era: A tech revolution for Ethereum?
At its core, zkSync is a ZK rollup. What does that mean exactly? ZkSync is a trustless protocol that leverages cryptographic validity proofs to provide fast and cost-effective transactions on Ethereum. By moving most of the computation and data off-chain, zkSync achieves scalability without compromising security.
One of the most exciting aspects of zkSync is that it provides the same security level as Ethereum. How? All transactions on zkSync are proven on the Ethereum mainchain, meaning you can trust the system just as you'd trust Ethereum.
But zkSync isn't just about security and scalability. It's also designed to provide a familiar and seamless experience. With zkSync Era, the user interface is designed to resemble Ethereum, so you'll feel right at home.
Plus, you can write and interact with smart contracts using Solidity or Vyper, just like you would on Ethereum. The best part? With zkSync Era, you can use the same clients compatible with other Ethereum Virtual Machine (EVM) chains, making it even more accessible.
Other highlights of zkSync Era include:
Unparalleled security:
Experience the same level of security as the Ethereum mainnet without depending on any third parties. Rest assured that your transactions and assets are safeguarded with utmost trust and reliability.
Empowering smart contracts:
Enjoy the freedom of permissionless EVM-compatible smart contracts on zkSync Era. Unleash your creativity and bring innovative ideas to life on this powerful platform.
Seamless integration:
Connect effortlessly to the broader blockchain ecosystem with zkSync Era's standard Web3 API. Interact with zkSync using the familiar tools and libraries you already know, simplifying integration.
Preserving Ethereum's essence:
Embrace zkSync Era while retaining the key features that made Ethereum successful. Smart contract composability remains intact, allowing you to combine and integrate contracts seamlessly.
Account abstraction:
zkSync Era's groundbreaking account abstraction feature represents a major advancement in decentralized finance. The innovation opens up new possibilities, allowing you to manage and use your funds uniquely.
Zero-knowledge rollups enhancing Ethereum's ecosystem
Zero-knowledge rollups are a way to make Ethereum faster and cheaper by improving its scalability and transaction speed. Blockchains like Ethereum can be slow and expensive to use because every transaction needs to be verified by thousands of nodes in the network. However, layer 2 systems, specifically rollups, solve this problem.
Zero-knowledge rollups reduce Ethereum's workload by verifying transactions with minimal data. Instead of burdening the network with individual transactions, rollups bundle hundreds of transactions together as a single transaction. This bundled transaction is verified and added to Ethereum's public ledger, keeping the main network uncongested.
The reduced workload on Ethereum makes it faster and cheaper to use. When the network is not congested, the fees for transactions, known as gas fees, decrease significantly. This is important because, during high network traffic, such as during a bull cycle, Ethereum fees tend to rise.
By offloading transactions to layer 2 rollups, the Ethereum network remains less congested and more affordable for users.
Zero-knowledge rollups adopt a technique called zero-knowledge proof to accomplish their task. Zero-knowledge proof verifies the authenticity of the bundled transactions on a layer 2 network, such as ZK-Sync, by providing proof of validity.
This proof acts as a receipt, confirming transactions are genuine and can be added to Ethereum. Using minimal data in zero-knowledge cryptography ensures privacy and faster, less expensive transactions.
ZK-rollups rely on two smart contracts: the main and verifier contracts. These contracts operate on Ethereum and connect the layer 1 and layer 2 networks. The main contract stores the bundled transactions and determines the state of users' withdrawals and deposits. The verifier contract authenticates the transactions using zero-knowledge proof.
The actual execution of ZK-rollups occurs off-chain through a virtual machine specifically designed for rollups. This offloading process ensures that Ethereum's main network remains uncongested. The ZK virtual machine functions similarly to the EVM and runs the smart contracts that process the transactions.
Despite executing off-chain, ZK-rollups still rely on Ethereum itself. After batching the transactions off-chain, ZK-rollups submit the transaction as a validity proof back to the layer 1 network, making sure Ethereum confirms the correctness of the updates.
zkSync Era transaction speed
Are you frustrated with slow Ethereum transactions and high fees? zkSync Era is here to help by taking scalability to a whole new level. While Ethereum can currently handle around 13 transactions per second (TPS), zkSync Era boasts an impressive peak load capacity of up to 2,000 TPS.
So, how does zkSync Era achieve this? By validating multiple transactions as a single transaction on the Ethereum network, it streamlines the process and reduces congestion. This means faster and more cost-effective transactions for you.
zkSync: A path towards decentralized scalability?
zkSync Era aims to achieve hyper-scalability while preserving the core values of Ethereum, including decentralization and trustlessness. It does this using zero-knowledge cryptography.
One of the key goals of the zkSync Era is to make decentralized applications (DApps) more accessible and affordable, regardless of the scale. By using hyper-bridges, assets can be transferred from one hyperchain to another at the cost of a normal transfer.
Like hyperlinks taking you from one web page to another with a single click, hyperbridges streamline asset transfers across different hyperchains without needing separate transactions on each layer. This asynchronous communication ensures trustless and eventual delivery of assets and messages between hyperchains.
Hyperchains are instances of zkEVM running in parallel and settling on the Ethereum mainnet (layer 1). They can be developed and deployed by anyone, providing permissionless innovation.
However, to maintain trust and interoperability, each hyperchain must be powered by the same zkEVM engine as the main zkSync layer 2 instance. This means all ZKP (Zero-Knowledge Proof) circuits remain identical, inheriting the same security as Ethereum's layer 1.
The modular approach allows developers to customize their hyperchains, except for the zkEVM core, which guarantees consistency and avoids additional trust assumptions.
Through the zkSync Era, Ethereum's scalability is enhanced while staying true to its core values. The protocol expands Ethereum's security and values, such as trustlessness, permissionless access, censorship resistance, resiliency through decentralization, and community ownership.
By employing zero-knowledge cryptography, zkSync Era aims to increase personal sovereignty and drive mass adoption of cryptocurrencies.
Spotlight on zkSync Era projects: SyncSwap and Mute.io
There are two zkSync Era projects to highlight, but it's essential to do your own research before participating.
SyncSwap
SyncSwap is a decentralized exchange (DEX) that operates on the zkSync Era, using zero-knowledge technology for enhanced security. It aims to provide a wider audience with easy-to-use, cost-effective decentralized finance (DeFi) solutions.
The vision for SyncSwap is to create a user-friendly DeFi hub that offers advanced features and accessibility, even to those unfamiliar with Ethereum and blockchain technology. It aims to achieve this on the scaled Ethereum network.
At its core, the SyncSwap protocol serves as an exchange layer and liquidity solution for the zkSync Era network. It is an open-source and composable protocol, enabling seamless integration with the zkSync ecosystem.
SyncSwap aligns with zkSync's mission of accelerating the mass adoption of cryptocurrencies and personal sovereignty. It is a community-driven project designed with user-friendly features in mind. The objective is to bring the benefits of scaled Ethereum, zero-knowledge technology, and Web3 to more people, fostering the mass adoption of decentralized finance.
One of the notable features of SyncSwap is its dynamic fee structure. Trading fees on the SyncSwap DEX can be adjusted flexibly based on market conditions or the community's preferences. There are four key facets to the fee system:
Variable fees:
This feature allows fees to be customized separately for different pool models and specific liquidity pools. Each pool model has a default fee, and liquidity pools inherit the default fee unless explicitly set otherwise. Variable fees apply to both trading fees and protocol fees.
Directional fees:
SyncSwap enables liquidity pools to have different trading fee tiers for buying and selling tokens. For example, a liquidity pool for XXX/USD may have a lower fee for buying XXX but a higher fee for selling XXX. This flexibility can be determined based on community and token issuer preferences.
Fee discount:
Similar to centralized exchanges (CEXs), SyncSwap supports fee discounts. Token stakers can receive fee discounts based on different tiers. The more tokens staked, the higher the discount ratio.
Fee delegate:
This innovative feature allows the trading fees of specific pools to be delegated to partner ecosystem projects democratically. External sources, such as other ecosystem projects, can control a specific pools' fees by delegating the decision-making power for trading fees.
SyncSwap adopts an Auto Market Maker (AMM) as the core mechanism for pool models and liquidity pools. Instead of relying on Oracle prices, AMMs determine prices algorithmically.
Currently, SyncSwap offers two types of pools:
Classic pool:
This pool is designed for general-purpose trading and employs the constant product algorithm (x * y = k), also known as x*y=k. The Classic Pool can support a wide range of assets and maintains a balanced reserve of 50% for each token. However, it is not optimized for stable assets.
Stable pool:
The Stable Pool is optimized explicitly for trading stablecoins like USDC/USDT. It uses a hybrid algorithm combining the constant product and constant sum concepts. When the price is pegged around 1:1, the pool functions as a constant sum AMM for highly efficient trading (x + y = k). When the price deviates from the peg, it reverts to the constant product AMM (x * y = k). This pool model is ideal for assets tightly pegged around a 1:1 ratio.
Additionally, SyncSwap plans to introduce a Concentrated Pool, which dynamically adjusts prices instead of maintaining a fixed 1:1 ratio. This pool will concentrate liquidity around the market price, providing a tighter spread and improved efficiency.
Mute.io
Mute.io is a DeFi platform that serves as a liquidity hub for protocols built on zkSync, a layer 2 scaling solution for Ethereum. Its main product, Mute Switch, is a DEX incorporating AMM with limit orders, a farming platform, and a Bond platform. Mute.io aims to provide liquidity solutions for protocols on zkSync, allowing them to incentivize liquidity for their specific use cases.
The team behind Mute.io has extensive experience with zero-knowledge protocols in the crypto space. They've previously developed the first Zero-Knowledge Atomic Swap protocol between Bitcoin and UTXO-based chains and innovative work on Zerocoin and Sigma addressing schemes and transactions.
With their expertise, the team is focused on building Mute.io and their Mute DAO initiative to become a leading player in the zkDeFi (zero-knowledge decentralized finance) space. They leverage zkSync's technology to drive long-term value for the Mute community.
The Mute Switch, Mute.io's flagship DApp, is a DeFi platform built on zkRollup technology, specifically zkSync v2. It offers various features such as investing, trading, earning yields, and participating in bonds. The platform allows users to capitalize on the security of Ethereum without high gas fees, thanks to the scalability provided by zkRollup.
One of the key components of Mute Switch is its liquidity pools. The platform is designed to have dynamic setups for liquidity pools, accommodating both stable and normal AMM curves. Stable pools are meant for assets that should be traded within a tight price range, while normal pools are suitable for non-correlated and volatile assets.
The Mute Switch automatically finds the best-priced trades regardless of the pool type. Each pool operates independently, and fees for each pool are separate from others.
Stable pools are optimized for high volume trades with capital-efficient swaps. The trade price in stable pools maintains a tight spread once the pricing is set upon pool creation. On the other hand, normal pools apply a generic AMM formula and are suitable for most trading pairs.
Mute Switch also allows for the creation of pools with different liquidity provider (LP) fees, ranging from 0.01% to 10% for normal pools and 2% for stable pools. These fees can only be changed through the LP governance system, which requires an LP provider (or a delegated provider) with over 50% vote weight to make the change.
To prevent manipulation, there is a 0.1% fee on total votes when changing pool fees, discouraging flash loans from altering fee structures without losses.
Governance plays a vital role in the Mute Switch ecosystem. The platform features a built-in LP governance and delegation system, enabling complex protocols to be built on top of it. LP providers can set the fee for their pools upon creation, and the LP governance system allows for fee changes based on votes tied to LP token supply balances.
LP providers can also delegate their votes to other providers, allowing for increased pool weight and lobbying for delegates. This design concentrates liquidity within one pool and enables dynamic fee adjustments through governance.
The Mute Switch has two types of fees: dynamic fees (a percentage of LP pool fees) and fixed fees (a fixed percentage of the overall trade). If the protocol's fixed fee is set and is larger than the LP pool fees, LP providers will not earn fees for trades. The fixed fees are primarily used during the early stages until the LP total value locked (TVL) grows to a sustainable level.
The final word
The zkSync Era ecosystem shows promises of bringing improvements to the Ethereum network. As a ZK rollup, zkSync uses cryptographic validity proofs to achieve fast and cost-effective transactions on Ethereum while maintaining trustlessness and security.
One of the remarkable aspects of zkSync is its ability to provide the same level of security as Ethereum. All transactions on zkSync are proven on the Ethereum mainchain, providing high trust and reliability.
Alongside security and scalability, zkSync Era delivers a familiar and simple user experience. Its user interface resembles Ethereum, making it easy for users to transition and feel at home.
Moreover, developers can write and interact with smart contracts using Solidity or Vyper, just as they would on Ethereum. Compatibility with existing EVM clients further enhances accessibility.
Some notable highlights of zkSync Era include unparalleled security, empowering smart contracts, seamless integration with the broader blockchain ecosystem, preservation of Ethereum's key features, and the introduction of groundbreaking account abstraction.
With zkSync Era, users can experience a secure and reliable platform for executing transactions and managing their assets, while developers can leverage its capabilities to build innovative and permissionless applications.
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