ZkSync (ZK): Analysis of L2 Ethereum

Presentation, opportunities, strengths, weaknesses... An independent study of the ZkSync project and its ZK token by our team of analysts.

What you need to know 🐳

With the L2 race in full swing, attention is currently focused on ZkSync Era.

This scalability solution for Ethereum began distributing its token, the ZK, from 17 June.

Despite some controversy, the launch of ZK signals plenty of opportunities on this network.

Overview 🧬

ZkSync Era is an Ethereum Layer 2 solution, developed by MatterLabs in 2018, which falls into the Rollups category.

For those familiar with this type of solution, there are two main categories: Optimistic Rollups and ZK Rollups.

ZKsync belongs to the latter category. Using "ZK" technology, it can prove the state of the chain through mathematical proofs generated off-chain.

These proofs aggregate the transactions made on the network and allow costs to be reduced considerably.

In contrast to Optimistic Rollups, which require human verification to filter out malicious activity, ZK Rollups rely on code.

This solution is therefore considered more secure, but more expensive and is not compatible with Ethereum's virtual machine (which enables the execution of smart contracts).

This poses a problem because it prevents developers from forking existing Ethereum applications: much of the code has to be rewritten.

However, ZKsync Era is not a classic ZK Rollup: it is a ZK EVM (ZK Rollup that has EVM compatibility).

Developers with applications on the Ethereum ecosystem can therefore easily replicate and port their code to ZKsync Era, while benefiting from ZK technology.

Finally, the project has its own technical stack, the ZKStack.

Similar to the OP Stack offered by its competitor Optimism, ZkSync has created a technical architecture that allows anyone to easily deploy their own L2/L3 on the ZkSync ecosystem.

The L2 or L3 is connected to all the projects on the network via a kind of unified bridge.

Given that the technical creation of a zkEVM is difficult, ZkSync makes it easy to deploy an L2/L3 without any technical knowledge.

In the long term, the project aims to create a network of unified blockchains that communicate with each other without requiring trust.

Financing 💰

ZkSync Era is currently the best-funded Layer 2 solution on the market.

After several rounds of funding, the company has managed to raise more than $708 million from renowned investors such as Blockchain Capital, Andreessen Horowitz and Coinbase Ventures.

These fundraisings took place in 4 rounds:

  • March 1, 2021: unknown amount in an initial fundraise
  • November 8, 2021: $50M in a Series B
  • November 16, 2022: $200M in a Series C
  • March 8, 2023: $458M in an undisclosed round

To date, Blockchain Capital is the largest investor with a total of $658M invested in ZKsync.

Team and community 👾

As far as the team is concerned, ZKsync has managed to attract the best talent in the ecosystem. They include:

  • Alex Gluchowski: CEO and co-founder
  • Nana Murugesan: President
  • Zoe Gadsden: COO
  • Anthony Rose: CTO
  • Ben Livshits: VP of research

All have very impressive CVs. They include a former executive at Google, a CTO at SpaceX and a head of security at Microsoft. The Matter Labs team is made up of a wide range of technical and scientific backgrounds, which fits in perfectly with the project's image.

It's important to note that the team works entirely remotely and includes more than 25 different nationalities. In order to align employees with the company's vision, everyone receives shares in the company (subject to a 4-year vesting period).

The community is also a reflection of the team, international and very varied.

On X, ZkSync is the most followed L2 account with nearly 1.5 million followers (compared with 1 million for Arbitrum, 700,000 for Optimism and 350,000 for Starknet).

The ZK token 🌕

ZkSync recently distributed its "ZK" token via an airdrop on 17 June. For now, the token serves primarily as a governance token and aims to boost activity on the network.

A portion of the offering has been distributed to DeFi protocols such as Aave, Curve, Ethena and Syncswap. The ZKsync team hopes that this distribution will encourage users to join the ZkSync network through token distribution programmes.

Since some of the applications that have received ZKs are not yet available on the network, it can be assumed that their launch is imminent.

The ZK token is made up of 21 billion units and its offer is divided into several parts:

  • 16.1% for the team
  • 17.2% for investors

The rest of the offer is allocated to the community:

  • 29.3% for Token Assembly
  • 19.0% for ecosystem initiatives (led by the ZkSync Foundation)
  • 17.5% for airdrop

The team and investors are subject to a 4-year vesting period, starting in June 2024 and ending in June 2028.

One year after the airdrop (in June 2025), 3.66% of the total offer will be unlocked, and after June 2025, 0.82% of the offer will be unlocked each month until June 2028.

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Limitations of the project 🤨

The fact that ZkSync is a ZK EVM has both advantages and disadvantages.

While EVM compatibility is assured, integrating Ethereum applications is not as straightforward as on Optimistics Rollups. Technical elements add a degree of complexity to the task.

This is partly why the ZkSync ecosystem is currently underdeveloped. DeFi's flagship applications are not present and the network has just $125 million in TVLs (according to DeFiLlama).

This is objectively small compared to the most popular L2s (Arbitrum $3 billion - Base $1.6 billion).

Liquidity is also still lacking on ZkSync.

This poses a real problem for adoption. Even if the majority of users don't encounter difficulties exchanging cryptos, the "whales" run into liquidity problems.

Currently, a Swap of 150 ETH causes a price slide of 0.64%. The same swap on Base would generate a slide of just 0.06%.

This considerably limits the arrival of whales and other professional users on this network.

Finally, competition is intense on the L2 market.

According to L2 beats, there are currently 57 L2 projects and the three largest (Arbitrum/Base/Optimism) account for almost 75% of the market share.

Comparing ZkSync's TVL with the current ZK Rollups, it is in 3rd place, ahead of Linea and Starknet. So there is still a long way to go.

Where to buy the token? 🛒

For the moment, the ZK can only be bought on Binance at regulated platforms in Europe. It can also be purchased on the decentralised exchange platform Uniswap.

The Big Whale's opinion 🐳

ZkSync is a very ambitious project. The zkEVM technology is relevant and the project has the support of a large community.

Although user retention is likely to drop drastically after airdrop, the ZK incentives allocated to the protocols will help maintain activity in the short term.

Will it be enough? It's hard to say. If the ZkSync ecosystem grows and there is sufficient liquidity, the channel could survive.

Another issue is the success of the ZK stack. If the team manages to attract major projects to the ecosystem (such as Base in Optimism's Superchain), this could stimulate the ecosystem and attract other innovative projects.

Whatever the case, the ZkSync team has ample technical and financial resources to meet this challenge.

The next few weeks will be crucial for the network. It will be important to keep a close eye on the number of active users, as well as liquidity and the arrival of new protocols.

Dossier → State of play and challenges for L2 Ethereum

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