The Zk-rollup track is becoming increasingly hot. How to seize the opportunity?

2023 is the year of ZK-rollups. ZK is the future of Ethereum scaling , and the narrative is starting to heat up with upcoming tokens from zkSync, Starknet, and Polygon zkEVM. Here are the best launched (and unlaunched) ZK projects to keep an eye on.

In this post, I will cover:

• What are ZK-rollups

• The ZK narrative (and why it’s heating up)

• Best published ZK projects

• The best unreleased ZK projects (including airdrop opportunities).

What are ZK-rollups?

ZK-rollups are second-layer blockchain protocols that process transactions, perform computations, and store data off-chain while keeping assets in on-chain smart contracts.

Ethereum, due to its design, has inherent scalability issues. While there is a roadmap to eventually solve these issues, the process will take a long time.

ZK-rollups help alleviate congestion by “rolling up” transactions into batches that are executed off-chain.

Zk-rollups store all addresses and their respective balances in a Merkle tree. The root of this "balance tree" is stored in an on-chain smart contract.

They have 3 main tasks: processing deposits, transfers and withdrawals. This picture represents a (simplified) ZK-architecture.

To summarize, ZK-rollups are “hybrid scaling solutions” (off-chain protocols) that run independently but derive security from the Ethereum network.

Why is ZK’s narrative gaining traction?

There have been a few major catalysts that have seen a surge in interest in the sector this year:

• The zkSync token will be launched soon.

• StarkWareLtd is about to launch the @Starknet token.

• Polygon’s zkEVM is coming soon.

This has led to ZK-related protocols such as $MINA, $LRC, $IMX, and $DUSK performing well.

Dragonfly managing partner Hosseeb called ZK-rollups the most noteworthy narrative in 2023.

However, the recent rally is likely driven by speculation as key on-chain metrics (active users, transactions, cross-chain deposits) have not risen along with the price.

So is this short-term rebound unsustainable? Maybe.

However, a sustained rally is more likely to occur before (and after) the launch of ZkSync, Polygon zkEVM, and StarkNet. The addition of new users and new liquidity flowing into the ecosystem will help make this happen.

So, to prepare, I’ve compiled a list of published and unpublished ZK-related crypto projects (in no particular order).

Published ZK Projects

$MINA

MinaProtocol is the "lightest blockchain in the world" that uses zk-SNARKs and a PoS consensus mechanism.

Mina greatly reduces the amount of data each user needs to download, and ZK-Rollups allow nodes to store smaller proofs instead of the entire chain.

$IMX

Immutable is a second-layer scaling solution that aims to provide near-instant confirmation and near-zero gas fees for NFT trading and minting.

IMX relies on StarkWare ZK-rollups for scalability and plans to support multiple L2/L3 ZK-rollups for different use cases. They describe themselves as a "developer platform for Web3 games", and popular Web3 games such as Illuvium, Gods, Kongregate, etc. are built on IMX.

$LRC

Loopring is a Layer-2 designed for scaling and building decentralized cryptocurrency exchanges. They leverage ZK proofs to allow anyone to build a high-throughput, non-custodial DEX.

The combination of these two powerful narratives, ZK and DEX, makes Loopring an interesting project to watch in the future.

$SYS

Syscoin combines Bitcoin's POW architecture and $ETH's EVM into one network. Its two-layer approach allows for the creation of scalable smart contracts while keeping the network secure.

Syscoin uses a modified version of the EVM, called NEVM, which uses ZK proofs to facilitate “up to 210,000 transactions per second (TPS)”. The following diagram defines Syscoin’s architecture.

$DUSK

Dusk is a privacy-focused layer-one blockchain built for trading programmable, confidential, and compliant securities. Think of it as a privacy blockchain for financial applications.

Dusk Network uses a ZK Proof (ZKP) system called “PlonKup” to protect data in an affordable way.

$MUTE

Mute is a ZK-rollup based decentralized exchange, staking yield platform, and bond platform built on Ethereum and zkSync. It can be regarded as a comprehensive DeFi platform that leverages the advantages of ZK.

Summarize

It’s important to note that much of this rally (like a lot of the crypto narrative) is based on speculation. Just because a project implements ZK technology, doesn’t automatically make it a winner. Look for projects that are innovating with the technology, or learn to trade on the hype.

For these projects, like most altcoins, price action is largely dependent on Bitcoin. However, if your market outlook is bullish, then the strongest narrative will undoubtedly outperform (and ZK could be one of them).

How you approach trading these projects depends on your personal strategy, but consider a DCA-oriented approach and strictly define a) your time horizon, and b) financial goals before investing.

While I’ve covered some currently released projects that leverage ZK, I’m more interested in upcoming unreleased protocols that are some of the most heavily backed projects in crypto (and have airdrop potential too).

Unreleased ZK projects

zkSync

zkSync is a ZKRollup that represents the "endgame" for scaling Ethereum.

It is one of the most well-backed projects in crypto, having raised over $450 million from a16z, Dragonfly, Lightspeed, and others.

Their full mainnet hasn't even launched yet and the ecosystem is already huge. It will become a giant in the ZK space.

The next phase of zkSync is the “Fair Onboarding Alpha” phase, where deployments on zkSync 2.0 can begin in a closed environment.

StarkWare

StarkWare is a secondary scaling solution that leverages STARK proofs to reduce the amount of information sent to the Ethereum blockchain, alleviating blockchain congestion.

SnarkNet, like zkSync, uses ZK-Rollup technology to achieve this goal.

Starkware has also received a ton of support, raising over $285 million from Paradigm, Pantera, Sequoia, Ethereum Foundation, etc. Their ecosystem is also impressive.

Scroll

Scroll is a zkEVM-based zkRollup that enables native compatibility with existing Ethereum applications and tools.

Among the upcoming L2s, Scroll ranks fourth in pre-IPO valuation.

There may be an airdrop opportunity here as the token launches. They recently hinted at an airdrop, saying they are “creating an incentive structure to encourage participation.”

Aztec

Aztec is a privacy-first ZK-rollup on Ethereum, bringing confidentiality and cost savings to the Ethereum ecosystem.

They recently raised $100 million led by a16z. They may also have airdrops in the future.

Polygon (zkEVM)

Recently, Polygon acquired Hermez Network (a ZK-rollup) to work on their own zkEVM product.

zkEVM is a virtual machine that executes Ethereum transactions in a transparent manner, including smart contracts with zero-knowledge verification. zkEVM adds to an already expansive ecosystem that is growing rapidly.

Now that Hermez has merged with Polygon, the $MATIC token will power the network.

Axiom

Axiom is a ZK coprocessor for Ethereum.

While not strictly a ZK-rollup, I wanted to include Axiom in this list because it gives us a good representation of how the technology can be utilized in a practical sense.

It allows developers to query on-chain data and get trustless responses through ZK - allowing developers to enhance their applications with ZK in an efficient way.

Summarize

Whether it’s through airdrops, post-launch investments, or investing in individual ecosystems — there are many strategies to position yourself in these upcoming projects.