Exploration of the development path of ZKSwap's Layer 2

At present, Layer 2 and the public chain track are both popular tracks in the encryption field. Because it carries the scalable dream of the entire encryption field, it is the key to the large-scale future that the encryption field can accommodate. The upper limit of the overall space of the block is the upper limit of the scale of the encryption market. For DeFi to develop, expansion is the only way. In addition to the public chain and cross-chain, Layer2 based on Ethereum has always been an important direction for the scalability development of the encryption field, because Ethereum, as a smart contract platform, has the richest ecology and the highest security, and it does not weigh too much. Decentralization, which makes it the core position of Layer 2 expansion.

Layer 2 technology path selection of ZKSwap

Uniswap launched the V3 plan, but its Layer 2 plan has not yet been officially launched. Uniswap has greatly improved the user experience of its liquidity providers and traders, which is impressive. However, the high user cost has not been resolved. After V3, Uniswap's next focus is likely to be the Layer 2 solution. According to the current news, Uniswap may adopt Optimistic Rollups' technical solutions.

In addition to Uniswap, Synthetix and Compound also plan to use Optimism's Optimistic Rollups technology, and Bancor and MCDEX plan to use Offchain Labs' Arbitrum technology. ZKSwap and Loopring use ZK Rollups technology. Matter Labs' zksync is also ZK-Rollups technology, which has also attracted some market attention.

So, how to understand the path selection of Optimistic Rollups technology and ZK-Rollups technology solution? How to understand the Layer2 path selection of ZKSwap?

ZKSwap is Layer2's DEX, which adopts ZK-Rollups' technical solution , and is currently available for online trading . According to ZKSwap's announcement on March 22, its ZK-Rollups version has been upgraded. After the upgrade, all Layer 2 data will be aggregated and packaged on the chain, and zero-knowledge proofs will be used to ensure the consistency of the state of Layer 1 and Layer 2.

Layer 2 technologies include state channels, Plasma, Validium, side chains, Zk-Rollups and Optimistic Rollups. Why did ZKSwap choose the Layer 2 technology path of ZK-Rollups?

The current major Layer 2 players use different technologies, and these technical solutions represent their own trade-offs. Wherein the data storage point of view , Zk-Rollups Optimsitic Rollups program and data are stored in the chain, and Validium Plasma and are stored in the chain. Storage on the chain has the availability of data on the chain; storage off the chain does not have the availability of data on the chain. In addition, from the point of view of data validity , Zk-Rollups and Validium are both completed by mathematical means, which can achieve validity proof, while Optimistic Rollups and Plasm need fraud proof to confirm their validity.

With the respective advantages and disadvantages of different Layer 2 technical solutions gradually emerging, the current technological evolution of Layer 2 is gradually moving towards Optimistic Rollups and Zk-Rollups technical solutions . In the two schemes of Optimistic Rollups and ZK-Rollups, there are players such as Optimism, Offchain, Zksync, Loopring, Starkware, etc., including ZKSwap.

In terms of Optimistic Rollups technology, the main players are Optimism and Offchain Labs, which are currently in the testing stage. In terms of ZK-Rollups technology, Matter Labs’ ZK-rollup solution is ZkSync, and currently only has Layer 2 wallets, and Layer 2 DEX has not yet been launched; Loopring is also ZK-Rollups technology, currently launching Loopring’s DEX and wallet; while L2 Labs has launched It is ZKSwap, and there is already Layer 2 DEX ZKSwap. The mainnets of L2 Labs, Matter Labs, and Loopring have all been launched.

Optimistic Rollups technology has been adopted by some DeFi projects in the early days. One of the main reasons is that it is compatible with EVM and has better portability. However, this is not without its shortcomings. That is, it uses fraud proof. It does not actively guarantee the validity of the transaction. Each status update requires a challenge period. Currently, it usually takes about a week.

There are two disadvantages here : First, the user experience is poor . If the user needs to wait 7 days to withdraw from Layer 2 to Layer 1, then it is difficult for most users to have this patience. After all, 7 days is too long for users. Up. The second is that the challenge cost is high , and all data related to the challenge transaction needs to be sent to Layer 1. The EVM on Layer 1 executes the transaction and updates the state root. At present, some project parties are trying to solve the problem of long manifestation cycle through other solutions. In other words, friction and loss here are also inevitable.

ZKSwap uses ZK-Rollups technology. The data of ZK-Rollups is uploaded to the chain and the validity is proved through mathematical methods. Its security is basically equivalent to Layer1. Of course, ZK-Rollups also has trade-offs and is not perfect. For example, it is temporarily unable to support EVM, and the computational cost is high. However, as time progresses, these can be solved gradually. In ZKSwap's roadmap, there are also plans to solve these problems.

From the above point of view, the main evolution direction of Layer 2 is Optimistic Rollups and ZK-Rollups. From a landing perspective, these two Layer 2 technologies have each made a trade-off. Therefore, the actual implementation of the two schemes will become more and more interesting. In the future, we will see the advantages and disadvantages of the two schemes gradually being revealed. In this process, the DeFi projects will gradually be pulled into different The camp eventually forms an interesting equilibrium, or one-way evolutionary trend.

ZKSwap chose the technical direction of ZK-Rollups. The core of this technical solution lies in its security . It uses mathematics to ensure the validity of transaction data, which allows it to obtain the security equivalent to Layer1. Security is based on Ethereum and is comparable to Ethereum. This is temporarily impossible for other Layer 2 solutions. In the long run, security is the scarcest resource in the entire encryption field, so it will be the ultimate evolution direction of Layer 2 in the future.

The advantage of choosing Optimistic Rollups is that it has better portability, but it also sacrifices certain security and user experience. For example, the above mentioned need to have a challenge period and a longer withdrawal period. Of course, it can also be used by other Intermediaries can alleviate this problem, but the overall service process lengthens and costs increase. In the short term, it is understandable to make trade-offs for faster implementation.

However, in the long run, ZK-Rollups will gradually win the favor of the market due to its security and user experience (with shorter withdrawal time), and will have a better chance of becoming the ultimate evolution direction. The current shortcoming of ZK-Rollups lies in its incompatibility with EVM, which makes it difficult for many DeFi projects to adopt ZK-rollups.

ZKSwap adopted ZK-Rollups technology from the beginning, which allowed it to capture a trend and time window. If ZKSwap can use Optimistic Rollups that have not yet been launched and have not experienced the window period of practical testing, and use other DeFi windows that have not yet adopted Layer 2, ZKSwap may win a favorable position for itself in the future development trend of Layer 2.

The evolution trend of Layer 2 and the window of opportunity for ZKSwap

ZKSwap uses ZK-Rollups technology, so, for it, what will it look like on the current Layer 2 track?

In the Layer 2 field, both ZKSwap and Loopring have launched Layer 2 DEX, while Matter Labs is currently launching Layer 2 wallets. At present, in the field of Layer 2 DEX, ZKSwap and Loopring are mainly launched, and the other DEXs are mainly Layer 1 DEX or DEX based on chains such as HECO and BSC.

Optimism announced that its Layer 2 solution will be delayed until July this year. The postponement of the Optimistic Rollups program has won more time for the implementation of ZK-Rollups' technical solutions. ZKSwap is also one of the beneficiaries.

Finally, from the current user experience , the Optimistic Rollups solution takes about 7 days to withdraw without using a third party, zkSync wallet currently takes 5 hours to withdraw, and ZKSwap is expected to take 20-40 minutes when the network is not congested. about.

At the time of writing, ZKSwap's total L2 locked assets exceeded 430 million U.S. dollars, and its liquidity exceeded 280 million U.S. dollars. This magnitude can also rank relatively high in the DEX of Layer1. In addition, ZKSwap has more than 80,000 L2 accounts.

(Data from ZKSwap, zkswap)

From this data, ZKSwap has completed the initial liquidity guidance, and the next step is to enter the exploration of sustainability and development period.

How ZKSwap seizes the window period

* The liquidity guidance of ZKSwap

In order to guide its liquidity and transaction volume, the key is to accumulate users. ZKSwap has two plans: liquidity mining and lock-up plan.

1. Liquidity mining

ZKSwap completed the first phase of its liquidity mining plan. Users who have successfully added liquidity during this period and have withdrawn LP tokens can get an airdrop of 50ZKS tokens. If they have participated in liquidity mining of multiple token pairs, they can get multiple rewards. According to ZKSwap's announcement, these tokens have been issued to users' L2 wallets on March 26.

ZKSwap plans to launch the second phase of the liquidity mining and transaction mining plan. It will start a 28-day liquidity mining and transaction mining plan from 18:00 on March 29 to 18:00 on April 26. The token incentive The total is 4 million ZKS.

The total incentive for liquidity mining is 3.8 million ZKS. The method of participation is to add liquidity to the Layer 2 token pair pool of ZKSWap. However, after users participate in liquidity to obtain LP tokens, they cannot withdraw their LP tokens to Ethereum mainnet, otherwise they will not be able to get mining rewards; in addition, users who participated in the first phase of the event need to recharge their LP tokens to their Layer 2 account, and can also participate in the second phase of the event; mining rewards are issued on a daily basis and will be in the event During this period, a snapshot of the token pool will be randomly taken every day, and the rewards will be issued on the day according to the proportion of the LP tokens held by the user on Layer2; the specific distribution time is 18:00 on the same day and will be sent to the user's Layer2 account.

The rewards of transaction mining are also carried out daily, but in order to prevent the amount of trading, it adopts a hard-top mode for the rewards of each trading pair, and the maximum reward of each trading pair per day does not exceed 1000/2000ZKS; there are 13 trading pairs in total, including ZKS/ETH, ZKS/USDT, ETH/WBTC, ETH/USDT, UNI/ZKS, SUSHI/ZKS, AAVE/ZKS, etc. The specific activities and reward details can be checked on the ZKS official website.

2. Lock up

Locking is a model that binds the interests of the development of the system by locking the tokens, and at the same time obtaining token rewards. This model is commonly used in DeFi. For example, after the CRV of Curve is locked, veCRV can be obtained, which can not only participate in governance, but also obtain higher mining rewards and other benefits.

According to the description in the ZKSwap economic white paper, the total number of ZKS tokens is 1 billion, of which the total number of tokens for lock-up rewards in the first year is 25 million, which is equivalent to 2.5% of the total number of tokens.

Starting at 18:00 on February 25, 2021, Beijing time, ZKSwap provides four lock-up cycle plans: 30 days, 90 days, 180 days, and 360 days. The corresponding reward coefficients are 1 times, 2 times, 4 times and 8 times. This is similar to the change in the mining reward coefficient after CRV lock-up. The longer the lock-up time, the more tokens locked, and the higher the mining reward.

In ZKSwap, users who participate in 360-day cycle lock-up mining also have the opportunity to obtain ZKSwap governance rights and governance token gZKS, and gZKS can participate in the governance of the ZKSwap platform.

*Expand the ecosystem through partners

For example, ZKSwap cooperates with BitWell (digital asset derivatives trading platform) to seek the integration of CeFi and DeFi and the expansion of Layer 2 cooperation. If BitWell can support ZKSwap's Layer 2 protocol in the future and reduce the recharge and withdrawal fees of its ETH and ERC20 tokens, this will also benefit the development of ZKSwap.

If ZKSwap can cooperate with more ecological partners, it will also help promote the network effect of its agreement and prepare for the later integration of Layer 2.

ZKSwap's roadmap

The current roadmap of ZKSwap mainly breaks through three directions: firstly, to improve its Layer 2 DEX trading experience and lay a good foundation; secondly, its Layer 2 ecological expansion; and finally, the most critical compatible EVM, which is to realize the migration of DeFi projects. The most critical step.

*Improve the trading experience of ZKSwap

ZkSwap plans to launch the V2 version of its ZKSwap in the second quarter. The main functions of the V2 version include: support users unlimited currency listing, that is, provide liquidity and transaction support for more tokens; use ZKswap to transfer and exchange without gas fees;

By realizing the dynamic configuration of Layer 2 system parameters, shorten the withdrawal time from Layer 2 to Layer 1; support the transfer and exchange of NFT tokens (ERC721 tokens); improve the TPS of the Layer 2 system and adopt recursive zero-knowledge proof technology; release ZKS tokens Governance model.

*Layer 2 Ecological Expansion

In addition to the improvement of ZKSwap's own user experience, it is very important for ZKswap to improve its ecological network capabilities. One of them is the release of Layer 2 payment SDK to facilitate the access of wallets, exchanges and payment service providers; the launch of Layer 2 lending services and stable currency exchange services.

*Support ZK-Rollups compatible with EVM

A major obstacle to the development of ZK-Rollups is the incompatibility with EVM. Therefore, if this can be achieved, it is very important for the expansion of ZKSwap.

From the plan disclosed by ZKSwap, it will build a circuit based on the EVM instruction set to implement a general EVM model based on ZK-Rollups, but it is not clear how to implement it.

In summary, from the perspective of ZKSwap's development roadmap, ZKSwap has two strategies: one is based on the foundation; the other is to look to the future. Based on the foundation is mainly to improve the user experience of Layer 2 DEX and gain a firm foothold; second, looking to the future, it mainly expands the technical capabilities of Layer 2 to integrate the ecology and enhance the competitive position. Among the technical capabilities, the most important is the general EVM planning. Of course, this is not easy to achieve in the short term and requires a lot of effort. In addition, it also plans to launch Layer 2 DeFi services such as loans and stablecoins to enhance its overall combat capabilities.

Conclusion

Layer 2 is important because it expands the throughput of Ethereum, which can greatly expand the overall DeFi market size. Under the current circumstances, the block space of Ethereum can no longer absorb the development needs of the market, and this demand can only be lower and second, and it can be met by other public chains compatible with EVM, which have fewer public chain nodes and require A certain degree of permission weighs a lot of decentralization and security, but its fee is very cheap, the transaction speed is fast, and the user experience is better. For ordinary users, this is the most intuitive feeling, while security is the underlying thing, and it is difficult for users to feel directly.

But in the long run, security is the scarcest resource in the encryption field, and it is also the most valuable. Therefore, with the evolution of the encryption field, the expansion of various public chains will be an important direction and will form its own ecology, but Layer 2 based on Ethereum will be the most important encryption expansion track.

In the short term, because of the threshold, many DeFi projects may make certain trade-offs and adopt Optimistic Rollups technology to pursue a faster landing speed; but in the long term, the most important evolutionary trend of Layer 2 in the future is ZK- Rollups. Whether ZKSwap can grasp this trend and take advantage of this window period to take advantage of the trend depends on its ability to land and operate in the future. First, it needs to gain a firm foothold through DEX, and second, it needs to be extended to lending and stable currency. Exchange and other DeFi ecological fields, and finally solve the EVM compatibility problem technically to attract more DeFi projects to join its ecology. This journey is not an easy task. It requires ZKSwap to have continuous efforts, sufficient resilience and take advantage of the trend.

No matter how it evolves, the ZK-Rollups solution will be an important technical direction for Ethereum and the entire encryption field.