Welcome to the Crypto.com Monthly Research Roundup Newsletter!
1. Market Index
The 30-day price, volume, and volatility indices were positive at +10.33%, +17.94%, and +39.09%, respectively.
2. Charts of the Month
Bitcoin’s dominance (the measure of how much Bitcoin makes up of the total crypto market cap) has been rising and has reached 50% for the first time in two years.
zkEVM chains are reaching new heights as the total value locked in Polygon zkEVM and zkSync have seen a significant surge over the past few months. According to the latest data, zkSync Era has nearly US$735 million locked in, with 84% growth month over month. Meanwhile, Polygon zkEVM’s TVL rose to over $47 million and grew by 87%.
Learn more about ZK rollups from our latest research The Development of ZK Rollups
Ethscriptions are a novel way to mint NFTs on Ethereum using transaction calldata, inspired by Bitcoin Ordinals inscriptions. They have gained significant popularity, with almost 30,000 Ethscriptions created within the first 18 hours of the protocol’s launch, and reaching a total of 465K transactions and over $1 million in volume.
3. Monthly Feature Articles
Monthly Feature Article | The Development of ZK-Rollups
Zero-Knowledge rollups (ZK rollups) refer to a class of Layer-2 solutions that bundles transactions together to be executed off-chain and only post minimal summary data on-chain. Unlike optimistic rollups which have to post all transaction data on-chain, ZK rollups produce validity proofs to prove that the proposed changes to Ethereum’s state are correct, and it has proven to be a groundbreaking technology.
ZK rollups are still at a nascent stage. One obstacle blocking the adoption of ZK rollup technology is the lack of full compatibility with the Ethereum Virtual Machine (EVM). However, as the technology develops, the industry has found ways to achieve the Zero-Knowledge Ethereum Virtual Machine (zkEVM), which has begun gaining considerable adoption and usage. zkEVM will play an important role in improving the scalability of blockchains in the future. It has been projected that Web3 services will require almost 90 billion Zero-Knowledge proofs to be executed in 2030, with market-wide completion of 83,000 transactions per second. In addition, the market for generating Zero-Knowledge proofs is estimated to reach US$10 billion by 2030.
In this report, we analyse the four types of zkEVMs, explain their features and how they function (with some example projects), and share our outlook for the future of ZK rollups.
Check out The Development of ZK-Rollups
- Zero-Knowledge rollups (ZK rollups) are still at a nascent stage, with the Layer-2 landscape currently dominated by optimistic rollups, such as Optimism and Arbitrum. Nevertheless, ZK rollups like zkSync Era have been increasing in total value locked (TVL), reaching US$161 million as of 12 June 2023, up by 360% from $35 million on 1 April 2023.
- One of the obstacles blocking ZK rollups adoption is the lack of full compatibility with the Ethereum Virtual Machine (EVM). However, as the technology evolves, various methods have emerged to achieve zkEVMs.
- Type 1 zkEVMs are fully and uncompromisingly Ethereum equivalent. They do not change any part of the Ethereum system to facilitate proof generation. However, this type of zkEVM needs a long time (in hours) for proof generation.
- Type 2 zkEVMs are fully EVM equivalent but do not meet the Ethereum-equivalent criterion. In general, they are fully compatible with existing applications; however, there are small modifications compared to Ethereum (such as changes to data structures like the block structure and state tree) in order to enable easier development and faster proof generation.
- Type 3 zkEVMs are almost EVM equivalent. In general, it is a transitional stage, and projects typically move towards Type 2 by adding features like precompiles.
- Type 4 zkEVMs work by compiling smart contract source code written in a high-level language (such as Solidity or Vyper) into a language that is ZK-SNARK friendly. This means zkEVMs have very fast prover times, but their main disadvantage is increased incompatibility.
- ZK rollups are promising in the long term given their high security and scalability. The market for generating Zero-Knowledge (ZK) proofs is estimated to reach $10 billion by 2030.
Monthly Feature Article | Layer-0: Infrastructure For Customised Blockchains
In this report, we put the spotlight on Layer-0s, which serve as the generic foundational architecture powering Layer-1 blockchains to achieve scalability and interoperability. We look at some famously established Layer-0 protocols — Cosmos, Polkadot, and Avalanche — that support the building of application-specific chains (appchains) and their implementation in generic cross-chain communication. We also talk about emerging protocols like LayerZero and zkLink, which represent novel approaches to cross-chain strategies, scalability, and liquidity.
- Layer-0 protocols provide the foundational infrastructure that customised Layer-1 blockchains can be built on, enabling developers to focus on applications instead of consensus and security.
- Layer-1 blockchains on Layer-0 networks gain flexibility by being able to, for example, choose their own token issuance model, optimise network parameters, and curate their own ecosystems of dapps.
- Interoperability solutions provided by Layer-0 allow Layer-1 blockchains to communicate and exchange value, empowering cross-chain applications and helping to unlock the full potential of the blockchain ecosystem.
- Promising Layer-0 projects like Cosmos, Polkadot, Avalanche, LayerZero, and zkLink use different technologies to achieve interoperability. However, each solution’s unique architecture comes with its own set of unique constraints.
- Looking forward, Layer-0 networks have the potential to foster blockchain innovation by enabling a multitude of specialised and interoperable Layer-1 blockchains.
Monthly Feature Article | Layer-0: Deep Dive Into Interoperability Solutions
The concept of interoperability emerged a few years ago. Currently, the design of inter-blockchain communication for general purposes is mainly based on a sidechain/relay model, with Cosmos, Polkadot, and Avalanche leading the way. However, other architectures have also emerged, featuring the novel implementation of interoperability without relying on the mainchain for information relay. For example, LayerZero utilises Ultra Light Nodes, which are deployed to target chains to achieve data exchange, while zkLink adopts Zero-Knowledge proof to realise cross-chain transactions.
In our latest private report, we shed light on what blockchain interoperability looks like today and distinguish the differences between cross-chain, multichain, and omnichain. More importantly, we dive deeper into these prominent Layer-0 protocols, how exactly they facilitate interoperability among blockchains and build a multichain future, and their risks and implications for the broader blockchain ecosystem. Read our latest research that explores Layer-0s and blockchain interoperability in greater detail, exclusive to our Private members.
- In this report, we discuss Layer-0s, which serve as the generic foundational architecture powering Layer-1 blockchains to achieve scalability and interoperability. We look at some famously established Layer-0 protocols — Cosmos, Polkadot, and Avalanche — that support the building of application-specific chains (appchains) and their implementation on generic cross-chain communication:
- The Cosmos ecosystem is a spoke structure that consists of Hubs and Zones. Hubs are specifically designed to connect Zones by acting as routers and facilitating the flow of information. Zones are regular heterogeneous blockchains. Cosmos’s general cross-chain communication is achieved through the Inter-Blockchain Communication Protocol (IBC).
- Similarly, Polkadot also adopts a spoke network architecture. The mainchain in Polkadot is called the Relay Chain. It hosts all validators and tasks to secure and govern the network and interconnected Layer-1s, known as parachains. Polkadot’s communication amongst parachains is achieved through Cross-Chain Message Passing (XCMP).
- Avalanche provides infrastructure for building blockchains called Subnets. The approach of inter-communication amongst Subnets is called Avalanche Warp Messaging (AWM).
- All of the above protocols provide tools to simplify the procedure of building appchains. Polkadot and Cosmos also support shared security between the mainchain and the independent Layer-1 chains.
- Emerging protocols like LayerZero and zkLink represent the next progression of multichain interoperability, featuring novel approaches to cross-chain strategies, scalability, and even liquidity.
- Although Layer-0s paved the way for developers to focus on business logic, potential security risks still exist. Additionally, there is a debate on whether a universal or local consensus for global connectivity is more preferred by the community.
4. Alpha Navigator
This institutional-focused report dives into macro trends, market-neutral pair trades, style-factor screens, and event-driven ideas. Read the full Alpha Navigator report here.
- Asset classes finished 1H 2023 on a strong note, with crypto outperforming significantly.
- ETH’s 1-month correlations with other asset classes are mostly negative.
5. Crypto Conference & Economic Calendar from Market Pulse
Crypto Conferences Calendar
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Research & Insights Team