Even though the price of ETH has fallen by about 50% since early April, Ethereum scaling solutions continue to secure huge amounts of funding to address the bottlenecks that slow down the blockchain and make it expensive to use.
On May 25, StarkWare, an Israeli startup building Layer 2 scaling solutions for Ethereum, announced the completion of a $100M Series D funding round at an $8B valuation. The funding round was led by FTX and Compound backer Greenoaks Capital, and Moonpay and Alchemy investor Coatue. Other investors in the Series D include Tiger Global.
Rivals have also secured huge backing from major VC firms. In February, Polygon scored $450m in a round led by Sequoia Capital India, which lifted its valuation to $20B. Optimism raised $150M at a $1.65B valuation in a Series B round led by Paradigm and Andreessen Horowitz in March.
All these companies build rollups: a data compression technique that grabs batches of Ethereum transactions, rolls them up into a single transaction, then feeds the lone transaction back to Ethereum’s mainnet.
Rollups benefit from Ethereum’s security while vastly cutting the cost of transactions and speeding them up, neatly sidestepping the problems that have beleaguered the blockchain for the past few years.
StarkWare’s ZK-STARK rollups use zero-knowledge proofs, which preserve privacy by publishing just the time and date; only the recipient can access details about the transaction. StarkEx, Starkware’s scalability engine is used by DeFi protocols such as dYdX, Sorare, and Immutable X. It has settled $596B worth of trades since its launch in June 2020.
Six months earlier, StarkWare had completed its Series C at a $2B valuation. The latest raise means that the company has grown in value by an extra $1B each month since November. “VCs recognize the urgency of the challenge, and the potential… to make blockchain truly mainstream,” said Starkware co-founder and president Eli Ben-Sasson in a statement.
He said that the company had received “many blank looks from VCs when we talked about scaling blockchain four years ago.” He would not be alone. Before Polygon’s $400M raise, the company had raised just $750,000 since it was founded in 2017.
On May 9, StarkWare launched the alpha version of its Ethereum bridge, StarkGate. The bridge allows users to transfer assets between Ethereum and the StarkNet Layer 2.
With hundreds of millions in funding, these companies are already looking to a post-Layer 2 world. They’re calling it Layer 3.