Layer 2s Defy Market Angst as Matter Labs Raises $200M

In a sign of momentum for Layer 2s, Matter Labs, the team behind the nascent zkSync 2.0 network, raised $200M in a Series C round led by Blockchain Capital and Dragonfly, the venture announced on Nov. 16.

The latest round takes Matter Labs’ total funding to $458M, including $200M for an ecosystem fund from BitDAO. Andreessen Horowitz and Lightspeed Venture Partners also joined the latest round.

Core Engine

ZkSync 2.0 is a front-running zero-knowledge (ZK)-powered rollup boasting compatibility with the Ethereum Virtual Machine (EVM) — the core engine powering Ethereum’s smart contracts.

ZkSync 2.0 is currently being rolled out over a three-phase mainnet launch process. Last month, the network completed its “baby alpha launch,” during which only Matter Labs will be able to experiment with the chain to verify it is working correctly and performing as expected. Audits will also be completed.

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The Defiant

The network will then move to its “fair onboarding alpha” phase, which will allow ecosystem apartments to deploy and test their code on zkSync 2.0. Today, Matter Labs also announced it will make its code public through an MIT Open-Source license during this period.

“Anything other than fully open-sourcing your code is functionally censorship,” Steve Newcomb, chief product officer at Matter Labs, told The Defiant. “It’s censorship of ideas and innovation.”

Real-time Monitoring

ZkSync 2.0 will then transition to a public launch before 2023.Newcomb told The Defiant that more than 175 ecosystem projects intend to launch on zkSync 2.0, including Uniswap Aave, Curve, and Chainlink.

The team also announced that OpenZeppelin, a smart contract security company, will provide continuous auditing services for its zkSync 2.0 code. OpenZeppelin personnel will also be appointed as Matter Labs’ technical and security advisors.

Top Priority

“Continuous real-time monitoring goes above and beyond one-time audits to provide full protection and peace of mind,” said Newcomb. “Security is a top priority for us, and we want to reduce risks for the whole ecosystem. We’re extremely proud to be teaming up with OpenZepplin as a security partner.”

Newcomb said that OpenZeppelin has already been analyzing its code for several months and that an audit will be publicly released “in the very near future.”

Newcomb also said that should Matter Labs launch a token, it will allocate one-third of its supply to insiders and investors, and two-thirds of the tokens to the community. He said that rival projects have allocated half of their tokens’ supplies to insiders.

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Rollups bundle together transactions on Layer 2 before submitting them in batches to the Ethereum mainnet, offering cheaper transaction fees and faster execution times than Layer 1.

But optimistic rollups, the type of rollup used by the top Layer 2 networks by market share, Arbitrum and Optimism, sacrifice some scalability in exchange for easier EVM compatibility. Withdrawals from optimistic rollups also take seven days to process.

Although ZK-powered rollups provide greater speed and scalability than their optimistic alternatives, existing ZK rollup solutions — such as Matter Labs’ zkSync 1.0 chain — do not offer EVM-compatibility.

Rollups

ZkSync 1.0 has a total value locked of $53M, according to L2 beat. For comparison, Arbitrum, the largest rollup network, boasts a $2.3B TVL.

But on July 20, Matter Labs, Polygon, and Scroll all announced they are working on ZK-powered rollups boasting EVM-compatibility.

On Oct. 10, Polygon launched a public testnet for its zkEVM rollup, tipping that DeFi heavyweights Aave and Uniswap will be among the first protocols deploying to the testnet.

Scroll upgraded its pre-alpha testnet on the same day, enabling smart contract deployment on its chain. Scroll said it will soon follow up by launching a permissionless testnet that is open to all users.

Newcomb said Matter Labs will provide grants for a third-party data provider to begin tracking the open-source, security, and fundraising policies of Layer 2 scaling providers, likening it to the nutritional labeling on the side of a cereal box.

“2023 will be the year of the great port over to ZK,” Newcomb said, characterizing zero-knowledge proofs as “mathematically perfect at preventing fraud” while optimistic solutions rely on game-theory.

Scalability Gains

Newcomb said that while optimistic and ZK-powered rollups offer comparable scalability gains of roughly 10x at Layer 2, Layer 3 will be where zero-knowledge solutions pull ahead.

“Where Layer 2 is kind of one size fits all blockchain, Layer 3 is enterprise-ready, ready for 10x customization [and] 10x scaling,” he said, likening the customizability of L3 to Amazon’s AWS service. “Optimistic rollups just don’t offer that. They can’t [provide] that type of scaling.”

“If you want the most security, you do a ZK-rollup at Layer 3, Newcomb added. Newcomb also said the need for cross-chain bridges is eliminated at Layer 3, minimizing security risks.