A Comprehensive Interpretation of Polygon zkEVM: Rollup Technical Guide, Token Economics and Ecosystem
Original Author: Louround
Compilation of the original text; Deep Tide TechFlow
In July 2022, PolygonLabs, zkSync, and Scroll started a competition for the best zkEVM, the Polygon zkEVM mainnet will be launched on March 27th, and the author, together with ChaosDAO, wrote the most comprehensive guide on Polygon, which will be the next The biggest narrative of the bull market.
Ethereum’s scalability issues have led to the rise of alternative L1 chains that sacrifice decentralization and security for scalability.
This is because of the trade-offs brought about by the popularity of the concept of the blockchain trilemma, namely decentralization, security, and scalability.
The concept holds that a blockchain cannot maximize scalability, security, and decentralization at the same time.
To solve this trilemma, developers inside and outside the Ethereum ecosystem have built various scalability solutions, ranging from L2 solutions (such as sidechains or state channels) to new L1 architectures (such as homogeneous or heterogeneous execution Fragmentation).
However, all these solutions have their disadvantages.
The drawback that Rollup scaling technology aims to overcome is to achieve extreme scalability on a separate off-chain execution layer while inheriting the security guarantees from layer 1 as the settlement and data availability layer.
Rollups process transactions off-chain, packaging transactions into large batches (rolled up).
After the transaction is processed on L2, only the state changes produced by the batch or in zk-rollup, the proof of the validity of the batch are published (and verified) on Ethereum L1.
Rollups are of two types:
• Based on the optimistic mechanism (Optimistic), rely on the verification node to start the fraud proof mechanism, if the data submitted to L1 is invalid.
• Zero Knowledge mechanism (Zero Knowledge), using the zk proof system to ensure the verifiability of transactions and state changes on L1.
zk-rollup takes a "trustless, verifiable" approach, relying on mathematically verifiable proofs rather than fraudulent proof mechanisms.
Additionally, the general mechanism for suspending transactions into batches and then committing aggregated, compressed data to L1 off-chain is similar.
Foreseeing the technology's potential, Polygon invested $1 billion to develop this complex technology, first acquiring Mir Protocol (now Polygon Zero) for $400 million and Hermez Protocol (now Polygon Hermez) for $250 million.
With such internal capabilities, they decided to build the Polygon zkEVM.
For many zk-rollups, the ultimate goal is to be the equivalent of the Ethereum Virtual Machine (EVM). Achieving EVM equivalence means achieving full bytecode-level compatibility.
This differs from mere compatibility, which often requires developers to modify or even reimplement some lower-level code.
When a development environment has EVM equivalence, this is a huge advantage for developers, because it means that basically any smart contract or development tool from Ethereum can be used on the equivalent EVM network.
It also simplifies the migration of ETH-based decentralized applications (dApps) and makes it easier to interoperate with other EVM dApps or other zkEVMs on L1.
Additionally, EVM equivalence (Solidity and support for Ethereum dev tools) enables rollups to leverage the largest dev and liquidity pools in Web3.
Vitalik Buterin pointed out that there are 4 different types of zkEVM rollups, from type 1 which benefits from full ETH equivalence but reduces performance, to type 4 which does the opposite.
zkEVM is building on Type 2 equivalence and striving to be Type 1.
In addition to adopting a Bytecode-level approach to EVM compatibility, Polygon zkEVM stands out from its competitors because it implements a new consensus mechanism called Proof Of Efficiency (POE), which improves decentralization and Increase network security.
Additionally, Polygon's zkEVM uses one of the most advanced zk proof systems.
Plonky 2 is a recursive zk proof system that combines the advantages of STARK and SNARK proofs, and is probably the cheapest and most efficient proof system on Ethereum.
After reaching an important milestone, the Polygon team and developers decided to do a general rollout (initially) on March 27th, which is earlier than all of their competitors.
(The only missing metric is transactions per second (TPS), even though we can assume a minimum of 2 k TPS)
The chain has attracted over $1B in Value Locked (TVL), and $8.3B in total value transferred across chains to the chain (60% of which is $MATIC).
This distinction is important because DefiLlama's TVL only refers to value locked in the protocol, not assets held in wallets (which is important to consider).
financial indicator
Over the past year, Polygon was the highest-grossing chain with over $26 million in revenue, while Arbitrum and Optimism had $19 million and $18 million, respectively.
However, one needs to take into account the net benefit (cost-income), which averages around negative $300 million per year, mostly due to token incentives, according to Token Terminal.
That's still less than 15% of the $2.4 billion coffers Polygon has.
Token Economics
Polygon's token is $MATIC with a supply of 10 billion and a current price of $1.12 (down 60% from its all-time high). The token is used for governance, paying transaction fees on the POS chain (transaction fees on zkEVM will be settled in $ETH), and validating and securing the chain's pledge.
The supply has been distributed among various stakeholders and is now almost completely in circulation (90%), but staking rewards have not yet been unlocked.
Interestingly, Binance launchpad investors have now achieved 458 times return on investment, while the all-time high reached 1100 times.
ecosystem
Despite not having the highest TVL, Polygon has one of the largest ecosystems with over 7000 active dApps.
Compared to its competitors, the team is focused on developing its environment, such as NFTs and Gaming Fi, rather than focusing solely on DeFi.
As such, Polygon is the chain that has attracted the most Web2 companies into its ecosystem over the past few years (mainly GameFi and NFTs), and this is a crucial step for the industry, making Polygon the go-to place for Web2 companies.
communicate
The crypto industry is still immature and irrational, which is why having the best technology is not one of the most important success factors for a blockchain (eg top 15 market cap).
Hype, marketing, and brand awareness are just as important as the technology a chain possesses.
Regarding brand awareness, Polygon has 1.8 million followers on its Twitter account, making it the most followed chain, however, zkEVM only has 3.2 followers, which is significantly lower than zkSync with 640,000 followers, Arbitrum with 588,000 followers Or Scroll with 261k followers.
While followers don't really represent anything, ETH Daily did a survey of the top 9 L2s, but at the time zkEVM wasn't in it.
The research also shows that new users are looking for financial opportunities through airdrops, which zkEVM should not issue.
This is a problem for the chain, as airdrops create an endless loop by bringing in growth in TVL, transaction volume, fees, etc. participating in the chain, which in turn attracts builders, projects, and more users.
funds
In 2022, Polygon raised the largest funding round in blockchain history at $450 million, increasing its current coffers to $2.4 billion.
Funding like this gives Polygon the ability to develop, hire and attract as much talent as it can without worrying about the impact of a bear market.
team
To run such a project, Polygon can count on 400 employees who joined the project in 2017 after it was founded by four co-founders.
Jaynti KananiCEO
Sandeep Nailwal COO
Anurag Arjun CPO (now developing Avail independently)
Mihailo Bjelic
On the zkEVM team side we have:
Eduardo and Jordi Baylina are the co-founders of Polygon Hermez and are now project leads and developers.
Brendan Farmer and Daniel Lubarov are the co-founders of the Mir protocol (now Polygon zero).
Advantage
Advantage
• Cooperation with Web2 companies.
• Type 2 zkEVM will allow easy development and onboarding of dApps, with huge potential.
• Substantial funding and reserves support smooth adaptation, market phase management (bull/bear), marketing and events.
• Skilled team develops a significant chain and acquires developers from merged projects (Mir, Hermez) to run the project.
risk
• There is a zk risk due to its complexity and recent implementation within the blockchain industry.
• Privacy issues brought about by zero-knowledge proofs may pose regulatory risks. Projects that grant privacy have been targeted by regulators (Monero, Tornado cash, etc.).
• Competition is increasing and cutting-edge technologies are being developed (zkSync, Scroll, Starknet, Taiko, etc.).
• Attracting users/developers/projects in the absence of airdrop potential and a vibrant DeFi ecosystem will require more effort than competitors.
in conclusion
Polygon's launch of zkEVM is a very important industry event. zk rollup technology will make blockchain networks more efficient and scalable, and has the advantage of seamless integration for dApps that use EVM.
While there are risks and competition, Polygon has proven its strength and capabilities in ecosystem development, fundraising and team building.
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