Layer-2 scaling solutions are shedding light for Ethereum to overcome the current challenges of congestion and high gas fees. The picture of L2 solutions is much bigger since it contains lots of different technologies from many research groups.
Why are there so many L2 solutions? In a bigger picture, all L2 solutions can be interconnected and orchestrated to work in EVM harmony, creating a strong network effect to scale up the Ethereum network.
To scope in, using Rollup technology, Optimistic Rollup and Zk-rollup (Zero-knowledge rollups) are the two most notable branches to build L2 solutions. As illustrated in the infographic, Starkware, with other L2 projects (Hermez, Loopring, zkSync, Aztec), joins the Zk-rollup force to lift the adoption of the Rollup technology.
This article will introduce the overview of Starkware and dig deeper into the projects built on its suite of rollup solutions. So let’s explore the potential of the L2 scaling solution, Starkware!
What is Starkware?
StarkWare Industries Ltd. is a blockchain technology company based in Israel, founded in 2018, focusing on developing ZK-Rollup technology and building products to solve the current challenges of the Ethereum network. Besides the technology infrastructure, Its main two products are StarkEx and StarkNet.
We might come up with lots of glossaries around Starkware and its technology, here’s for your convenience:
- ZK-STARKs (Zero-Knowledge Scalable Transparent Arguments of Knowledge) is the main technology of Starkware.
- STARK is the lightweight cryptographic proof that will be generated then attested before sending it on-chain.
- Validium means that transactions will be executed off-chain on a sidechain like StarkEx instead of on-chain execution like Optimistic Rollups.
- Volition means users can select one of the two options (Validium or Rollups) to conduct transactions based on their needs in terms of the security level and gas fees.
StarkNet is built on the basis of STARK as the decentralized L2 Zk-rollup. The layer is responsible for executing transactions while scaling without the security sacrifice of Ethereum. STARK developers can write smart contracts and run them permissionlesly on StarkNet. Furthermore, it is envisioned to enable composability to create a Constellation of Dapps.
StarkEx is the Validium L2 scaling engine on Ethereum mainnet that is modified (tailored) to fit specific permissioned Dapps, used for projects to deploy their ideas (mostly for trading use cases) dYdX, ImmutableX, DeversiFi, and many other partners. This Specific L2 is where most protocols are built on, generating real trading volume and conducting transactions.
Cairo is a programming language running beneath StarkEX and other Starkware products. Builders using STARKs will have to write code in Cairo while developing Dapps.
As its name, SHARP (Shared Prover) is a technology used to share the verifying gas cost when combining batches of transactions into one proof. This means the transaction on StarkEx mainnet will cost much cheaper than on Ethereum.
- In short, StarkNet is a permissionless version of StarkEx to reach a bigger ambition. Starkware developed StarkEx first, allowing protocols to be built on to experience the advantages of ZK-STARKs technology. This strategy has yielded excellent results with dYdX, ImmutableX, and many other protocols.
- StarkNet Constellations to Universe: The viability of StarkNet is proven by a permissioned version, StarkEx. Major protocols adopt it with massive returns. The most notable StarkEx-powered protocol is dYdX as the DeFi protocol with the highest revenue in 2021.
- $165.5M raised capital: Starkware, with the lead of its founder Eli Ben-Sasson, has raised a total of $165.5M in 5 investment rounds, which is a particularly impressive number. As a result, Starkware can be envisioned to realize the “Cosmos” on Ethereum.
- ZK-Rollup technology: This means the bridging time between L1 and L2 will be reduced to minutes instead of a week like Optimistic Rollup.
Starkware Highlight Numbers
(updated: Feb 23nd, 2022)
- Product: StarkEx;
- Main Currency: ETH;
- Total Transactions: 114M;
- TVL: $1.14B;
- Cumulative Trading Volume: $433B;
Products and Roadmap
StarkNet is still in the development stage, and it released the Alpha 0.7.0 version in Jan 2022. Currently, it’s hard for Solidity developers to come on board the Starkware ecosystem since its primary language is Cario. The missing part is a converter to port protocols written in Solidity onto Starkware easily.
The roadmap of StarkNet is big, and we’re now in the middle of Step 1 and Step 11, which is a long road to go for the Starkware team. As evidenced by the statistical performance of StarkEx, we believe in the viability of the next phase, Constellations of Starkware.
At this phase, StarkNet can run multiple applications which are built without any permission of Starkware. In addition, the product welcomed some major DeFi protocols to migrate to the ecosystem. For instance, the latest protocol is Aave through an on-chain governance proposal.
⇒ To reiterate, StarkEx has had an excellent performance with trading protocols, proving the competent ability to be the L2 solution for Ethereum. To keep up the winning streak, StarkNet is now in the adopting phase where protocols (not too many) are coming on board to build Constellations.
Investors and Partners
Starkware Industries, or Starkware in short, was founded by Eli Ben-Sasson who was formerly the co-founder of Stark and ZCash. The company raised a total of $165.5M in equity and 6k ETH from various top-tier Venture Capitals and grants. Let’s take a look at 5 investment deals in each round over the past 4 years.
- Seed round in May 2018: Starkware was invested in $6M by Electric Coin, Bitmain, and Polychain
- Series A in Dec 2018: A half year after the seed round, Starkware concluded a $30.5M investment deal led by ConsenSys, Dragonfly Capital, Multicoin, and other VCs, including Pantera, Scalar, Sequoia.
- Ethereum Foundation’s wave 3 grant in 2018-2019: $4M with 6,000 ETH bounties based on the project’s performance.
- Series B in June 2021: After three years of development, it closed a $75M investment from high-profile investors, including Paradigm, Alameda Research, Founders Fund, Pantera, Sequoia, and Three Arrows Capital.
- Series C in Nov 2021: The $50M Series C investment made Starkware have an equity valuation of over $2B. The investment was joined by Sequoia, Alameda Research, Founders Fund, Paradigm, Three Arrows Capital.
After the 5th investment round in late 2021, Starkware is turning into a new 2022 year with confidence. Explore more about those blue-chip investors; we have a series of articles about them as follows: Multicoin Capital, Paradigm, Alameda Research, Three Arrows Capital, and more will come.
At the valuation of $2B after the latest equity investment, we think it’s possible for Starkware to raise a Series D round if necessary since StarkNet just released the Alpha version in Jan 2022. Apart from raised funds, Starkware has almost no revenue from other sources and the current development stage is just Alpha. As a result, another investment round is understandable.
Starkware Ecosystem Overview
In the previous sectors, the competent structure of Starkware is broken down into two main products StarkNet and StarkEx. Two products contain underlying applications, making up the entire ecosystem. As the view of Starkware, StarkEx will ultimately be an indispensable part of StarkNet.
We’re in the expanding stage of StarkNet, according to its roadmap. From now on, the ZK-STARKs product will open for crypto builders.
- StarkEx Ecosystem: dYdX, ImmutableX, DeversiFi, and Sorare.
- StarkNet consists of a wide range of DeFi niches, creating an entire ecosystem.
Hence, for in-depth assessments, we will separately discuss the ecosystem of each product (StarkEx and StarkNet).
StarkEx - An ecosystem governed by Starkware
Currently, StarkEx has only 4 customers which are industrial-like trading protocols, including dYdX, Immutable, DeversiFi, and Sorare. At the writing time, they attracted $1.14B TVL and processed over 114M transactions on StarkEx, which is an imposing number compared to other existing L2 solutions.
Since StarkEx’s customers are all hand-picked by Starkware which tailored the platform to suit their needs. As a result, 4 projects using ZK-STARKs are highly invested, constructing an ecosystem of DeFi and NFT applications. Let's dive into those 4 protocols.
dYdX and DeversiFi (Trading)
dYdX, a derivatives market using an off-chain engine powered by Starkware, stands out to be the largest and the most successful ZK-STARKs project with the leading TVL of around $1B amid the strong market correction. Furthermore, it is now generating the most revenue in the DeFi space (not NFT space) with a total of $334M revenue.
The trading volume number smoked other long-lasting DeFi protocols such as Uniswap, PancakeSwap, MakerDAO, etc. As the biggest derivatives trading platform in crypto, it has a more ambitious dream to reach out to the global derivatives market.
dYdX has outperformed Kraken Futures in terms of trading volume since September 2021 while there is almost no signal of growth (moving sideways) on other derivatives centralized exchanges such as Binance Futures and FTX Derivatives. We can expect in the next bull run, dYdX might surpass them by leveraging blockchain technology to the extent of CEX-like experience.
It paved the way for other ZK-STARKs protocols to thrive. With tens of millions of TVL, they’re catching up with dYdX. But in the bigger picture, dYdX has proven the viability of Starkware products, lifting the confidence of StarkNet to take off.
DeversiFi, powered by Starkware, offers a wide range of trading products such as Spot, Margin, Liquidity Provision, and Liquidity Pool. As we can see from the performance of the DEX, it’s still not as big as dYdX in every metric. Recently, Opera, a web browser owning millions of users, has integrated DeversiFi to broadcast crypto to the mainstream.
Nonetheless, DeversiFi will play an important role in the ecosystem as it offers Spot Trading unlike dYdX which only focuses on derivatives. This will create a strong moat for DeversiFi to acquire users when ZK-STARKs are getting adopted.
ImmutableX and Sorare (NFT)
ImmutableX is an NFT platform built on top of Starkware’s technology, famous for Gods Unchained, Guild of Guardians Heros, Nifty Nuggets, and Tiktok Top Moments NFTs.
Sorare is a football-themed NFT platform using the StarEx Validium technology. The platform has been licensed to collaborate with 215 top-tier football clubs such as Paris Saint-Germain F.C., Real Madrid CF, FC Bayern Munich, etc.
The two NFT-related projects will gain traction from the NFT community as well as football fans. They’re acting as the marketing arm while partnering with Starkware. The strategy seems to underperform since the user base on StarkEx is not so abundant and concentrates on the trading platforms.
StarkNet - A permissionless ecosystem
As mentioned, StarkNet is the strategic product of Starkware to conquer the L2 market share. After releasing the Alpha version, many crypto builders have been on board the platform and joined hands in developing startups.
Numbers of projects on StarkNet:
- DeFi: 13 projects;
- Game & NFTs: 12 projects;
- Wallets: Ledger, Argent, and WalletConnect;
- Tools: Warp, Nethermind, Token Flow, and Equilibrium;
- Others: Snapshot, Yagi, and Zorro;
In addition, protocols on StarkEx (5 projects) are envisioned to migrate to the new permissionless ecosystem StarkNet. These fundamental components are assembled to create an ecosystem on top of Starkware’s technology.
In the DeFi space on StarkNet, there are numerous crypto newcomers building AMM DEX, Aggregator, Liquidity Center, and Derivatives Platform.
MakerDAO is a leading DeFi protocol integrating with StarkNet. It announced plans to integrate its platform with StarkNet via an on-chain proposal (in the voting phase). We think MakerDAO with its decentralized stablecoin DAI will be a huge boost for the ZK-Rollup ecosystem.
Aave, a top-tier lending/borrowing protocol on Ethereum, is making plans to go live on StarkNet through an on-chain proposal (373,380 yays - 0 nays at the writing time). This means the biggest lending protocol on StarkNet likely happens. After the Polygon, Avalanche, and Arbitrum adoptions, Aave reaches out to the new favorable land called StarkNet.
Projects on StarkNet have released testnet:
- AMM DEX: JediSwap and mySwap.
- NFT: Oasis and Mint Square.
- Bridge: Suez Bridge and Qasr
In late Feb 2022, Starkware launched the fully mainnet version of StarkNet on Ethereum, opening a decentralization phase for the ecosystem. It welcomed more builders to the ecosystem, as evidenced by the steady growth of the project number.
To conclude the new emerging ecosystem StarkNet, we can tell that it is still in the early stage with some primary components. If you’re developers, we think it’s good to give it a try to explore the ecosystem. Additionally, we will discover underlying opportunities in the following section.
At the moment, token investments are quite rare inside the Starkware ecosystem. Only a few projects released tokens such as dYdX, ImmutableX (IMX), and DeversiFi (DVF). Let’s assess the performance of the token price (ATH price and IDO price):
- DYDX: 2,400%;
- IMX: 5,600%
- DVF: 900%;
Another way to make money with your crypto assets is to trade tokens. dYdX and DeversiFi are the best and only go-to trading platforms on StarkEx. All trading platforms on StarkNet are still in the development stage despite some Testnet releases.
However, this method can lead to capital loss and liquidation due to over-leverage. Therefore, it’s better to consider carefully before participating in trading and other types of investments as well.
The case model here is dYdX. Does anyone remember the derivatives platform has distributed a massive DYDX retroactive airdrop to its early users?
Qualified users received at least 300 DYDX ($7500 if multiplied by the ATH price). The airdrop made the crypto market explode since it was the biggest airdrop ever. This boosted the platform to have tons of traction, as evidenced by the explosive growth in trading volume aligning with the day of the airdrop.
There are countless projects on StarkNet and StarkEx that have not released their tokens. As a result, we can reasonably expect potential token airdrops to boost our portfolio capital. Coin98 Insights have released a potential airdrop list and a detailed guide on how to scan and hunt for airdrops. We recommend you guys check them out.
NFT & NFT Marketplace
An NFT marketplace ImmutableX and a football-themed NFT project Sorare are suitable platforms for NFT “collectoors”.
Sorare is a notable example as it combined Starkware technology with a large convertible user base in the football community. Its all-time trading volume ranks 13th in the leaderboard only after major NFT collections such as Loot and the anime-like “skateboarder” Azuki.
As a result, on StarkNet, an NFT frenzy might happen as all essential lego parts are completed.
To reiterate, Starkware gained its initial success with StarkEx and is now passing the winning streak to StarkNet with a vision of the universe. Tens of crypto startups chose StarkNet and keep building with the Starkware company.
As mentioned, Coin98 Insights will put forward some predictions that hopefully express Starkware’s mission and its possible future landscape.
- More institutional capital might pump into the ecosystem since Starkware was invested in by high-profile crypto venture capitals. Furthermore, VCs will probably invest more in higher layers of StarkNet, meaning DeFi and NFT applications in the ecosystem will be able to get funded by strong-narrative money.
- More DeFi niches and NFT-based GameFi:
- Starkware only includes elementary DeFi legos and NFT applications such as Derivatives, DEX, NFT collections, and NFT marketplace without the crucial involvement of other niches such as GameFi, Lending, Yield Aggregator, etc.
- In addition, Starkware products use a programming language named Cairo. Therefore, Hackmoney2021 or similar incentives are the musts to attract diligent crypto builders.
- Bridges - the missing lego part: As mentioned, StarkNet uses ZK-rollup to scale the Ethereum network which requires bridges to transfer tokens between L1 and L2. At the moment, SuezBridge, Qasr, and Kubri are building blockchain bridges, but they just released Testnet. The mainnet versions might take time to complete. Alternatively, we can expect other commonly used L1-L2 bridges such as Synapse, Connext, Across, Celer cBridge,... integrate StarkNet. This means capital will be able to migrate to the StarkNet ecosystem.
- StarkWare Industries Ltd. is an Israel-based company founded in 2018, and it raised funds in equity. As a result, there will be a slim chance of releasing its native token to monetize its products.
- Decentralized within next years: StarkEx only allows projects with permission from Starkware to build on. Alternatively, StarkNet is the permissionless version of StarkEx, enabling the ZK-Rollup ecosystem to be fully decentralized within a few years, noted by the founder of Starkware - Ben-Sasson.
- (Starkware vs. zkSync) vs. Optimistic Rollups: L2 scaling solutions have been gaining traction since late 2021. External capital and cash flow on Ethereum are on the way to explore the new L2 lands to settle down.
To conclude, that is all you need to know about Starkware and its high-target vision with StarkNet. We hope you’ve gained valuable insights to understand the future potential and find opportunities in the crypto market, especially in the Starkware ecosystem.
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