Jun 2023 Finance Blog (FLOG): Will zkSync, Ethereum’s Latest layer 2 Scaling Solution, Overcome Its Gas Fee Hurdles to Become Viable?
Introduction
Since the advent of Ethereum, the face of Web3 has been revolutionised by the adoption of smart contract functions and as Ethereum grew more and more popular over time, demand for Ethereum for trading and for project deployment on its ecosystem also grew exponentially. As a result gas fee, which is the transaction cost to conduct trading or just any activity on the Ethereum blockchain, also increased dramatically to peak over 700 Gwei (about USD 30) in June 2020 before receding mildly to about 100 Gwei (about USD 3.5) recently in May 2023. In light of the high gas fees problem, the Ethereum community and developers have come up with a multitude of solutions and in one particular solution, a layer 2 zero knowledge proof scaling solution network called zkSync was created. Precisely speaking, zkSync Lite was its earlier test-net version with limited support to EVM (Ethereum Virtual Machine) based applications while zkSync Era would be the main-net version with full support to all applications running on Ethereum’s ecosystem. In short, zkSync Era is the actual version of zkSync and since its announcement by Matter Labs speculations have been built up over the layer 2 scaling solution’s success with some being very optimistic to see zkSync replacing Ethereum soon while others are more sceptical of its long term potential. Nevertheless, in March 2023 zkSync Era finally made it to the official public launch after closed beta test phase since late 2022 and immediately after launch some are quite disappointed to see zkSync’s gas fees to be higher than Ethereum with a few users on Reddit quoting total transaction cost including bridge and gas fees at about USD 50! So is there any promise for zkSync to overcome the gas fee challenge to eventually replace Ethereum as a viable product? In the rest of this article we will take a closer look into the reason for zkSync’s recent high gas fees, analyse the network’s adoption and growth trend to forecast when its gas fees would decline and compare the gas fees vis-a-vis with other Ethereum’s layer 2 scaling protocols before drawing a conclusion on the future of zkSync.
What Causes the High Gas Fees in zkSync?
Soon after launch in March 2023, zkSync’s gas fees for each transaction was at about USD 3–5 range and ironically it does not appear to fulfil the promise to drive down transaction cost on the Ethereum network. However as pointed out by DeFiIgnas, zkSync and other zk-proof network functions contrary to Ethereum’s transaction cost management model. In Ethereum’s basic transaction cost model, the higher the transaction demand on the Ethereum blockchain, the higher the gas fees would become as network congestion would push up the cost of Ethereum itself. Zk-proof network such as zkSync works differently in that the higher the demand for transaction on the blockchain, the lower the gas fees would become as zk-proof network incurs fixed off-chain heavy computational data storage and power cost as well as a variable on-chain validator cost which is merely a fraction to Ethereum’s validator cost. In essence the bulk of zk-proof network’s gas fees fell on the fixed off-chain portion and therefore when more users are transacting on zkSync, the wider the fixed cost would be spread and thus helping to relatively alleviate the “high” gas fee issue on zkSync network. However as zkSync is still in a rather early phase of adoption as the layer 2 network was officially launched for less than 3 months (as of May 2023), currently the bulk of the fixed hardware cost was not spread thin enough and thus making some users feel strange on its “high” gas fees.
So, What Is the Adoption Trend and When Would zkSync’s Gas Fees Decline?
Looking at data from DeFiLlama, zkSync Era has over USD 120 million TVL (Total Value Locked) as of late May 2023 and since launch its TVL had at one point in March 2023 hit over USD 240 million. Since zkSync was launched less than 3 months ago, there was no historical trend to analyse the network’s potential growth pattern. However using TVL data from other Etherem’s layer 2 scaling networks such as Polygon zkEVM and Arbitrum’s, Polygon zkEVM’s TVL has grown tremendously by more than 1000% since launch in April 2023 to about USD 13 million while Arbitrum’s TVL has grown steadily since its launch in September 2021 to achieve more than 6% monthly growth rate from April 2023 to May 2023 to reach USD 2.5 billion. Overall, zk-proof networks proved to be quite popular with the Web3 community and zkSync might be able to ride the growth rate boost in similar velocity as Polygon zkEVM did to a reach a scale on par with Arbitrum’s TVL level in the long run. Hence, zkSync’s TVL and user volume should increase over time and as a result its gas fees would decline thanks to a wider spread over a bigger user base.
Regarding the timing on when zkSync’s gas fee would start to fall, there are speculations that it might come down by late 2023, which is roughly about 6 months since its launch. Based on observation from Arbitrum, which has about 2 years of operational history since launch in September 2021, the layer 2 network gained tremendous momentum due to hype in the first 3 months of launch to reach about USD 2.3 billion TVL but it has declined since 2022 to a bottom of about USD 600 million by July 2022 before picking up growth again to reach USD 2.5 billion by May 2023. Hence, if zkSync’s trading volume and TVL was boosted by a similar crowd for short-term hype and FOMO (Fear Of Missing Out) sentiment, it might be possible to see its gas fee decline within the first 6 months after launch but it might increase again in the interim period from 6 months to 1 year post launch as the hype and FOMO crowd exited zkSnyc until finally gathering actual growth momentum due to developer’s deployment and sustainable community growth as its ecosystem started to reach maturity to drive down zkSync’s gas fee in the long run after 1 year from launch.
In a nutshell, apart from some complications affecting adoption in the interim period for about 1 year after launch, zkSync’s gas fee should decline in the long run once ecosystem development has started to mature.
How Does zkSync’s Gas Fee Compare to Other Networks’ (as of May 2023)?
zkSync Lite’s gas fee as of May 2023 is at USD 0.15 to send ETH which is higher than that of Polygon zkEVM and Arbitrum One’s USD 0.12 and USD 0.11 respectively. However, zkSync Lite costs USD 0.37 to swap token which is cheaper than Polygon zkEVM which costs USD 0.44 but it is still more expensive than Arbitrum One which costs only USD 0.32.
As of 26th May 2023, for average gas fee comparison based on normal condition of 5 seconds, zkSync Era costs about USD 0.0097 (0.3 Gwei) which beats Polygon zkEVM which costs about USD 0.097 (2.5 Gwei) but it still trails behind Arbitrum which costs USD 0.0038 (0.1 Gwei). Meanwhile, average gas fee comparison based on fast condition of 3 seconds, zkSync Era costs about USD 0.0098 (0.3 Gwei) which is cheaper than Polygon zkEVM at USD 0.099 (2.6 Gwei) but more expensive than Arbitrum at USD 0.0039 (0.1 Gwei). Lastly, average gas fee comparison based on slow condition of 10 seconds, zkSync Era costs about USD 0.0096 (0.3 Gwei) which is cheaper than Polygon zkEVM at USD 0.095 (2.5 Gwei) but is more costly than Arbitrum at USD 0.0038 (0.1 Gwei).
Nevertheless, zkSync’s gas fee has been steadily declining as of May 2023 since test-net launch in mid-2020 according to data from Dune and hence there are possibilities that zkSync might catch up with Arbitrum’s low gas price in the future. However, it is worth noting that zkSync might have a wallet set up fee currently up to USD 10 to connect user account from layer 1 to layer 2 according to wallet service provider Argent and as a result users must bear in the mind the set up cost on top of the transaction cost when choosing zkSync and factor in both costs to decide whether or not zkSync offered the best price possible among all of Ethereum’s layer 2 scaling solution.
Conclusion
To conclude, zkSync faced some challenges within the short term horizon on achieving wide enough adoption to reduce its gas fee and unfortunately as of May 2023 it still trails behind Arbitrum in terms of gas fee to become the most efficient choice of Ethereum’s layer 2 scaling solution. However given it was officially launched in less than 3 months while Arbitrum was launched more than 2 years ago it is too early to conclude that zkSync failed to deliver its promise as zkSync has achieved remarkable growth in TVL in merely 2 months since its launch and the ecosystem might grow bigger over time to attract more user to drive down average transaction cost. Nonetheless since its official launch in March 2023 zkSync has even outperformed Polygon zkEVM in both TVL and transaction cost therefore if zkSync could maintain its growth momentum and attract more users and developers to transact and build on the network, it might eventually catch up with Arbitrum to be the go-to choice of Ethereum’s layer 2 scaling solution. All in all, there is certainly a glimmer of hope that zkSync can overcome its gas fee challenge to fulfil its promise as a viable layer 2 scaling solution for Ethereum.
PS: Also published on 3House
