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ZKSwap AMA at Bitalk Roundtable

At 4:00 pm on December 16, 2020, Beijing time, Alex Lee, the head of ZKSwap, was invited to participate in the Bitalk Roundtable, chatting with other guests such as Wangxi from Bixin, NSG Ventures Partner Ni Kaihao, FBG Investment Director Jingwen about the advantages of Layer-2, ZKRollups technology, and ZKSwap.

The following is the AMA script:

Q1 Alex Lee could you give a brief introduction to ZKSwap?

Alex Lee( head of ZKSwap): In one sentence, ZKSwap is a Layer-2 automatic market maker model decentralized exchange based on ZK-Rollups technology. Through ZK-Rollups technology, based on continuously generated zero-knowledge proofs, the consistency of the state of Layer-1 and Layer-2 is guaranteed, so that all exchanges can occur on Layer-2. To be more general, it is a safe, fast, and stable DEX.

Q2 I would like to ask you to talk about your understanding of Layer-2. What do you think is the greatest significance of Layer-2 to the development of Ethereum and the entire blockchain?

Alex Lee( head of ZKSwap): Layer-2 is essentially a protocol. And this protocol mainly executes calculations, transactions, and other logic outside the native blockchain (Layer-1). Only the final result is reflected on the native blockchain. The intermediate process is not recorded on the native blockchain. In the end, the native blockchain will only verify these transactions to ensure security. No matter how complex the execution is, it will not affect the main chain, so the more innovative projects are beginning to develop and use Layer-2 technology. As for its impact on Ethereum, we must first talk about Ethereum 2.0. During the DeFi boom, the constraints on the Ethereum chain are obvious, often congested, and with an extremely high gas cost.

Ethereum2.0 will solve a lot of the current issues, but as of now it is still in the initial stage, and there is still a long way to go before it goes live.

Before the later phase of Ethereum 2.0, the more practical solution should be the Layer-2 solution. It is currently the best scalability solution.

Wangxi from Bixin: The development of Ethereum 2.0 is gradual, and will not be completed overnight. Layer-2 is a very important milestone in this development process, and it is also a good and relatively mature solution in the near and immediate future.

For example, the development of new energy vehicles over the years, and many solutions in the middle are indispensable compromises in the process of progress; the development of China’s capital market and regulatory system. Some of the compromises in the process are milestone solutions, and may even be the final solution. The base-case potential of Layer-2 is high, and the upper limit of its potential is huge.

Ni Kaihao, partner of NSG Ventures: The current throughput on Ethereum is very small, which is hardly keeping up with the growing transaction volume of the DeFi market. The native Ethereum constraints have become a hard bottleneck for the DeFi ecosystem in the short term.

Layer 2 is now the most popular and most mature solution to solve the problem of throughput limit and transaction speed. Similar to segwit for BTC, although it is not the best solution, it can be used and can essentially increase the upper limit of throughput on Ethereum, which can greatly increase the value of Ethereum’s network.

FBG Investment Director Jingwen: Ethereum scalability has always been an unavoidable topic for the industry. As a general-purpose computing platform, Vitalik said in 2017 that the transactions processed by Ethereum should be able to compete with Visa, but the consensus layer has made high tps on the native Ethereum blockchain impossible. This is why the layer2 solution is of great significance to the industry. If the expansion of l2 cannot be achieved, it is difficult for Ethereum to become a computing platform for large-scale applications.

Q3 At this point, we are pretty much sure that layer2 is the best solution to the current congestion in Ethereum, and many applications will gradually move to layer2, which is beneficial to the development of Ethereum. Now let’s look at the ZK-Rollups technology used in ZKSwap.

Ethereum founder Vitalik mentioned the ZK-Rollups technology many times, and the Balancer CTO stated that ZK-Rollups is the most promising expansion solution. Everyone has been deeply involved in the blockchain industry for many years, how do you view the ZK-Rollups technology?

Alex Lee: We also did a lot of research and testing before deciding to launch ZKSwap. Among all the layer2 solutions, we believe that ZKRollups is the best choice. ZKRollups adopts the Rollup idea to realize the scalability on Layer-2. At the same time, ZKRollups uses zero-knowledge proof technology to upload calculation proofs on Layer-2 in real-time, achieving almost the same level of security as Ethereum Layer-1. This security is the most important.

ZKRollup has a great advantage in the finality of the transaction, and the withdrawal time has been shortened by several orders of magnitude, which greatly improves usability. In addition, with the upgrade of computer hardware and the development of zero-knowledge proof algorithms, the performance of Layer-2 can be further improved on the existing basis. Therefore, ZKRollup has reached a good balance in terms of scalability, security, availability, and performance, and is currently the most suitable two-tier solution for building DEX.

Wangxi: In the process of pursuing scalability, we cannot afford to leave everything behind. Ethereum is inherently safe but slow and expensive. I personally understand that the biggest advantage of ZK-Rollups is that it solves scalability issues without sacrificing security, and it has almost the same level of security as Layer-1. One problem is that generating a zero-knowledge proof requires a lot of computing resources. Of course, this is a compromise. And this large amount of resources is very worthwhile.

Ni Kaihao: ZK-Rollups technology provides a possibility to solve the bottleneck. DeFi is very hot this year, and solving the bottleneck as soon as possible has become an urgent need for DeFi. In addition, most scalability schemes sacrifice part of the security to increase transaction speed. We know that the security of funds in the DeFi field is extremely important, so in my opinion, ZKRollup is a very good balance of scalability, security, usability, and performance, so this is a good solution.

Jingwen: Rollups is the 2.0 version of Ethereum’s scalability solutions. The earliest scalability solution is Plasma proposed by Vitalik. However, because of data availability and security issues, it has been questioned by everyone and has not been widely used.

Q4 Some document shows that ZKRollups is better than Optimistic Rollups at multiple levels. Can Alex explain?

Alex Lee: Compared with Optimistic Rollup, ZK-Rollups has a better finality of the transactions, and the time to withdraw from layer2 to layer 1 is shortened by several orders of magnitude, providing a much better user experience. The main difference between ZK-Rollups and Optimistic Rollups is that the former uses zero-knowledge proof and the latter uses fraud proof.

ZKRollups also has its own shortcomings. ZKRollup’s support for universal smart contracts is poor. Now ZKRollups only supports the transfer function. Optimistic Rollups supports the realization of arbitrary smart contract logic. But in terms of scalability and latency, ZKRollup is far superior to Optimistic Rollups. ZKRollups is one of the most promising technologies. Compared with Optimistic Rollups, ZKPollup sis also more suitable for transactions and transfers.

Q5 As a Layer 2 AMM decentralized exchange based on ZK-Rollups technology, how is ZKSwap different from other DEXs? Is there any core advantage?

Alex Lee: Compared with swap DEXs such as Uniswap, ZKSwap has great advantages. The first is zero gas fees. All token exchanges take place on Layer-2, eliminating the need for gas fees.

The second is higher TPS, which is the number of transactions per second. Compared with the TPS of the native Ethereum blockchain at around 10–15, ZKSwap’s TPS will theoretically reach the order of 6,000, as long as there are enough servers to support it.

Another advantage of ZKSwap is real-time transactions. All transactions are migrated to Layer-2, users no longer need to wait for the confirmation time of a block, and real-time transactions can be realized. From the user’s perspective, there is no hurdle, and we have made great optimizations at the product level. It allows users with little tech-savviness to have a smooth experience.

Q6 The next question about investment. Investors, why did you choose to invest in ZKSwap?

Wangxi: There are two facets to consider. One is how’s ZKSwap different from other non-Layer-2 DEXes. It’s obvious. ZKSwap is fast, cheap, and with no latency. The other facet is how’s ZKSwap different from other layer2 DEXes. There are several reasons that prompted our investment, for example, ZKSwap designed its zero-knowledge circuits in a way that there is no need to reset the trusted setup every time the circuit is updated, which is a great innovation and makes it more efficient to verify. Another big factor is that ZKSwap has been live on the Ropsten testnet. You can try it out (there is an on-going testnet initiative program) yourself.

I personally feel that in the DeFi field, “using the product” is the most straightforward way of learning. For example, many rebase algorithmic stablecoins sound complicated, but they will be understood quickly if you just use them, much faster than reading the materials.

Ni Kaihao: ZKSwap is a new attempt. It’s ZK-Rollups combines the Ethereum ecosystem + Tron-like speed and low handling fee + security. It is an investment opportunity with innovation and the possibility of exponential growth.

Jingwen: We are very optimistic about Layer-2 technology as a whole, and believe that the ultimate value will be aggregated in the application layer. ZKSwap is a pioneer in the industry and has a good understanding of DeFi and scalability technology. This is why we chose to support the project.

Q7 At present, the number of decentralized exchanges built on Layer-2 is still relatively small. With the launch of Ethereum 2.0, it is also a general trend to build decentralized exchanges on Layer-2 in the future. What traits should an excellent Layer-2 DEX have?

Jingwen: We believe that the most important feature of DEX is liquidity and the rate of fees. Just like a centralized exchange, users will choose the platform with the best liquidity and the best trading experience, which is also the layer-2 DEX fundamentals. The other is the part of ZKRollups, how to ensure compatibility and data availability with the first layer of the network, which is the key point to consider when choosing a Layer-2 solution for the dex.

Ni Kaihao: Simply put, we believe a good dex needs to have key innovation and the ability to penetrate the market. We have to admit that most projects and investors follow suit. The one who can solve the market’s pain points and become the first to succeed will always get the biggest slices of cake.

So I think what is critical is that a project needs to have unique and substantial innovation. If this innovation detonates the market, the latecomers will follow suit, fork the project, or do similar products. At that time, the value of the first innovative project will be higher and higher.

Wangxi: Decentralization and security. Other good qualities such as low latency and cost improvements.

Alex Lee: Then I will talk about it from a technical point of view. First of all, this feature should be security. No matter when Ethereum 2.0 is finally shipped, the Layer-2 protocol should maintain the same level of security as Ethereum. Although Layer-2 has a lot of attention now, it must be admitted that Layer-2 is still in its infancy.

The road ahead is clear but still very long. While ensuring safety, we must improve TPS and increase scalability. Make the Layer-2 track more general, allowing more developers to innovate based on this. Another trait of a good layer2 dex is that it is necessary to reduce hardware costs and reduce maintenance costs, thereby improving fault tolerance. The above points are also ZKSwap’s future goals.

Q8 DeFi players such as Uniswap, Aave, Synthetix, have all began to explore Layer-2 + DeFi. How do you see this development trend? If you invest in a DeFi project on Layer-2, what factors need to be considered?

Jingwen: We think that in the end DeFi applications still have to create value for users. If adding L2 elements can provide more possibilities for the platform, it is worth trying for the platform. However, Layer-2 is just a choice for DeFi applications, just like choosing the underlying platform, Polkadot, or Ethereum.

When investing in Layer-2 DeFi projects, we still pay attention to the DeFi products themselves. Because the mature Layer-2 technology is for all applications and cannot be used as a strong competitive advantage. User value will also be gathered in the application layer of DeFi.

Ni Kaihao: Layer-2+DeFi is the supply side pushed by demand; because DeFi is very hot but the performance of Ethereum Layer-1 cannot support so many people coming in to play. Therefore, this demand will exist for a long time. Whether this development trend will continue depends on whether there are unicorn projects in DeFi on Layer-2. Therefore, I think that at this point in time, we still have to invest in good + broad directions, innovative and products with the potential to penetrate the market, and finally, we must invest in first movers and segment leaders.

Wangxi: For investing in DeFi projects, such as options dexes, swaps, community-based lending, and fixed income projects, the investment logic should focus on the logic of the project itself, and whether it is Layer-2 itself is not a key consideration. Maybe we will see a big migration to layer 2 in the coming months and a year.

We prefer ZK-Rollups technology because it does not sacrifice security. Uniswap and Synthetix chose ​​Optimism rollups, because it is easier, and Optimism currently has a little first-mover advantage. Let’s see how much the subsequent UNI and SNX migration process is. The liquidity will be dispersed on the original and Layer-2 (Uniswap<>Unipig), which is also a new challenge for aggregators such as 1inch. It is predicted that the technically better ZK-Rollup will have a lot of room for development.

Alex Lee: Before answering this question, I want to talk about the reason and original intention of our team to do this. We have paid attention to the direction and opportunities of Layer-2 a long time ago, but it is more difficult to realize the agreement without a user scenario. It is also from last year to the present that swap-like DEXs such as Uniswap and SushiSwap have pointed the way for us. Our team combines the DEX scene of Layer-2+swap. In short, the Layer-2 protocol provides a better and more stable platform for DeFi, giving all DeFi projects a better platform and bigger potential.

That's all from the Bitalk Roundtable.

And You can find us here🧐:

ZKSwap Official Website: https://zks.org/en

ZKSwap APP: https://zkswap.app

ZKSwap Twitter: https://twitter.com/ZKSwapOfficial

ZKSwap Discord: https://discord.gg/ZRxS8fYTDv

ZKSwap Github page: https://github.com/l2labs

ZKSwap Official Telegram group: https://t.me/zkswapofficial

ZKSwap Official WeChat Account Admin:

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