Ethereum ZK rollups eye Arbitrum’s market share as adoption rises

Ethereum Layer-2 scaling solution ZK-Rollup–which includes dYdX, zkSync Era and Loopring–has registered around $800 million in total value locked (TVL), ranking in the top five among layer-2 protocols. However, rising adoption of zk-rollups hasn’t translated to higher market share and Arbitrum continues to dominate the Layer-2 landscape. 

It is likely that the zk-rollup narrative is early and holders of zk-based tokens need to wait for the launch of key components that decentralize the project further, before mass adoption takes place. 

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Ethereum Layer-2 projects battle for dominance

While Arbitrum has emerged as the largest Layer-2 project by market capitalization, zk-rollups Loopring, dYdX and zkSync Era are competing for higher market share in the Layer-2 ecosystem. The zk-rollup narrative is a relatively new in the Ethereum ecosystem and the goal of these projects is to keep transaction fees at minimum while completing transactions faster. 

Within the first two months of its launch, zkSync Era captured 680,000 wallet addresses and its TVL exceeded $338 million. The growth rate of the zk-rollup project pushed it to fourth position within the crypto ecosystem. 

However, there are gaps in technology, user experience, transaction failures and slippage that have held zk-rollups back. Blockchain researcher Haotian (@tmel0211) identified these gaps in an attempt to identify a realistic timeline for mass adoption of zk-rollup projects and predict upcoming price rallies. 

These updates could catalyze the growth of zk-rollups

Holders of zk-rollup tokens such as dYdX and LRC need to identify catalysts which could fuel market share growth.  According to Haotian, these are:

• Launch of innovation mechanisms to reduce time lags in zkSync.
• Decentralization of projects’ validators.​​​​​
• Launch of mechanisms to tackle malicious nodes tracking transactions and collecting users’ IP addresses.

These changes address the current challenges that zk-rollup projects face, and are likely to drive adoption and growth in the long-term.

Holders of zk-rollup tokens could expect these changes to drive prices higher. Overall, the zkSync ecosystem is still in its early stages and there is scope for further development in the projects.