Crypto

Matter Labs, the company behind zkSync, raises $200 million to scale Ethereum

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pile of gold coins illustrating Bitcoin and Ethereum
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Matter Labs has raised a $200 million Series C funding round co-led by Blockchain Capital and Dragonfly. Matter Labs is better known for its work on zkSync, an Ethereum scaling solution that drastically reduces the cost of Ethereum transactions.

LightSpeed Venture Partners, Variant and Andreessen Horowitz are also participating in the Series C round. Overall, Matter Labs has raised $458 million, including a $200 million ecosystem fund to foster zkSync adoption. It’s quite a large sum of money, which means that the company will be able to iterate on zkSync for a while even though we still don’t know the full aftermath of the collapse of FTX.

Over the past couple of years, the biggest pain point with Ethereum transactions has been gas fees. In Ethereum lingo, gas fees are transaction fees. Every time you want to send some crypto assets on the Ethereum blockchain, you have to pay some gas fees.

And those gas fees aren’t variable. If you try to send $10 worth of Ethereum or $10 billion, you will pay the same amount in gas fees. Those fees vary depending on network demand. But it can be quite discouraging if you’re getting started with cryptos or want to use your cryptocurrencies for small transactions.

Many teams have been working on ways to solve this issue. They think that some transactions shouldn’t happen on the main Ethereum blockchain (the Layer 1). That’s what we call Layer 2 solutions.

ZkSync is one of those L2 solutions that have been gaining traction in the crypto ecosystem. Essentially, transactions are sent to Layer 2 nodes so they can be processed and batched together.

When there are enough transactions, a group of transactions is submitted to the main Ethereum blockchain. Once it’s on the main Ethereum blockchain, these transactions can’t be altered.

ZkSync is a zero-knowledge rollup implementation, meaning that validity proofs are generated based on hundreds of transactions and then posted to the main Ethereum blockchain. That’s the main security feature as Layer 2 transactions can’t be altered because they won’t comply with the validity proof.

Indeed, zkSync’s upcoming release will be compatible with the Ethereum Virtual Machine, which should greatly improve ecosystem support. This way, decentralized app developers can make their apps compatible with zkSync with minimum work.

Matter Labs plans to open source zkSync 2.0 through an MIT Open Source license at some point in Q4 2022. This is going to be important to make sure that there is no bug in zkSync’s smart contract code. “The one I worry about most is if we have $10B in a ZK-rollup 2y from now and it gets hacked because of a bug in the circuit constraint code or the EVM wrapper around it,” Ethereum creator Vitalik Buterin tweeted today.

So far, 150 projects have been using zkSync in one way or another. For instance, Chainlink, SushiSwap, Uniswap, Aave, Argent, 1inch, Gnosis and Curve have been implementing zkSync in their products.

Ethereum scaling solutions are going to be incredibly important to make the crypto ecosystem truly decentralized. There are many reasons why centralized exchanges like FTX exist. They let you convert fiat currencies into cryptocurrencies. But many people also use these exchanges for crypto-to-crypto transactions. Projects like zkSync will make crypto transactions easy, secure and affordable — even without using a centralized exchange.

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