An in-depth analysis of the technological strengths and progress of Type 1 Layer2 project Taiko

TL；DR

1. Taiko has emerged as a pioneering Type 1 Ethereum Layer2 solution, leveraging ZK-SNARKs technology and spearheaded by the original Loopring team.
2. Functioning as a Based Rollup, Taiko streamlines settlement, data availability, consensus, and execution processes by entrusting them to Ethereum, offering developers a seamless and efficient development experience.
3. While initial projections envisioned Taiko as a Based Booster Rollup, the current testnet and imminent mainnet iterations strategically emphasize the Based Contestable Rollup approach as the primary focus.
4. The burgeoning Taiko ecosystem is exhibiting robust growth, with a sizable community anticipated to propel its trajectory forward. Notably, the testnet has already amassed over 1.28 million addresses.
5. The project got widespread appeal and adoption within the Layer2 space. Amidst a fiercely competitive landscape of Layer2 solutions, Taiko distinguishes itself as the swiftest-growing and most promising Type 1 Layer2 initiative to date.

Title: An In-depth Analysis of the Technological Strengths and Progress of Type 1 Layer2 Project Taiko

Background

In a recent blog post titled “The different types of ZK-EVMs,” Ethereum luminary Vitalik Buterin meticulously categorized existing ZK-based projects into distinct types of ZK-EVMs, shedding light on their defining attributes and prospects:

1. Type 1 (Fully equivalent to Ethereum): Advantages include perfect compatibility with Ethereum. However, the drawback is the significant time required for ZK proofs, which Vitalik Buterin considers essential for Ethereum’s ultimate needs.
2. Type 2 (Fully EVM equivalent): This type achieves perfect equivalence at the virtual machine level but still requires considerable time for ZK verification, although less than Type 1.
3. Type 2.5 (Equivalent to EVM, excluding Gas costs): An upgraded version of Type 2 that maintains EVM compatibility while increasing gas costs for specific operations that are difficult to ZK-prove in EVM.
4. Type 3 (Nearly equivalent to EVM): This Layer2 type is easier to build with faster verification times but lower compatibility.
5. Type 4 (Equivalent to high-level languages): Smart contract source code written in high-level languages like Solidity, Vyper, or intermediate languages compilable from both, then compiled into languages explicitly designed to be ZK-SNARK friendly. This approach speeds up ZK proofs starting from high-level code but may face language-level incompatibilities.

Source: The different types of ZK-EVMs

In the current market landscape, prominent projects such as zkSync, Polygon, and Scroll predominantly belong to Type 2 and subsequent categories. These initiatives have made strategic trade-offs in terms of compatibility to bolster performance. However, echoing Vitalik’s sentiments: “By enhancing the ZK-EVM framework and refining Ethereum itself to be more conducive to ZK-SNARK technology, a shift towards Type 1 solutions is anticipated. This evolution will pave the way for multiple ZK-EVM implementations capable of supporting ZK rollups and validating the Ethereum blockchain.”

This optimistic outlook reflects a strong endorsement for Type 1 Layer2 solutions and provides insight into the future trajectory of Layer2 development. Notably, Taiko emerges as a prime exemplar of a Type 1 Layer2 project, prioritizing seamless development experiences for programmers through extensive compatibility measures. As of March 10, 2024, the Taiko testnet (Katla Testnet (Alpha-6)) has been officially launched, marking a significant milestone in the project’s advancement.

Introduction

Taiko is a ZK-Rollup protocol that mirrors Ethereum’s functionality, expanding the Ethereum ecosystem through a decentralized, permissionless, and secure Layer2 framework that accommodates all EVM opcodes. Taiko’s approach involves scaling Ethereum by aligning with the platform’s operational norms at both the technical and protocol levels. Notably, the Taiko protocol is currently open-source under the MIT license, with the project’s code repository accessible on Github for review and collaboration.

Source： Taiko in 2023: A year in review

Core Team

Founded in early 2022 and aptly named after the Japanese word for “drum,” Taiko boasts a distinguished core team led by Daniel Wang as CEO and Brecht Devos as CTO, both esteemed veterans in the Layer2 domain. Notably, Daniel and Brecht previously collaborated on the ZK-rollup venture, Loopring. According to LinkedIn profiles, with an approximate team size of 30 members, the current roster at Taiko showcases a wealth of experience within their specialized fields and a deep-rooted involvement in the Web3 landscape.

• Daniel Wang: Co-Founder and CEO

A founding figure at Loopring, Daniel Wang has held pivotal roles at prominent organizations such as ZhongAn Insurance and JD.com, in addition to embarking on multiple entrepreneurial endeavors.

• Matthew Finestone: Co-Founder

Former Business Lead at Loopring, Matthew later spearheaded blockchain initiatives at GameStop and contributed as an advisor to Wise.

• Terence Lam: Co-Founder and CSO

Former Vice President at Loopring, Co-Founder of Up Blockchain, and Vice President at HTC.

• Brecht Devos: Co-Founder and CTO

As the former Chief Architect at Loopring, he has transitioned his focus to the zkEVM source project at PSE, collaborating closely with researchers and engineers from the Ethereum Foundation and other key open-source ventures.

As Taiko continues to expand its operations, the team seeks talented individuals to fill crucial roles, including Developer Relations Engineers, Senior L2 Infrastructure Engineers specializing in Rust, and Community Senior Managers.

Organizational Structure

To ensure the effective operation of the Taiko network and compliance with regulatory requirements, Taiko has established multiple pertinent entities and organizations, with several key entities playing crucial roles:

• Taiko Labs: A dedicated research and development team focused on advancing the Taiko protocol.
• Taiko Treasury: Funded by revenues generated from the Taiko protocol, this treasury is a financial resource for the project.
• Taiko DAO: Comprising holders of Taiko tokens (TKO), this organization exercises voting rights to govern various aspects of the Taiko protocol. This includes decisions on smart contract upgrades, TKO parameters, and other protocol-related matters.
• Taiko Foundation: Operating as a legal entity based in the Cayman Islands, the Taiko Foundation oversees the growth and development of the Taiko protocol and its wider ecosystem. The foundation exclusively represents Taiko DAO and token holders, providing financial support for technical development, ecosystem expansion, maintenance, collaboration with service providers, event management, and other initiatives through grants or alternative funding methods.
• Taiko Security Council: Composed of individuals and entities elected by Taiko DAO, the Security Council is responsible for taking prompt actions in emergencies based on the needs of the Taiko protocol. The primary mandate of the Security Council is to uphold the security and integrity of Taiko, empowering them to implement upgrades or modifications to achieve this objective.

Collectively, the core team members of Taiko bring a wealth of Web3 experience, acquired mainly during their tenure at the Loopring protocol. Having fostered collaboration early on, the synergy among Taiko team members positions them favorably for obtaining resources within the Layer2 domain. By establishing these essential entities, Taiko ensures access to external resources while empowering governance token holders with decision-making authority over protocol development.

Funding History

As per publicly available information, Taiko has undergone three rounds of financing, with the most recent round occurring in March 2024, raising a substantial $15 million. A diverse array of investors has participated in supporting Taiko, including cryptocurrency exchange investment divisions, market-making investment sectors, and a multitude of domestic and international first and second-tier venture capital firms and financial institutions. The total funding of $37 million signifies a significant milestone for Taiko, providing the project with essential long-term operational capital and access to a rich pool of external resources.

Source: https://www.rootdata.com/zh/Projects/detail/Taiko?k=NjI5OQ%3D%3D

Core Technology

ZK-Rollup

Rollup technology serves as a critical component in Ethereum’s scalability solutions, operating on the principle of executing transactions off-chain and subsequently packaging transaction data into Ethereum blocks. A crucial aspect of this process involves ensuring the authenticity and integrity of the packaged content. Presently, there are two primary solutions in this realm: Zero-Knowledge rollups (ZK-rollups) and optimistic rollups. ZK-rollups leverage zero-knowledge proof technology, while optimistic rollups rely on fraud proofs for verification. The key distinction between the two lies in their proof submission mechanisms: ZK-rollups provide ZK proofs at each block settlement, whereas optimistic rollups only present fraud proofs in case of disputes. While the former offers enhanced security at a higher cost due to its complexity, the latter is comparatively easier to implement with lower expenses.

Taiko stands as a Layer2 project that embraces ZK-Rollup technology, predominantly utilizing ZK-SNARK for proof generation.

Based Rollup

Based Rollup was first introduced by Vitalik in a blog post titled “An Incomplete Guide to Rollups” in 2021, and later elaborated upon by Justin Drake in an article published on ethresearch in 2022. In essence, a Based Rollup refers to a Rollup where the underlying L1 protocol drives the sequencing. Typically comprising four layers - settlement, data availability, consensus, and execution - a Based Rollup delegates these layers to be executed by the underlying Layer1 protocol. Taiko’s architectural design, as depicted in the diagram below, aligns with the principles of a Based Rollup, adhering to the framework outlined by Vitalik and Justin Drake:

Source：https://taiko.mirror.xyz/7dfMydX1FqEx9_sOvhRt3V8hJksKSIWjzhCVu7FyMZU

Given its infrastructure built upon Ethereum, Taiko effectively functions as an Ethereum equivalent, leveraging Ethereum’s established consensus mechanisms, security protocols, and foundational framework. Nevertheless, Taiko distinguishes itself by offering enhanced efficiency and reduced transaction costs compared to Ethereum. This architectural design is the cornerstone for Taiko’s classification as a Type 1 Layer2 solution.

Based Booster Rollup (BBR)

Based rollups serve as Ethereum’s native solution for scalability, offering enhanced efficiency without introducing new risks of centralization or semi-centralized ordering. The sequencer plays a pivotal role in Layer2 blockchains by sorting transactions received from users, typically based on gas prices. Once the sequencer establishes the transaction order, it compiles and submits the transactions for execution within the block, confirming them on-chain. This process ensures transaction sequencing, and reliability, and boosts the processing speed of Layer2 transactions.

In the context of Based Rollups, each layer relies on Ethereum for execution, including transaction ordering. In contrast, conventional Layer2 solutions (non-Type 1) can significantly enhance efficiency by utilizing centralized or decentralized sequencers. In pursuit of heightened efficiency, Taiko has chosen to “Boost” its Base Rollup, a technical enhancement achieved through segmenting transaction execution and storage.

This enhancement can be likened to adding additional CPU/SSD to a computer to optimize program performance. By incorporating various Booster Rollups, Taiko maintains Ethereum compatibility while expanding the Ethereum ecosystem. This strategic approach not only reduces transaction costs and enhances throughput but also offers users an enriched and secure Ethereum experience.

Source: Based Booster Rollup (BBR): A new major milestone in Taiko’s roa…

Based Contestable Rollup (BCR)

BBR stands as a longstanding focus for Taiko’s development efforts. As outlined in the official Mirror platform, BCR represents a significant milestone after the current testnet and mainnet launches. Following the mainnet deployment of BCR, the protocol may upgrade to BBR status or introduce a standalone BBR Layer2 as part of its future roadmap.

BCR, known as Dispute-Based Rollup, introduces a dispute mechanism within the Rollup operation to ensure accurate resolution of blockchain errors (disputes) and uphold the decisiveness and certainty of outcomes. An official example is provided to illustrate this concept:

1. Alice proposes a new block.
2. Bob submits proof for the state transition from H1 to H2, with H1 being the parent hash.

Note: H2 is the hash of the new block. Bob stakes a 10,000 TKO security deposit. His proof then enters a cooldown period.

1. The state transition proposed by Bob and the accompanying proof are publicly visible.
2. Cindy noticed an error in Bob’s transition, believing it should be H1→H3 instead of H1→H2. During the cooldown period, Cindy challenges Bob’s proof by submitting her 10,000 TKO dispute deposit but fails to provide alternative proof or explicitly indicate the correct transition.

Such disputes typically result in either Bob or Cindy being correct. In such cases, the validation by a third party plays a crucial role in resolving the dispute.

Scenario 1:

1. David provides a tertiary proof for H1→H2, confirming Bob’s initial claim. David receives a 2,500 TKO reward, becomes the current validator, and stakes a 20,000 TKO security deposit.
2. Cindy loses her entire dispute deposit.
3. Bob receives his 10,000 TKO security deposit and a 2,500 TKO reward.
4. David’s proof initiates a new cooldown period.

Scenario 2:

1. David offers a tertiary proof for H1→H4, indicating that Bob’s transition is incorrect. David earns a 2,500 TKO reward and stakes a 20,000 TKO security deposit to secure his position.
2. Cindy retrieves her 10,000 TKO dispute deposit and an additional 2,500 TKO reward.
3. Bob’s security deposit is confiscated.
4. A new cooldown period begins for validating the new proof.

The above scenarios illustrate the importance of third-party validators in dispute resolution. With fewer validators, it becomes easier for erroneous proof results to be accepted. Therefore, Taiko introduces a dispute resolution mechanism where every proof except the top layer requires the original validator to stake a security deposit in Taiko tokens. This proof enters a cooldown window during which it can be disputed by others who must also stake a disputed deposit in Taiko tokens. In essence, submitting proof incurs a cost. If the original validator is proven correct in the end, the disputing party faces penalties, whereas if the disputing party is correct, the original validator faces penalties. This economic game theory approach to resolving disputes forms the core of BCR.

Core Roles in Blockchain

The Taiko protocol encompasses three fundamental roles:

• Proposer: responsible for aggregating L2 transactions from users and submitting them to L1. Individuals can apply to assume the role of a proposer
• Prover: tasked with generating ZK-SNARK proofs
• Taiko L2 node: executes transactions based on on-chain data to synchronize the chain state, encompassing roles 1 and 2, among others

The proposer publishes block data to the Ethereum network, appending blocks to the proposal block list within the Taiko L1 smart contract. The submitted data remains immutable, ensuring the determinism of block execution results. Any party can calculate the post-state root of a block. Given the deterministic nature of all proposal blocks, provers can conduct parallel proofs. Upon submission of a zk proof for a specific block and verification of its parent block, Taiko marks it as verified. Subsequently, once the Taiko L2 node validates the transactions within the proposal block, it proceeds to download and transform them into deterministic L2 blocks. Provers can submit zk proofs to L1, and validation by L1 nodes confirms the validity of state transitions through zk proofs, thereby affirming the legitimacy of the specific proposal block.

Source: Taiko’s Approach to Multi-Proofs

Throughout this process, Taiko users remit $ETH as transaction gas fees. Block proposers can collect all transaction fees from proposal blocks, with only a partial payment of $ETH required to L1 nodes (e.g., DA fees). Furthermore, proposers must burn a specific amount of protocol token $TKO to facilitate block production within Taiko L2. Provers operating within Taiko L2, upon submission of valid zk proofs, are rewarded with newly minted protocol tokens $TKO.

Source: Taiko Whitepaper

Development Roadmap

On January 15, 2024, Taiko unveiled the Katla testnet, featuring the implementation the Dispute-Based Rollup (BCR) mechanism. Updates were made to the bridge mechanism, introducing NFT bridging functionality, in addition to enhancements to the blockchain explorer and testnet website statistics. This testnet marks a crucial milestone in preparation for the upcoming mainnet launch.

As previously mentioned, following the official mainnet rollout, the full deployment of BCR will take place, setting the stage for the implementation of BBR.

Community and Ecosystem Development

Ecosystem Progress

According to data from the Taiko official website, over 90 projects have been integrated into the ecosystem. These projects encompass a variety of sectors, including wallets (with a notable presence of EVM-native wallets), NFT markets (featuring both single-chain and multi-chain options), infrastructure (such as RPC and oracle services), and DeFi applications. As a Type 1 Layer2 solution, Taiko offers a seamless migration path for Ethereum dApps, requiring minimal to no adjustments.

Additionally, the Taiko team has introduced a test token faucet, an official Token, and an NFT bridge, as well as Swap functionality and a browser.

Source: https://bridge.katla.taiko.xyz/

Market Overview

Based on data from the testnet blockchain explorer, the Taiko testnet currently boasts 1.28 million test wallets, with the average daily transaction volume showing a recent slight decline yet consistently exceeding 100,000 transactions.

Source: https://explorer.katla.taiko.xyz/

Furthermore, another metric reflecting market participants’ positive reception towards Taiko is the active engagement observed. As of March 10, approximately 674,000 individuals have shown interest in Taiko’s interactive tasks on the Galxe task platform, with over 2 million users engaging in instructional tasks. The underlying reason for these metrics likely stems from the anticipated potential airdrops associated with Taiko. Increased user participation signifies market enthusiasm and enhances the prospect of retaining a substantial user base for Taiko upon its mainnet launch.

Source: Galxe

Community Overview

As of March 10, 2024, Taiko’s presence on the X (Twitter) platform boasts 806.9K followers, while Discord has amassed 909.4K members. In comparison, Optimism has a follower count of 648K, and Arbitrum has 988K followers. Taiko’s community has demonstrated significant growth and engagement.

Competition Landscape

Advantages and Disadvantages

Taiko’s strengths are clearly defined, including:

• Permissionless and decentralized: Taiko stands out as a pioneering Based Rollup solution, distinguishing itself by eliminating centralized sequencers and relying on Ethereum validators for transaction and block ordering.
• Seamless developer experience: Taiko’s utilization of ZK-EVM (Type 1 ZK-EVM) ensures compatibility with Ethereum’s execution standards, offering a foundation for a scalable Ethereum ecosystem.
• Highly adaptable and future-proof: As a disputable Rollup, Taiko empowers application chains to customize their proof systems and embrace more efficient proofs as technology advances without modifying Taiko’s core protocol.

As previously mentioned, under the Based Rollup framework, Taiko’s MEV revenue flows back to Ethereum L1 rather than accumulating within Taiko L2, and its dependence on Ethereum for transaction ordering may impact scalability efficiency compared to Type 3 and Type 4 solutions.

Competitive Landscape

In the realm of scalability solutions, Taiko faces competition from various market players. According to data from L2Beat, as of March 2024, there have been 44 scaling solutions launched, with an additional 35 projects in the pipeline. Leading the pack are Arbtrium and OP Mainet, boasting significant locked value and user numbers.

Source: https://l2beat.com/scaling/summary

In such a competitive market landscape, technical advantages are further diluted. The core of competition lies in marketing strategies to attract users and identify “killer” applications. Presently, Taiko primarily leverages “anticipated airdrops” to continually engage users in the testnet. With an influx of testnet users, high-quality dApps receiving effective feedback and optimization during this period can increase user retention upon mainnet launch, thereby building an early user base. Taiko’s testnet interactive activities have integrated high-traffic Web3 user gateways such as OKX Wallet and Bitget Wallet and rank as the top interactive task on Galxe. These efforts underscore Taiko’s dedication to marketing and early user acquisition.

In the Type 1 Layer2 race, Taiko faces fewer competitors directly. One notable contender is Kakarot zkEVM, deploying an EVM using Cairo language to enhance EVM compatibility and expand the reliability of the Starknet ecosystem. It is important to note that Starknet itself is a Type 4 Layer2 solution; therefore, Kakarot zkEVM’s journey to becoming a Type 1 solution will require time. According to its roadmap, Kakarot will initially bring EVM to Starknet in phase one, followed by merging Kakarot and Madara into a unified stack to support L3 zkEVM in phase two. In phase three, Kakarot and Madara can combine to enable Type 1 zkEVM. Currently, Kakarot technically falls under the Type 2.5 category. While it may pose competition for Taiko in the future, Taiko’s imminent launch gives it a significant first-mover advantage.

Future Outlook

From Ethereum’s perspective, Layer2 solutions that offer strong compatibility with the mainnet can reinforce Ethereum’s dominant position and attract greater economic inflows for Ethereum miners and block builders. However, performance metrics like TPS and Gas Fees will influence user experience. As a Type 1 solution, Taiko’s strategic decision on scalability measures to meet the needs of users accustomed to Type 3 and Type 4 Layer2 solutions and optimistic rollups will be crucial for capturing market share.

Anticipated airdrops and the potential wealth effects from new public chains are continuously motivating user engagement and project interest. Yet, post-mainnet launch, the retention of genuine users and advancements at the application layer will become the primary sources of Taiko’s core competitiveness.

The technical implementation of BBR will nearly equate Taiko with Ethereum, allowing Layer3 applications on Taiko to leverage Ethereum’s native architecture for enhanced security directly—an advantage for its prospects.

Source: Inception layers | Docs

Conclusion

In conclusion, while other Layer2 solutions are still searching decentralized sequencer solutions, Taiko has introduced BBR, a Layer2 architecture that not only inherits Ethereum’s native framework but also enhances Layer2 efficiency and reduces transaction costs through Boosting. This innovative technology demonstrates significant progressiveness and market value.

The reassembly of the original Loopring team to launch Taiko has endowed the project with a wealth of resources and top industry professionals since its inception, establishing an exceptionally strong foundation for its future development.

Backed by a combination of airdrops and marketing initiatives, Taiko’s testnet participation data and community size are highly promising, signaling a commendable start. However, the competitive advantage in the Ethereum scaling market will ultimately hinge on user experience and application development post mainnet launch. The industry eagerly awaits to witness how these factors unfold!