IOSG Weekly Brief | The Next Focal Point of Competition: The Zero-Knowledge Proof Market

Part.1 Insight

The Next Focal Point of Competition: The Zero-Knowledge Proof Market

TL;DR;

Zero-Knowledge (ZK) technology is primarily used to enhance scalability, privacy, and credibility of various projects such as Starkware, zkSync, Scroll, Mina, Risc0, Giza, and EZKL. ZK technology requires significant computational power, leading to computational costs ranging from 10^4 to 10^6, posing a challenge to infrastructure teams. The main methods for generating ZK proofs are Proof Markets and Proof Networks. Proof Markets operate as open markets for trading ZK proofs, whereas Proof Networks have internal servers, providing a cloud-service-like experience for generating evidence. The Proof Market method allows for flexibility and cost-effectiveness as it facilitates an open market for ZK proof transactions without the need for high-end server management. The Proof Network method offers a smooth and developer-friendly experience, providing a solution for quickly and reliably generating evidence without focusing on market mechanisms. In theory, it can produce evidence rapidly because matching orders in the proof market also takes time. Challenges include testing and debugging difficulties, emerging new security issues, potential vendor lock-in, higher costs in certain use cases, and loss of token utility. Leading players are likely those companies with the highest internal demand for ZK proofs, as they can leverage existing infrastructure and professional teams to maximize hardware utilization. Emerging applications include ZK Coprocessors, ZK Attestation, ZKML, and ZK Bridges, all of which create greater demand for generating ZK proofs. In the ZK field, the blockchain industry’s preference for security, resistance to censorship, and privacy drives decentralized evidence networks, although the intrinsic security of ZK means these advantages do not require decentralization as a prerequisite. For ZK, performance is the main concern.

Introduction

The Growing Demand for ZK

After years of research in the ZK field and significant improvements in performance, ZK has finally been applied to practical applications. Talented engineers have applied ZK to:

• Scalability

• Privacy

• Data Credibility

Many interesting projects rely on ZK, such as Starkware, zkSync, Scroll, Mina, Risc0, =nil;Foundation, EZKL, Giza, Polygon, and Manta. These projects generate ZK proofs steadily and continuously every day. Currently, the most popular ZK use case is zkRU, used to address Ethereum’s scalability issues. In the past month, ZK verification has cost millions of dollars on Ethereum/Ethereum L2s.

Source: https://dune.com/nebra/zkp-verify-spending A strong increase in ZK verification cost over last year.

The chart created by the Near team showcases the fuel consumption of zkSN(T)ARK on Ethereum and its Layer 2 solutions (L2s). It includes popular Zero-Knowledge (ZK) projects like zkSync, Polygon, Aztec, Tornado Cash, Loopring, Worldcoin, Tailgun, Sismo, StarkNet, ImmutableX, and dYdX. Compared to zkSTARKs, zkSNARKs occupy 80% of the total cost in verification. Among all these projects, Worldcoin has the highest verification cost, followed by zkSync, with verification costs per Worldcoin at approximately $2 and per zkSync at about $30.

Burden of Proof Infrastructure

ZK technology can address scalability issues but comes at a cost requiring significant computational power. The computational overhead introduced by ZK is substantial, and Rollup teams have to deal with this issue. @_weidai estimates that current ZK technology incurs computational overhead ranging from 10^4 to 10^6. Theoretically, a tenfold reduction in computational overhead could be achieved through specialized circuits, and adding a virtual machine layer could result in a hundredfold increase in overhead. The chart below, based on Moore’s Law, depicts the growth in computational power over the years, showing a tenfold improvement in chip efficiency every decade since 2000. If we use the year 2000 as a baseline for comparison, the computational power in 2025 will have increased by 784 times, indicating that current ZK computation is still not on the same scale as in 2000.

Source:https://visualize.graphy.app/view/04f82b27-3654-47eb-83e8-3981f6e258be

Consider this: we are attempting to increase transaction volume by ten to a hundred times with ZK Rollups (ZKRUs). With the increase in transaction volume, we’ll also face computational overheads ranging from 10^4 to 10^6. These figures put enormous pressure on the infrastructure teams of ZKRU. Leading ZKRU teams are using high-end machines with at least 200 GB of memory and have talented operations staff to handle the complexity of this infrastructure. So, what does this mean for a small team if they want to launch a ZKRU or build a Layer 3 solution using the ZK tech stack? How can an independent developer afford these high-end servers and operate them correctly if they want to build ZK Dapps? Starting a ZKRU is not difficult now. You can use the ZK Stack and deploy a new ZKRU following the guidance in the documentation. The hardest part is making the high-end infrastructure work. Managing a fleet of servers is much more challenging than maintaining our personal laptops. Moreover, hardware acceleration is not plug-and-play; depending on the zero-knowledge proof system they use, different teams need different configurations for their servers. Ensuring high availability is also a tricky issue. What if your ZKRU starts minting Ordinals by a multitude of users, and you suddenly face a 1000x throughput? Even experienced teams like Arbitrum have experienced hours of downtime due to a surge in Ordinals transactions. Producing a large volume of zero-knowledge proofs requires support from high-end servers. For medium and small teams, setting up and maintaining a range of high-end servers will be a heavy burden. To better assist groups in quickly adopting zero-knowledge technology, emerging projects are attempting to help these groups handle all the complexities of computational infrastructure.

Proof of Market

Source: IOSG Ventues

Proof of Market and Proof Networks are two main approaches. The Proof Market is like an open market. To generate a proof, users need to find a transaction party willing to sell proofs at a certain price. Proof Networks are similar to traditional cloud services, where developers submit their circuits and inputs, and centralized load balancing distributes the internal servers within the proof network to generate proofs for users. The Proof Market is a popular method in the ZK proof infrastructure. It is an open market where buyers and sellers trade ZK proofs. Teams in the ZK proof market do not need to worry about ZK proof hardware or own high-end servers; they focus on ZK proof transactions and verification mechanisms to attract third-party hardware suppliers. The Proof Market is a more open approach. It welcomes third-party hardware suppliers. As long as there are sellers of such proofs, buyers can purchase ZK proofs at a dollar price. In the verification of proofs, not everyone in the market needs to reach a consensus, only the market operators bear the verification responsibility. In the Proof Market, zkDapp developers submit a ZK proof order, including price, generation time, timeout, and public inputs. Then third-party hardware suppliers will accept the order and generate the proof. The economic structure of the Proof Market is simple. Proof generators need to make a deposit. If they produce incorrect proofs or fail to provide proof before the deadline, they will be fined. Proof generators with more deposits will be able to generate multiple proofs simultaneously. The main participants in the Proof Market industry are =nil and Marlin.

=nil Foundation

The Proof Market has sellers and buyers. The buyers are dApp developers. They pay the sellers a fee to generate proofs. Many factors influence the price of the proof. The main factors include circuit size, proof system, generation time, and input size. Here is the workflow of the =nil Proof Market:

• The proof requester sends a request to the market with an expected price of c_r.

• The Proof Market locks the c_r tokens in the buyer’s account.

• The proof producer sends a proposal to the market at a price c_p <= c_r.

• The Proof Market matches the request with the proposal from the proof producer.

• The proof producer generates the proof and sends it to the market.

• The Proof Market verifies the proof and pays the producer c_r - fee tokens.

• The proof requester gets their proof and uses it.

The market design offers a transaction-like experience. The price of proof generation changes in real-time. Below is a product screenshot of the =nil Proof Market.

Source:https://nil.foundation/

Currently, the Proof Market supports a limited number of statements, among which Mina statements proof is the most active. Specifically, the Proof Market accepts circuits based on their zkLLVM compiler and the Placeholder proof system.

Gevulot

Gevulot is dedicated to introducing decentralization to the proof market. As an open and programmable first-layer blockchain, Gevulot is specifically designed for the proof market. This first-layer blockchain is responsible for handling the distribution, verification, and reward allocation of proof requests. The prover network achieves high performance through the use of lightweight unikernels. Gevulot employs Verifiable Random Functions (VRF) to allocate proof work to a small group of provers, ensuring the system’s reliability.

Source: https://www.gevulot.com/

Users can seamlessly deploy programs with predictable costs, setting a maximum fee based on the number of cycles required for program execution. Provers are rewarded through the Gevulot network and user fees, incentivizing them to generate efficient and competitive evidence. The fastest prover will receive the most network rewards, and user fees will be equally shared among all nodes completing the proof. Gevulot supports program deployment in multiple programming languages, including C, C++, Go, Java, Node.js, Python, Rust, Ruby, PHP, etc., because Gevulot’s underlying VM, Nanos, supports x86_64 Linux ELF binaries. Gevulot is a universal computing platform supporting various languages and proof systems. Relying on Nanos unikernels, Gevulot ensures provers can easily run on different machines. All provers need to be compiled into a single unikernel image.

Proof Network

Proof Network offers a more developer-friendly approach to operation, similar to Web2 cloud service providers. Developers send payload data via REST API, and the Proof Network returns the proof to developers. Developers do not need to worry about price fluctuations or who will generate the proof.

Risc Zero has launched Bonsai using their zkVM. With the power of zkVM, users can have Bonsai generate various statements. For instance, based on Bonsai and the Risc0 VM, Zeth generates proofs for Ethereum blocks.

Source：https://www.risczero.com/

Succinct

Recently, Succinct also launched their new product. Unlike providing REST API circuits, Succinct offers a method more akin to cloud functions. Here is the user workflow:

Connect to a GitHub account and deploy circuits.

Call the API through REST or smart contracts and pass in circuit inputs.

Query results via REST API or smart contracts.

Source: https://succinct.xyz/

Compared to BONSAI, Succinct offers the following advantages in developer experience:

• Easier management of circuit codebases.
• No need for secondary circuit submissions.
• One-click deployment of smart contracts for on-chain proof generation and verification.
• Exploration of popular ZK proofs.
• A dashboard to view proof generation status.
• Support for rustx, gnark, circom, plonky2.

Source: https://succinct.xyz/

Proof Networks vs. Proof Markets

Proof Markets offer more flexibility in pricing for both buyers and sellers of proofs. They invite hardware providers to participate, which helps lower costs for buyers. However, the amount saved can vary between individuals and businesses. Centralized services like Proof Networks might offer free services to individuals while charging businesses higher fees, but provide access to VIP customer support. For instance, if a business plans to launch a new event or feature, they can reserve some computational power in advance on the Proof Network. A decentralized market may present more balanced and competitive pricing. Today, products based on Proof Networks seem to offer developers a smoother experience. They handle all proof generation tasks and support major proof systems without introducing new complexities, providing a consistent user experience. Theoretically, since order matching in Proof Markets also takes time, they offer rapid proof generation. If you’re familiar with cloud computing, Proof Networks are akin to stateless cloud functions. The =nil Foundation and Gevulot are working in the Proof Market, while Succinct and Risc0 are active in Proof Networks. Hardware companies like Ulvetanna and Cystic have also made significant contributions to improving ZK proof performance on GPUs and developing next-generation dedicated ZK chips. Proof Markets are relatively easy to start. For ZK infrastructure projects, the design of Proof Markets allows more hardware providers to come online. With their decentralized design, they can easily scale the network to meet future computational demands. In the future, we anticipate a combination of Proof Network and Proof Market designs. The goal is to provide developers with a seamless experience while integrating Proof Markets as a backend to facilitate additional computational resources. This is a direction that Succinct plans to pursue in the near future. We see similar shifts in other markets, like Infura, which owns its servers but also plans to guide licensed participants to provide infrastructure.

Source: IOSG Ventures

Who Really Needs Cloud ZK Infrastructure

Developers who wish to shorten the time to market and build lightweight, flexible applications that can quickly scale or update will greatly benefit from cloud ZK infrastructures. For applications with large differences between peak and trough usage, cloud ZK infrastructure can reduce costs. Purchasing a set of always-on servers to guarantee peak availability can be expensive and wasteful during low usage periods. Cloud infrastructure can scale on demand, enhancing performance. Outside of peak times, it can automatically release excess computational power.

Who Will Be the Leaders?

In the Web2 cloud industry, companies with the largest computational needs often lead in cloud infrastructure services. They leverage scalability, cost, team, and innovative product advantages. The same applies to cloud ZK infrastructure. Projects with the largest demand for generating proofs have the potential to own one of the most successful ZK cloud infrastructure businesses. Projects generating a large number of ZK proofs internally already have extensive infrastructure, optimizers, and professional teams. By sharing proof resources across applications, they can maximize hardware utilization; when an application doesn’t need to generate proofs immediately, the prover can be repurposed for other uses. These large projects have their own proof systems to some extent. It’s often difficult for third-party proof infrastructure to optimize for the variety of proof systems used by different large projects. By offering fast and easy-to-use cloud provers, large projects can effectively expand their proof system ecosystems. For ZKRU, cloud ZK infrastructure can increase its fork usage. Launching a new layer 2 or 3 on these ZKRU is not difficult, but maintaining ZK infrastructure can be costly. Offering plug-and-play, flexible cloud provers can help attract more developers. Currently, most developers use OPRU SDK to build new layer 2 or 3 because the corresponding infrastructure is easy to manage. Without building their own ZK infrastructure, these large ZK projects would need to pay high fees to third-party computing providers. They would also be limited in development speed because they couldn’t always customize their infrastructure to further improve performance and reduce proof costs.

Who Has the Greatest Demand for Zero-Knowledge Proofs?

Besides ZKRU and layer 1 networks, we’ve recently seen more emerging applications of zero-knowledge proofs with a huge demand for proof generation. Zero-knowledge coprocessors enable smart contract developers to access past blockchain states without trust. They generate zero-knowledge proofs for these past blockchain states, offering a more secure, trustless alternative to existing methods. Zero-knowledge authentication allows users to bring off-chain data or identity information onto the blockchain. After these data are verified off-chain, a zero-knowledge proof is generated and placed on the blockchain. Zero-knowledge machine learning makes on-chain inference possible. Computing providers perform ML computations off-chain, generate a zero-knowledge proof for it, and then publish this proof on the blockchain. Zero-knowledge bridges are a more secure version of cross-chain bridges. They generate storage or even consensus proofs for the source chain and place them on the target chain, potentially replacing current cross-chain bridges.

What’s Special About Decentralized Proof Networks?

In the blockchain industry, decentralization is a highly valued narrative. Decentralization offers several benefits:

• Security
• Censorship resistance
• Privacy

Zero-knowledge proofs inherently possess security. Anyone can easily and quickly verify a proof to ensure the prover’s honesty. In the ZK domain, decentralization is not a prerequisite for security. Zero-knowledge proofs focus on complex underlying details, constructed into circuits. While the contents within these circuits are extremely difficult to censor, censorship can still be effectively implemented by targeting ZK proof requestors. For proof networks, privacy could be an issue, as users send private inputs to the proof network. The ideal solution would be to generate proofs locally to prevent any data leakage, posing a challenge to local performance. Other solutions might include a new zero-knowledge multi-party computation protocol or generating proofs in trusted execution environments. A decentralized proof network does not inherently offer more privacy. Besides narrative, resistance to censorship might be the main reason to build a decentralized proof network. Zero-knowledge proof technology is still in its early stages, and so far, we have not observed any form of censorship in this domain. However, the main challenge hindering the development of zero-knowledge proofs is performance. Introducing a decentralized proof network might lead to increased computational demands for generating proofs.

Conclusion

The application of zero-knowledge proofs (ZKPs) is rapidly advancing and has a broad range of applications. We anticipate seeing ZKPs integrated into various technology stacks. We have already observed ZK layer1, ZK layer2 networks, ZKML, ZKVM, and ZK-Email. Developers are also building ZK oracles, ZK data sources, and ZK databases. We are on the path to “ZK everything.” The computational overhead brought by ZK forces developers to deploy their circuits on high-end servers. Therefore, we expect an increased demand for cloud ZK proof infrastructure to help developers overcome the complexities of infrastructure operation.

In this domain, our insights include:

• Proof markets and proof networks are two main approaches that can help ZK dApp developers avoid the complexity of infrastructure.
• We anticipate a hybrid approach that combines both proof networks and proof markets mechanisms.
• Not all ZK dApp developers are suited for cloud ZK infrastructure. Medium-scale projects with stable traffic can self-host servers to reduce costs.
• Leaders in cloud ZK infrastructure will be projects with high demand for generating a large volume of ZK proofs, such as leading ZKRU. They have economic incentives to engage in this business.
• Decentralization is a major narrative in the crypto space because decentralization brings privacy, censorship resistance, and security features. ZK proofs already have some of these features. Currently, the selling point of decentralized proof markets is their censorship resistance.
• The popularity of cloud ZK proof infrastructure is closely related to the number of ZK dApps on the market. Although some projects initially emphasized their cloud ZK proof infrastructure as a key feature, many will eventually shift their focus to other new narratives.

Part 2: Investment and Financing Events

Game NFT DEX and inscription protocol EZSwap completed a $1 million new round of financing led by the EOS Network Foundation (ENF), with IOBC Capital and Momentum Capital participating. This funding will enable EZSwap to expand its technical capabilities and innovate within its domain, enriching the entire EOS ecosystem with its game solutions and extended cross-chain functionality. EZSwap has launched on EOS EVM by the end of December.

Binance Labs announced an investment in Memeland’s native ecosystem token, Memecoin (MEME), a project by 9GAG focusing on building and investing in SocialFi and the creator economy, leveraging meme internet culture to connect creators and the community with its MEME token and NFTs.

DeFi trading platform Bracket Labs completed a $2 million seed round of financing and announced the official launch of its volatility market product Passages on Arbitrum, providing a platform for users to bet on market volatility over a 2-day period.

Etherscan completed the acquisition of Solana ecosystem block explorer Solscan.

AI startup Perplexity closed a $73.6 million Series B funding round at a valuation of $520 million, with participation from IVP, NEA, Elad Gil, Nat Friedman, Databricks, Nvidia, and Jeff Bezos through Bezos Expeditions, bringing its total funding to $100 million.

Part 3: IOSG Post-Investment Project Progress

Starknet announced a community vote on January 10 to deploy version v0.13.0 update on the mainnet as part of its 2024 roadmap, planning to reduce transaction fees on the v0.13.0 testnet and introduce new transaction types v3 transactions.

Scroll aims to reduce cross-chain costs by 50% and ensure compatibility with EIP 1559 transaction types and SHA256 precompiles, among other updates.

Celer Network announced cBridge support for BRC-20 tokens, connecting the Bitcoin network seamlessly to the EVM ecosystem.

Astar Network plans to release updates including dApp Stake v3, token economic model, and Astar zkEVM in the coming months.

Mina Protocol plans to deploy the Berkeley upgrade this year, bringing performance enhancements without compromising scalability or decentralization.

Arbitrum’s Orbit platform added support for custom Gas tokens, enhancing its ecosystem by allowing specific ERC-20 tokens to be used for transaction fees.

IoTeX is preparing to launch W3bstream, a Layer2 network designed for DePIN, capable of compressing a large amount of off-chain data into smaller, verifiable zk-proofs to trigger on-chain transactions.

Synthetix released the Andromeda version on the Base network, introducing a buyback and burn mechanism for SNX tokens.

Part 4: Industry Pulse

BendDAO: BDIN Launch is Now Live for 24 Hours

NFT

BendDAO has announced on Platform X that the BDIN Launch is now live and will last for 24 hours. According to previous reports, a total of 100 million BDIN tokens will be issued, with 60% being released on BendDAO, 5% allocated to Turtsats Launchpad, another 5% to Bakery Launchpad, and the remaining 30% distributed within the BRC20 ecosystem.

Sui Ecosystem Lending Protocol Scallop Launches Airdrop Points System

DeFi

The Sui ecosystem lending protocol Scallop has announced on Platform X the launch of its Scallop Airdrop Points System, with snapshots completed before January 1, 2024. The first phase aims to support Scallop’s early supporters, including Zealy participants, verified Sui Scalloper roles on Discord, and lenders and borrowers on the Scallop platform.

Unibot Now Offers a Solana-specific Trading Bot

Trading Bot

The Telegram Bot project Unibot has announced the launch of a Solana-specific trading bot, “Unibot on Solana,” opening phase one access to early users. Key features of Unibot on Solana include support for advanced limit orders, embedded charts and token analytics, advanced routing, and trading priority strategies, along with built-in Ethereum and Solana bidirectional bridging.

STEPN Development Team’s New Game Gas Hero Public Beta Version Goes Live

Game

According to official news, the public beta version of the Web3 game Gas Hero, developed by the STEPN development team Find Satoshi Lab, is officially live.

Sleepless AI: Plans to Launch a Second Batch of NFTs

AI & NFT

Web3+AI gaming platform Sleepless AI has indicated on Platform X that it is planning to launch a second batch of NFTs.

UniSat: Will Follow the Ordinals Jubilee Upgrade Without Splitting into an Isolated Protocol, Whitepaper to be Released by the End of January

Inscriptions

Bitcoin inscription wallet UniSat Wallet has stated on Platform X that UniSat will follow the Ordinals Jubilee upgrade, ensuring brc-20 remains on Ordinals without splitting into an isolated protocol. Moreover, the UniSat whitepaper is set to be released on January 31, 2024.

Bitcoin Inscription Project Rune Alpha Now Has a Trading Market Open

Inscriptions

The Bitcoin inscription project Rune Alpha announced on social media platform X that its trading market has launched. Previously, on December 29, Rune Alpha announced that the trading market would open on January 3, initially featuring COOK, PSBTS, GROK, X, and GOONFI.

Ethereum Devcon 7 to Take Place in Bangkok, Thailand, from November 12 to 15

ETH

The Ethereum Foundation has announced that Ethereum’s developer conference, Devcon 7, will take place from November 12 to 15, 2024, in Bangkok, Thailand. This Devcon is not just a venue announcement but an expansion of vision, positioning the entire Southeast Asian region as a stage for community gatherings. The Southeast Asian Ethereum community plays a key role in the global cryptocurrency space, with the region’s rapid growth showing prominently in global cryptocurrency adoption indices. The Devcon team has launched the “Road to Devcon (RTD) Grants” program to support new Ethereum events, grassroots communities, and educational initiatives in Southeast Asia.

Bitcoin Core Developer Luke Dashjr’s Proposal to Limit Inscriptions Fails and is Closed

Inscriptions

A proposal by Bitcoin Core client developer Luke Dashjr, “datacarriersize: Match more datacarrying #28408,” discussing the limitation of inscriptions, did not pass after deliberation by several developers and has now been closed.

Non-profit Organization Better Markets Once Again Calls for the SEC to Reject Bitcoin Spot ETF Applications

ETF

The non-profit organization Better Market has stated that approving the product would be a historic mistake, causing significant losses to investors. Better Market’s CEO, Dennis Kelleher, a prominent critic of cryptocurrencies, has consistently criticized the virtual asset industry as being fundamentally predatory. Additionally, Kelleher’s close relationship with SEC Chairman Gary Gensler, established during his time in President Biden’s transition team in 2020, may influence the decision on Bitcoin spot ETF approvals.

The SEC May Notify Issuers About Bitcoin Spot ETF Approval Decisions Next Week

ETF

According to sources cited by Reuters, the U.S. Securities and Exchange Commission (SEC) may notify issuers of Bitcoin spot ETFs of their approval as early as next Tuesday or Wednesday.

Eleven Bitcoin Spot ETF Applicants, Including BlackRock, Have Submitted Revised 19b-4 Documents

ETF

Eleven Bitcoin spot ETF applicants, including BlackRock, Valkyrie, Ark Invest, Fidelity, Bitwise, Grayscale, Hashdex, Invesco, WisdomTree, Franklin Templeton, and VanEck, have submitted revised 19b-4 documents. The 19b-4 form is a proposal for a rule change by a securities exchange to allow ETF trading.

About IOSG Ventures

IOSG Ventures has been investing in the crypto industry since 2017 and is an early investor in key verticals of Web 3.0. As a research and community-driven native crypto fund, we work long-term with outstanding early projects and protocols, contributing to the industry’s development and innovation. Our portfolio includes a range of creative and high-potential projects such as ZKRU (Scroll, StarkWare, Arbitrum, zkSync, Taiko), Security Auditing (Runtime Verification, Hexens), MEV (Flashbots, Blocknative), DeFi/NFT-Fi (1inch, MetaMask), FOG (Big Time, Illuvium), and leading projects like Arweave, Cosmos, Celestia, EigenLayer, Scroll, zkSync, Nil Foundation, and Mina.

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