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

• Adoption of Ethereum Layer-2 solution zk-rollups, increases even as key layers and components of the technology are not released yet.
• Arbitrum dominates scaling solutions with 66% of market share, while zk-rollups dYdX, zkSync Era and Loopring struggle to gain higher market capitalization. 
• The zk-rollup narrative is likely early as protocols are associated with the risk of instability. 

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. 

Also read: Pro-XRP attorney predicts the altcoin’s rally to $2 ahead of SEC vs. Ripple verdict

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. 

Ethereum Layer-2 projects

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.

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