Ethereum Layer 2 chain Polygon zkEVM entered June with a nearly 750% increase in on-chain liquidity in less than three weeks. Soaring from 2.45M USD on May 15 to 18.19M USD on June 5, the chain’s meteoric rise signals that yet another EVM (Ethereum Virtual Machine) scalability solution has arrived on the scene to carve out market share for itself. Whether or not zkEVM maintains its momentum in the months ahead, the chain’s ascent serves as yet another strong confirmation that the future of Ethereum will be on layer two – a future that was shrouded in uncertainty only eighteen months ago.

The (Desperate) Pursuit of EVM Scalability: A Backstory

Concerns surrounding Ethereum’s scalability potential came to a fever pitch in the infamous DeFi wave of 2020 when a breadth of new financial applications, users, capital, and most vexing of all – complex smart contracts – pushed Ethereum gas fees into triple-digit territory. For weeks on end in 2020 and 2021, even the most mundane ERC20 transactions often fetched a price tag akin to a dinner for two at a Michelin-starred restaurant.

Fortunately, per the entrepreneurial spirit of the web3 space, new projects came to relieve suffering users, for whom the price point was the pain point. In 2021, Polygon Labs (formerly: Matic) delivered the first layer-two solution to become a hit amongst mass market users.

But while visionaries at Polygon and elsewhere launched their layer twos in 2021, it was not until Ethereum leader Vitalik Buterin presented his ultimate vision for a scalable Ethereum in a December 2022 paper titled “Endgame” that the Ethereum community set its sights on second-layer technologies as the surest and most robust path to a secure and scalable EVM.

In the paper, Buterin dedicates particular attention to zero-knowledge proofs and their utility in zk-rollups. He also presents a future where a collection of different layer twos and roll-ups publish transactions to the Ethereum main chain in batches while competing against one another for capital and usership.

18 months later, Buterin’s suppositions remain more relevant than ever.

The EVM Scalability Race: Spring 2023

In the rapidly evolving EVM scalability scene of 2023, Polygon Labs has already delivered zkEVM, an EVM-equivalent zk-rollup, to succeed its original layer two solution Polygon PoS. zkEVM joins a host of EVM hotshots with established communities, robust DeFi ecosystems, and hefty TVLs (Total Value Locked) of their own.

According to open-source DeFi data aggregator DeFiLlama, the EVM scaling race is currently led by Arbitrum, whose suite of layer two scaling technologies has narrowly eclipsed incumbent chain Polygon PoS while capital migration is underway to zkEVM. Beyond Polygon and Arbitrum, other big players include Optimism and zkSync, whose optimistic roll-up and layer two zkSync Era respectively have already accumulated substantial capital in pursuit of the top-tier positions shared by Polygon and Arbitrum.

The Growth Drivers Picking Winners

It’s no secret that high throughput and low transaction costs have been the primary factors driving growth in users, TVL, and application development on layer twos. Early on, users flocked to leading layer two technologies for cheap, fast DeFi and NFT minting – the innovative, up-and-coming web3 use cases of 2021.

More recently, as web3 platforms have grown and evolved themselves, new protocols and use cases have emerged – many of them sophisticated and gas-intensive. Of all of the major disruptors to arrive on the web3 scene in 2022 and 2023, none has been more enticing to traders than perpetual contracts, or “perps”, as they are referred to around Crypto Twitter.

Layer two ecosystems that have successfully played home for decentralized perpetual exchanges have proven to be the most successful in building robust ecosystems. Arbitrum rose to prominence with the help of GMX, a massive decentralized perpetuals exchange that fetched a $600M USD valuation as one of web3’s derivatives platforms.

Likewise, the launch of QuickPerps, a decentralized perpetual exchange deployed on Polygon’s zkEVM, has been responsible for the lion’s share of the chain’s recent liquidity surge. Though zkEVM has enjoyed a stellar exponential runup in recent weeks, the rest of its journey to replace and succeed Polygon’s former layer two behemoths, Polygon PoS, is yet to be seen. In the grand scheme of the plight of EVM applications, the scalability race has only just begun.