In-depth Study of StarkWare: Technology Roadmap, Development History, and Current Status

Author: Alpha Rabbit / Alpha Rabbit Research Notes

Why study this company? Several characteristics of StarkWare:

First, although it is science and engineering-driven, the CEO has strong capabilities in dealing with VCs, as well as good PR and team organization skills;

Second, the founding team has a clear long-term strategic vision and did not rush into an ICO, spending considerable time building a developer community;

Finally, this company began considering the establishment of a profitable business model early on, achieving a good balance between technology and commercialization. Vitalik, the founder of Ethereum, is an early investor in StarkWare, and he has participated in revising many papers published by StarkWare.

What kind of story is behind StarkWare's founding and development? What pain points exist in Ethereum today, and what opportunities do L2 expansions bring? As engineering entrepreneurs, what lessons can be drawn from their entrepreneurial journey? These are some of the questions this article attempts to explore.

Market Pain Points & Company Overview

Note: This article is approximately 8000 words long, and reading time is about 25-30 minutes.

A set of macro data: How high is the ceiling?

According to research firm Markets and Markets, the blockchain technology and services market is expected to grow from $4.9 billion in 2021 to $67.4 billion by 2026.

Market Pain Points

As the crypto world continues to heat up, Ethereum has become one of the most popular crypto ecosystems. According to the Dapp market report released by Dapp.com in 2020, Ethereum saw a 32% increase in independent users and a 97% increase in active users in Q2 2020, with a total user count of 4.5 million and 1.25 million active users, and this data continues to grow.

However, the Ethereum network currently struggles to meet the global transaction load. To further improve speed and reduce transactions on Ethereum, developers are researching L2 (Layer 2 solutions for Ethereum L1), built on top of the Ethereum network (L1).

We understand L2 as a scaling solution for Ethereum, which has an execution layer that can run code independently, operating on top of Ethereum L1.

StarkWare primarily utilizes ZKP (Zero-Knowledge Proof) systems to address the current congestion issues on Ethereum, aiming to alleviate computational pressure while still writing transaction data to the main network.

Company Overview

StarkWare was founded in 2018 and is headquartered in Israel. StarkWare aims to enhance blockchain scalability and privacy through STARK (a commercialized specific type of zero-knowledge proof (ZKP) system known as STARKs) technology, providing zero-knowledge, transparency (no need for a trusted setup), and post-quantum secure cryptographic proofs.

StarkWare will develop a complete proof stack, with both software and hardware supporting fast and reliable generation and verification of computational integrity proofs for general computations.

What is Zero-Knowledge Proof?

Currently, ZKPs are being utilized, with the common form being public key cryptography. Many critical parts of the internet today, including cryptocurrencies, reference public key cryptography. However, the issue is that the scope of these ZKPs is still relatively narrow: they typically only allow someone to prove they possess a private key associated with certain public keys, and cannot yet be generalized to any arbitrary complex computation.

However, universally applicable ZKPs are also iterating and developing, although their scope remains relatively limited. Two prominent examples are privacy-focused cryptocurrencies, Zcash and Monero. Zcash uses a different type of ZKP called SNARK, allowing Zcash users to send Zcash privately around the world. Monero uses another form of ZKP called Bulletproofs to accomplish the same task.

What is the role of ZKP (Zero-Knowledge Proof)?

As the application technology of universally applicable ZKPs matures, there may be widespread applications.

Enhancing blockchain scalability: ZKPs can help scale blockchains by many orders of magnitude. There are two general approaches here: off-chain batching and recursively composing ZKPs. Among the five fundamental methods to scale blockchains, ZKP-based approaches can deliver the best results.

Powering off-chain computation in the Web3 Stack while also enhancing financial service performance: After the 2008 financial crisis, financial institutions powering the global economy had to comply with risk thresholds. Using ZKPs, these institutions would be able to prove to auditors, governments, clients, and the public in real-time that they are complying with risk thresholds without having to share confidential information on their books.

Founding Team

Science-driven Crypto Infrastructure Solutions Company

Founding Team Background: Technology-driven + Complementary Skills Team

Founders Michael Riabzev, Eli Ben-Sasson, and Uri Kolodny. Image source: StarkWare official website

Founder and CEO Uri Kolodny graduated with a Bachelor's degree in Computer Science from the Hebrew University and later earned an MBA from MIT Sloan. As a serial entrepreneur, Uri has founded several technology-oriented startups, including OmniGuide (an MIT-supported tech company for endoscopic surgery) and Mondria (a big data visualization tool development company).

Prior to this, Uri also served as an EIR (Entrepreneur in Residence) at two Israeli venture capital firms and worked as an analyst at consulting firm McKinsey.

Uri has strong capabilities in dealing with venture capital firms. He has the ability to build entrepreneurial teams and possesses rich external PR skills (we can see that StarkWare started building its technical blog early on, synchronizing its understanding of what it aims to do and scientific research results with external users).

The founder of Ethereum also frequently provides suggestions for StarkWare's papers, and Uri's relatively rich entrepreneurial experience allowed him to set a vision for the company early on and effectively execute the entire product roadmap.

Why is StarkWare considered a science and technology-driven company?

First, the technical team is led by Eli Ben-Sasson (a graduate of Technion Israel Institute of Technology, where Einstein was the first president of the academic association), Alessandro Chiesa (UC Berkeley), and Michael Riabzev (Technion).

Alessandro Chiesa is a co-founder and chief scientist of StarkWare. Before founding StarkWare, he was a co-author of the Zerocash protocol and a co-founder of Zcash, which we mentioned earlier.

In March 2021, StarkWare's scientific advisor Avi Wigderson (who is also Eli Ben-Sasson's PhD advisor) received the Abel Prize (an award given annually by the King of Norway to one or more outstanding mathematicians, named after Norwegian mathematician Niels Henrik Abel).

The technical team has over a decade of experience in ZKP systems, having jointly published the STARK paper. The team possesses relatively rich industry experience and a strong academic background in specialized technology.

Financing History & Business Data

Seed Round Investors: Ethereum Founder Vitalik

Image source: StarkWare official website

In January 2018, StarkWare raised $6 million in seed funding, with investors including Ethereum founder Vitalik Buterin (V God), Paradigm, Pantera Capital, and PolyChain;

In July 2018, the Ethereum Foundation invested $12 million in StarkWare;

In October 2018, Series A funding of $30 million was raised, with participation from Sequoia, Paradigm, Scalar Capital, Multichain Capital, Intel Capital, Semantic Ventures, and Pantera;

On March 24, 2021, Series B funding of $75 million was raised, with continued participation from Sequoia, Wing Venture Capital, Paradigm, and Pantera Capital, including Three Arrows Capital and DCVC;

In November 2021, Series C funding of $50 million was raised, with a valuation of $2 billion, led by Sequoia Capital, with participation from IOSG and others;

StarkWare Users & Business Data

In November 2021, StarkWare founder and CEO Uri Kolodny stated in an interview that the company is currently profitable, and the Series C funding is primarily to continue expanding the team and developing the ecosystem. Some of StarkWare's clients include ConsenSys, Immutable, dYdX, and Sorare.

Through StarkWare, users can access gas services at the lowest possible cost. Currently, the high gas fees on Ethereum are an inherent pain point in the market. As of November 2021, the transaction amount settled through StarkEx exceeded $200 billion, with approximately 50 million transactions conducted on StarkEx, and the user count reaching hundreds of thousands.

Regarding the uniqueness of the business, co-founder Eli Ben-Sasson stated in an interview that StarkWare has a significant first-mover advantage in terms of total transaction volume and capacity among all L2 solutions. "Over $200 billion has been settled through StarkWare, with over 50 million transactions settled."

Business Model & Main Products

What needs does it meet?

StarkWare's main contribution lies in the technological advancements in zero-knowledge academic and computational fields: first, the StarkWare team developed STARKs (Scalable Transparent Arguments of Knowledge).

STARKs are a form of validity proof with a completely trustless setup, allowing all on-chain computations to be transferred to a separate off-chain STARK prover. Subsequently, the prover must use an on-chain STARK verifier to validate the completeness and reliability of the related computations. (Remember the meaning of Starks, as we will refer to it repeatedly later.)

"Looking at the blockchain, we see something that is of tremendous use and potential but is so limited in scale," said Ben-Sasson, who is StarkWare's president. "It needs to scale dramatically and exponentially, and it needs to do so under the same principles of decentralization and openness."

Core Products: StarkWare & StarkNet

Currently, there are two main types of rollups on the market: ZK rollups (relying on zero-knowledge proofs) and Optimistic rollups. Rollups allow Ethereum transactions to be conducted off-chain, reducing the existing network congestion issues, increasing speed, and minimizing gas fees by only storing transaction data on-chain.

StarkEx

StarkEx is the L2 scalability engine developed by StarkWare, which can execute this functionality in a zero-knowledge environment through a programming language similar to assembly called Cairo. StarkEx supports on-chain/off-chain hybrid data availability solutions, fast withdrawals, ERC-721, and ERC-20, ensuring data availability.

It can also ensure that all off-chain computations are fully executed by generating validity proofs, with STARK proofs being verified on-chain before being submitted to the Ethereum main network.

StarkNet

StarkNet is a permissionless, decentralized L2-ZK-Rollup based on StarkWare's STARK zero-knowledge proof technology on Ethereum. It is Turing complete and provides EVM compatibility through the Solidity -> Cairo compiler.

What is Cairo? Cairo is a Turing-complete language, and StarkNet is based on Cairo, supporting general computations on Ethereum. Developers can build and deploy applications on StarkNet, and users can initiate transactions and execute them on StarkNet, ensuring the normal operation of the node network through incentives.

All transactions on StarkNet are periodically batched into a proof, verified on Ethereum, with all data built on StarkNet published on-chain.

Company Development History

Starting from solving technical challenges and meeting needs

StarkWare's unique scaling solution is developed from an engineering and scientific perspective, including cryptography and mathematical computation, ensuring that everything meets requirements before release. Other ZKP solutions require more computational work, but their more secure architecture makes many developers believe they are the future of Ethereum network scalability.

The founding team had a clear strategic vision early on. They immediately considered how to achieve profitability, and in their 2018 blog, they clarified their goals and strategic direction:

"We're aiming to set up a business with recurring revenues --- we're old-school that way. Getting to those recurring revenues requires an important first step: developing technology and generating demand."

StarkWare's business model primarily considers the value it can generate for users, and secondly, reshaping the entire blockchain ecosystem as a vision.

Moreover, unlike many crypto startups that immediately conduct ICOs, StarkWare made it clear in its early days in 2018 that it would not rush into an ICO. They believed they could explore a new path called Tech4Tokens (T4T).

This may be related to founder Uri's venture capital experience.

Let’s explain what T4T is: Venture capital firms invest in companies, and in return, they can gain the opportunity for value appreciation. StarkWare investing in its own technology may also yield similar returns. Imagine the team as venture capital technology experts exploring becoming a Tech Crypto Fund that invests in technology in exchange for tokens, hence T4T.

If StarkWare acts as a Tech Crypto Fund, it is an early investor itself: the earlier the investment in technology, the greater the impact on token value. We are not interested in ordinary cost-plus returns but want to derive meaningful futures from the value we create ourselves.

In the future blockchain ecosystem, talent will be far scarcer than cash, and the returns on successful venture technology experts' token investment portfolios will reflect this scarcity.

StarkWare's tokens have several potential sources: some foundations and other mechanisms that increase token supply. StarkWare believes that if tokens are to become a powerful tool for compensating technology developers, token supply will become a core element of blockchain governance.

One of Stark's visions is to become a consulting service provider, gathering excellent engineers and raising substantial funds to support R&D, building a larger and more diverse team, and providing clients with ample technical support in the future.

Balancing Mathematics Engineering Team + Product Marketing

By the end of 2018, StarkWare had grown to twenty people, with a strong combination of mathematical and engineering talent, as well as a flexible product and marketing team.

At the same time, further optimizing development strategies, focusing on the big picture while letting go of the small details. StarkWare's STARKs will profoundly improve the two most pressing issues of permissionless blockchains: scalability and privacy. StarkWare decided to primarily focus on scalability, with privacy being a secondary concern.

By moving computation and storage off-chain, StarkWare established off-chain services to generate the integrity of Stark proof computations. The proofs are then placed back on-chain for verification, saving space while maintaining computational integrity and trustless assumptions.

In summary, throughout 2018, StarkWare's engineering team built a highly technical software stack from scratch, improving the performance of verifiers and checkers and the size of proofs by at least an order of magnitude (and it continues to increase).

These achievements allowed StarkWare to successfully demonstrate a complete STARK proof system that can run in browsers and smartphones through WASM. This is groundbreaking for a transparent proof system.

In the summer of 2018, StarkWare received funding from the Ethereum Foundation.

In March 2019, StarkWare launched StarkPay, a payment scalability engine based on STARK technology, addressing many shortcomings of Lightning and L2 payment solutions. The Lightning Network was established in 2016 to scale Bitcoin. Lightning is one of the first Layer-2 solutions, cleverly proposing to move transactions off-chain while continuing to rely on the security of the blockchain. It promises to scale payment volumes while achieving low latency and minimal fees.

However, Lightning has several drawbacks: first, the payer must be online to make a payment, and the payee must also be online to sign the transaction with their private key, leading to relatively low capital efficiency. Operational security also faces challenges.

StarkPay

StarkPay aims to offer a scalable, capital-efficient non-custodial payment solution with no liveness requirements.

Compared to the Lightning Network, StarkPay has certain advantages:

First is scalability; the computational resources consumed by StarkPay increase with the number of payers and payments. Capital efficiency is relatively high, as payment processors and verifiers have no liquidity requirements, and updates to the payee's balance do not require them to be online. Deposits, withdrawals, and payments can be conducted offline and then sent to the blockchain/payment processor.

However, StarkPay also has some obvious drawbacks, including data availability. To truly benefit from STARKs' on-chain logarithmic scaling, data is stored off-chain, which poses challenges for data availability. (Data availability can be simply explained as the ability to avoid various forms of data corruption, with the more corruption avoided, the greater the reliability.)

One possible future direction is to form a data availability witness alliance that would sign specific proofs submitted to on-chain verifiers, ensuring that data is available off-chain. On-chain verifiers will not accept proofs lacking such evidence.

Expanding Business Boundaries, Entering NFT/GameFi

In 2020, StarkWare officially announced a partnership with Immutable. Immutable is the founding team behind the card game Gods Unchained built on ETH. They plan to bring StarkWare's scalability engine StarkEx into the blockchain gaming and NFT space, intending to use STARKs to prove the integrity of any off-chain computation related to game logic, strategically demonstrating the founding team's optimism about the vast potential in the gaming and collectibles sector.

https://cryptobullsclub.com/gods-unchained-token-sale/

The card game Gods Unchained achieved some success in the blockchain game ecosystem in 2020, generating nearly $6 million in revenue during its beta period and topping the NFT rankings within 24 hours of its market launch.

However, the native throughput limit of four transactions per second on Ethereum restricts any applications seeking to scale further. For NFTs, the throughput bottleneck is particularly severe, with a lack of scalability becoming an obstacle to project growth.

Nevertheless, the StarkEx solution supports Immutable in transactions and minting of ERC-20 and ERC-721 tokens, while StarkEx can provide over 9,000 non-custodial transactions per second.

In August 2020, StarkWare launched Cairo, a production-grade STARK system that is Turing complete.

In December 2020, an upgraded version, StarkEx 2.0, was rapidly launched, transitioning to a general Cairo language framework that allows for more efficient code to check complex, costly computations, improving scalability. One application case is verifying proofs by checking Merkle sub-trees instead of checking many individual Merkle paths.

StarkEx 2.0 features a fast L1-L2 connection mechanism, allowing StarkEx users on-chain to quickly withdraw and interact with other L2-L1 transactions. The decentralized exchange DeversiFi, which implements privacy transactions using L2 Validium, is planning to use this feature. At the same time, StarkEx 2.0 supports ERC-721 and is ready to support the trading of non-fungible tokens (NFTs) that follow the ERC-721 format, including upcoming large-scale off-chain minting.

This feature will also serve ImmutableX and future StarkEx clients in the collectibles and gaming sectors. The contract interface has been further improved, allowing users to deposit into any L2 account and withdraw to any L1 address.

For example, Bob can directly deposit into Alice's L2 account. Alice can directly withdraw funds to her cold wallet Ethereum address or send funds to Bob's Ethereum address. Additionally, users can now register to StarkEx through any address (i.e., the operator itself), allowing applications to eliminate the registration step from the user onboarding process, enabling users to register directly to L2. This reduces friction and improves conversion rates.

StarkEx 2.0 also supports smart contract key recovery, meaning that each Ethereum address can now have multiple L2 accounts, allowing smart contract wallets to recover their keys and enabling traders to store their funds in different off-chain accounts.

In December 2020, the Cairo toolchain was released, including a compiler, Cairo virtual machine, Tracer code debugger, and integrated development environment extensions, such as Vim and Visual Studio Code extensions that provide syntax highlighting for Cairo, marking the beginning of building a developer community.

In January 2021, based on previous foundations, StarkNet was officially built. StarkNet is a decentralized, STARK-driven L2 ZK-Rollup that supports computations on Ethereum. It is based on the Turing-complete Cairo.

As shown in the figure, developers, users, and StarkNet nodes can build and deploy applications that implement their business logic within StarkNet. Users can send transactions to StarkNet for execution, just as they interact with Ethereum today. StarkNet nodes and participants will be incentivized by a cryptoeconomic model to ensure the network operates efficiently and fairly.

All StarkNet transactions will be periodically batched, with their validity proven in STARK proofs and verified on Ethereum. Since the computational workload required to verify STARK proofs grows exponentially compared to verified computations, StarkNet will scale Ethereum by orders of magnitude.

As all StarkNet state transitions will be verified by STARK, only valid state transitions will be accepted on Ethereum. All data required to reconstruct the complete StarkNet state will be published on-chain. Anyone can run their own StarkNet node. These attributes will make StarkNet as secure and permissionless as Ethereum.

StarkWare's approach is to first solve problems, build core technology, and then gradually apply it to production development environments in small, agile steps.

In April 2021, a design for an AMM driven by Ethereum L2 was proposed, keeping liquidity on L1 while users trade on L2 (dAMM is an L2-powered AMM. It allows liquidity to be bridged on L2 while remaining unfragmented on L1). (AMM stands for Automated Market Maker, which does not require an order book; when users form and add trading pairs to a project, those providing the trading pairs are called "liquidity providers.")

In April 2021, after closely collaborating with the dYdX team for several months, StarkWare migrated dYdX's perpetual contract trading platform to run on StarkWare's L2 scalability engine StarkEx. In the same month, after announcing the partnership with Immutable X, StarkEx officially provided NFT minting and large-scale trading on the Ethereum mainnet.

In July 2021, StarkEx 3.0 was officially released. For the first time, Ethereum smart contracts can become owners of assets on StarkEx and trade these assets with L2 users through L1 Vaults. This provides StarkEx (L2) users with a low-cost mechanism to interact with external logic (and liquidity) on L1. Around the same time, StarkNet Alpha 1 was also launched, featuring interactivity between L1 and L2, as well as on-chain data preservation.

In November 2021, StarkWare completed Series C funding, at which point StarkWare was already profitable, and the funding was primarily to continue expanding the team and developing the ecosystem.

In December 2021, StarkNet officially launched StarkNet Alpha on the mainnet; earlier in the summer of 2021, StarkWare released StarkNet Alpha on the public testnet. This version supports fully permissionless general-purpose computing smart contracts. Subsequently, StarkWare upgraded it twice: the first upgrade to Alpha 1 provided L1<>L2 messaging and on-chain data availability services, followed by an upgrade to Alpha 2, supporting composability.

By February 2021, downloads of the StarkNET.JS library had reached 6.9K.

StarkNet Alpha was released on the public testnet in June and on the mainnet in November. By the time of mainnet deployment, StarkNet had provided general computing in a manner similar to Ethereum, with a relatively fast pace of technological R&D.

Investors' Perspectives

Multichain Capital participated in the investment in StarkWare, believing that as more users and developers apply the Ethereum network, venture capital is beginning to invest more funds into infrastructure startups, primarily to enhance Ethereum's scalability to attract more users and further increase transaction volumes.

Sequoia Capital invested in StarkWare as early as 2018, making it one of Sequoia's early bets. According to news reports, in 2021, about a quarter of Sequoia's investments went to crypto startups.

Other Evaluations

Potential Issues with StarkWare

For those concerned with ZKPs (Zero-Knowledge Proofs), there is a consensus in the industry that due to the complexity of mathematical engineering, STARKs are still some time away from commercialization. Historical experience shows that the evolution of public key cryptography and STARKs indeed took years to achieve commercialization.

Entrepreneurial Path

From StarkWare's overall business trajectory, the founding team's thinking is quite clear: first focus on the most important functions, and once testing is available, release it immediately while sharing the iterative process with the entire community.

Although StarkNet did not have complete functionality at launch, with continuous iterations, developers can now build meaningful and complex applications. As of February 2022, hundreds of developers have built dozens of dApps on StarkNet, with several external teams developing tools and infrastructure for the StarkNet ecosystem.

Emphasizing the construction of the developer community, feedback from the developer community is continuously integrated into StarkNet. Subsequently, after meeting the basic conditions for usability, the strategic focus shifted to improving system performance.

After that, StarkWare is preparing to further open StarkNet's sequencing and verification software to the public. Everyone can participate as a sequencer or prover on StarkNet.

The team's attitude toward entrepreneurship is to maintain an open mindset, continuously improve, listen to the community's voice, and the vision is to shape the future of scalable crypto solutions together with everyone.

What are your thoughts on the future of Layer 2?