Why Did We Invest in Scroll in the angel round? — A&T Capital
01 Financing information
Ethereum scaling project Scroll announced the completion of a new round of financing of $50 million, with financing partners including Polychain Capital, Sequoia China, Bain Capital Crypto, Moore Capital Management, Variant Fund, Newman Capital, IOSG Ventures, and Qiming Venture. The round makes Scroll‘s total fundraising $83 million, with a valuation of $1.8 billion.
A & T Capital participated in Scroll’s angel round of fundraising in 2021. As an early to growth stage venture fund for emerging disruptive technologies, here we present our analysis for this decision-making.
02 Why do we invest in Scroll?
1 ► Project Introduction
Scroll It is the solution to solve Ethereum scaling L2 (based on the consensus and security of Ethereum, build a new layer of more efficient network structure on it), led by NYC PhD Ye Zhang and industry OG Sandy, and top CS professors as the technology advisor; this solution belongs to the ZK-Rollup (ZKR) based on zero-knowledge proof, the research fruits of the team in the direction of hardware acceleration is its unique advantages over other ZKR, which will help it to achieve higher computing efficiency.
As a basic network layer similar to Ethereum, Scroll’s profit model is similar to that of Ethereum, and Scroll plans to make money by charging fees for transactions in its network (Scroll takes some of them).
2 ► Investment logic and risk assessment
1. The Ethereum scaling need is great, the market is still in the blue ocean stage, and the potential ROI is huge
The market is still a blue ocean of great size: in the scaling scheme, Ethereum 2.0 has not arrived. And solutions other than L2 are often of low security.
Within L2, OPR school performance is theoretically weaker than ZK-Rollup. Other ZKR solutions still need some time to get use cases, and the market has a window period; as the reference value of market value demand, Ethereum takes at least 16 million dollars in Gas Fee (网络使用费) per day, and the potential value of scaling is huge.
2. ZKR scheme has not been realized. Scroll has advantages over other ZKR in technology selection (hardware & software)
ZKR scheme has not been realized: ZKR project needs great technical strength. Starkware, Matter Labs, and Hermez are the only three qualified teams in the market now, but none of them have been implemented, Scroll still has the chance to become the first realized ZKR scheme and win a significant competitive advantage;
Scroll has technical solution advantages: Scroll Participated in the development of Ethereum Foundation EVM-compatible ZKR framework, with stronger orthodoxy, and its hardware acceleration solution can theoretically greatly improve the efficiency of ZK verification, which is superior to other solutions.
► Investment Risk:
1. The network effect needs to be tested:
Risk: The scheme of Scroll has not been realized, and the actual effect after realization remains to be tested.
Response plan / our understanding: Scroll team has strong technical strength at the forefront of the industry.
2. Industry competition risk:
Risk: Starkware and Matter Labs started 2–3 years earlier than scroll, and have accumulated a rich market reputation, and are strong competitors of Scroll.
Response solution: the solution that can realize first and is easy to use can quickly occupy the market, considering that Starkware / Matter Labs has not been realized, Scroll also has this opportunity.
3 ► Industry trends and current situation
Ethereum has become the “orthodox”: thanks to public chain developers from 2016 to 2020, the core “decentralized” developer community has formed a habitual dependence on the development environment of Ethereum, and the EVM-compatible environment has become the “standard” of each new high-performance public chain; besides the developer resources, Ethereum has also accumulated the most assets in the decentralized world, and the multi-chain system with Ethereum as the core is very likely to be the status of public chain system in the future;
Ethereum is “orthodox”: compared with BSC (heterogeneous chain, although it works well, still unable to attract the most innovative talent) and Polygon (Plasma scheme, it can attract a small amount of Ethereum talent) situations, Vitalik’s “orthodox” claim, to a certain extent, is real (the closer to the Ethereum’s characteristics of decentralization, the more a project is orthodox);
The denotation of Application: as a result of the above-mentioned orthodoxy (Ethereum is the safest), according to the different degrees of binding to Ethereum of different chains, their security is also different. and each application may also have the hierarchical extension, according to the value of each transaction.
Ethereum undertakes the largest and most important public facilities, DeFi (sub-secure application) immigrates to Rollup (ZKR is safer than OPR), while long-tailed markets such as GameFi, NFT, immigrate to Plasma or side chains & heterogeneous chains; one day when these applications become mature and carries more rich value, they can also move back to Rollup or Ethereum Layer1).
4 ► Project highlights
1. Product Overview
Scroll ZK-Rollup is an efficient blockchain architecture on Ethereum (so-called L2, and Ethereum is L1), where existing and newly developed Ethereum blockchain applications can run on its network;
Rollup high efficiency: it packages the transactions occurring in the L2 network regularly and then send them to the L1 network to be recorded (the L2 network can have its own consensus on the record);
The security of Ethereum is based on the verification of each transaction based on the whole network node. For Rollup network: as the status of its network will eventually be recorded on the Ethereum L1, the security of its L2 network is reflected in the authenticity of the packaged content;
ZK-Rollup is to generate a ZKP of the content of the L2 network and send the proof to the L1 network. The verified L2 network transactions are put into the L1 network.
PipeZK: In this paper published by Ye Zhang, Professor Gao et al., PipeZK realizes the paralleled acceleration for Poly and MSN (the following picture shows the basic logic of this ZKP circuit), so that ASIC computing resources are more efficient and can process the calculation of these two parts with CPU:
Thanks to the efficient ASIC, the L2 nodes responsible for ZKP generation are decentralized (previously the cost of building nodes was too high), making L2 with incentive mechanism more secure;
The ASIC, designed according to the PipeZK feature, is nearly 20 times faster than the current GPU on the ZKP of the cryptographic circuit; it can reduce the proof latency of Zcash (an anonymous trading network based on ZK-SNARK) by 5 times.
EVM compatibility: Scroll’s L2 will have full EVM compatibility (this is appealing to existing Ethereum developers); thanks to the Scroll team’s EVM compatibility under ZK-Rollup with the Ethereum Foundation EVM development team, Ethereum Foundation allows Scroll to adopt this solution as a model for the EVM-compatible framework for its L2 network.
2. Compare Scroll with other mainstream L2 solutions
Compared with the first-round valuation of Arbitrum and other four direct competitors, the first-round valuation of Scroll is reasonable;
Although the start of Scroll is later than Starkware/Matter Labs, considering the latter two are still not realized (also difficult to realize in the short term), the cooperation between Scroll and Ethereum Foundation, and high-quality hardware solution (which is difficult to copy in the short term), Scroll still has its advantages; against the four competitors, the potential of Scroll is great.
About A&T Capital:
A&T Capital is an early-to-growth stage venture fund for emerging disruptive technologies. Led by three founding partners based out of Berlin, Singapore, and Shanghai, it is supported by a global dynamic team of researchers and analysts. Focusing on Web3 and fintech, A&T Capital will discover and invest in early-stage innovative blockchain technology infrastructure and high-growth application layers. In 2021, A&T raised a 100M pool of funds. A&T Capital’s portfolios include Amber Group, Cobo, Gnosis Safe, Nestcoin, Infstones, Consensys, and Commonwealth.
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