Everybody wants decentralization—but not if a simple transaction takes an hour or costs you an arm and a leg. Here’s how Zilliqa aims to become a Visa killer.
Updated May 5, 2022
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Decentralization is the Holy Grail of blockchain technology, right? But what good is a decentralized payment network if it's unusable at scale?
For any given blockchain to be adopted worldwide, it needs to be able to process high volumes of transactions. The two most valuable blockchains we have so far, Bitcoin and Ethereum, can each do 7 and 14 transactions per second respectively. This lack of scalability has negatively affected both networks over the past few years.
For instance, Bitcoiners who wanted larger block sizes (hence more scalability) split the protocol and created Bitcoin Cash (BCH). And the Ethereum network was brought to a grinding halt in December 2017, at the height of the CryptoKitties mania.
While Ethereum is currently undergoing an upgrade that should improve its scalability, only time will tell whether this works out. But aside from upgrading legacy networks, what if we had a blockchain that was built from scratch with scalability in mind? That’s where Zilliqa comes in.
Zilliqa (ZIL) is a public blockchain that’s designed to scale to thousands of transactions per second through sharding, which I’ll explain more deeply in the next section.
Zilliqa was founded in 2017 by computer scientist Prateek Saxena, tech entrepreneur Max Kantelia and venture capitalist Juzar Motiwalla and launched its mainnet in June 2019. Ever since then, Zilliqa has positioned itself as the blockchain of choice for large-scale distributed applications, including:
ZIL is the native utility token of Zilliqa, which is used to execute smart contracts, pay gas fees and reward miners and stakers for securing the network.
ZIL has a maximum supply of 21 billion tokens, with 12.62 billion ZIL in circulation today. The remaining 40% (8.4 billion ZIL) will be distributed to miners over the next 10 years at a decreasing rate.
Now let’s see what’s under Zilliqa’s hood.
As mentioned above, Zilliqa’s blockchain aims to solve the scalability issue with sharding. Here’s how.
A blockchain consists of nodes, which are devices that broadcast, verify and store transactions on the network. Zilliqa divides blockchain nodes into subgroups, called shards, each of which is responsible for processing a given batch of transactions.
This way, transaction batches can be processed in parallel and the blockchain can achieve high throughput. And since shards process transactions in parallel, Zilliqa can theoretically increase its transaction speed by orders of magnitude as more nodes join the network. Not to mention, a higher number of transactions per second equals lower network fees.
As of 2022, the Zilliqa network produces over 40,000 blocks per month, with a total of 35 million transactions processed. All the while, this only costs $0.0011 per transaction, which is over 200x cheaper than Ethereum.
Zilliqa’s security model is built on a few pillars: Practical Byzantine Fault Tolerance (pBFT), Proof-of-Work, elliptic-curve cryptography and their formally-verified programming language Scilla. Don’t worry, I promise I won’t bore you to death with too many technical details. We’ll just go over the first two pillars.
Aside from shards, there is another group of nodes in the Zilliqa blockchain called Directory Service (DS) nodes. Once a shard confirms a block of transactions, then the DS nodes will double-check that shard’s results and add it to the blockchain. All Practical Byzantine Fault Tolerance means is that at least two-thirds of all nodes must agree that a record is accurate in order for it to be added to the blockchain.
Now in Bitcoin’s Proof-of-Work (PoW) system, computers (i.e. miners) use electrical power to solve mathematical puzzles that validate transactions. But Zilliqa uses PoW to assign roles (i.e. shard, DS) to each node in a way that’s decentralized and spam-resistant.
Since Zilliqa doesn’t rely on PoW to validate individual transactions like Bitcoin does, ZIL doesn’t incur the same high energy costs. And with parallel processing, miners can process more blocks per epoch and earn more consistent fees.
Zilliqa is one of, if not the only, major blockchain that supports both mining and staking. While staking usually plays a main role in blockchain security, for Zilliqa it’s more of an add-on to incentivize users to join the network and earn up to 15.30% APR as of April 2022.
In the past month alone, the ZIL token has pumped 425% from $0.04 to $0.21, the largest percentage gain we’ve seen from large-cap cryptocurrencies in a while. All the hype was surrounding the announcement of Metapolis, a Metaverse-as-a-service (Maas) platform built on Zilliqa offering tech and infrastructure for clients to build their own metaverses.
But coins can’t go up forever. ZIL plummeted by 42% following the initial rally, with traders confused about exactly when Metapolis will launch and the Zilliqa team staying mum on the exact date. But assuming that the Metapolis launch is a raging success, can ZIL resume its rally and eventually become a top 10 crypto? Well, that depends on how competitive it is.
Zilliqa is competing in a crowded space of general-purpose smart contract platforms like Ethereum (ETH), Solana (SOL), Avalanche (AVAX) and Polkadot (DOT). But while many of these chains attempt to scale by being a bit more centralized (Solana) or moving some of the load onto Layer 2’s and sidechains (Ethereum), Zilliqa was the first blockchain to implement sharding directly on-chain while still being flexible enough to incorporate layer-2 solutions.
But even in that regard, Zilliqa isn’t without competition. Ethereum will soon support sharding on their Beacon Chain following The Merge. And Harmony One (ONE), another sharing-based smart contract platform, was created in direct response to Zilliqa’s shortcomings. Namely, the fact that machines with limited resources can’t participate on Zilliqa’s blockchain—which hinders decentralization. Let’s see how Zilliqa stacks up to three of its closest competitors: Ethereum, Solana and Harmony One.
In the following tables, we’ll compare Zilliqa to competing chains across three categories:
Total Value Locked
| Market Cap | TVL | DApps | MCAP/TVL |
|---|---|---|---|---|
Zilliqa (ZIL) | $1.6B | $27.29M | 2 | 65.31498 |
Ethereum (ETH) | $387B | $121.52B | 456 | 3.1866 |
Solana (SOL) | $38.1B | $7.46B | 62 | 5.07469 |
Harmony One (ONE) | $1.6B | $742.99M | 51 | 2.23622 |
Source: DefiLlama, data pulled on 4/7/22
A common way to value layer 1 blockchains is to divide their Market Cap by their TVL. According to Zilliqa’s MCAP/TVL, it is immensely overvalued compared to its competitors. Not to mention, Zilliqa has way fewer DApps actively capturing value on its chain.
While it’s understandable for mega-cap blockchains like Ethereum and Solana to have lower multiples than a large-cap blockchain, do notice that Harmony One has a lower multiple despite being about the same size as Zilliqa.
Staking
| Zilliqa (ZIL) | Ethereum (ETH) | Solana (SOL) | Harmony One (ONE) |
|---|---|---|---|---|
Total Staked | 610M | 34.7B | 44.9B | 759.8M |
APY | 13.87% | 4.52% | 6.08% | 7.58% |
Lock-Up | 14 days | 1 year+ | 5 days | ~18 hours |
Validators | 16 | 335K | 1,789 | ~290 |
Participation Rate | 29.86% | 8.92% | 74.09% | 45.2% |
Inflation | 5.28% | 0.54% | 8.85% | 10.59% |
Source: Staking Rewards, Messari, Misc block explorers, data pulled on 4/7/22
For starters, ZIL inflation is slightly high. But SOL and ONE holders have it worse. And while ZIL’s staking participation rate is also a bit low, I imagine this might have something to do with its dual mining-staking model.
ZIL's APY is on the higher end of rewards rates offered by major blockchains though. The only catch is, ZIL holders have to lock up their tokens for about 14 days to start earning staking rewards. But for long-term holders, that is a non-issue.
The major red flag I see with ZIL staking, however, is the fact that they only have 16 validators. Despite supporting staking for years now, ZIL remains extremely centralized in this area.
Usage
| 24h Active Addresses | Total Addresses | Activity Rate | TPS |
|---|---|---|---|---|
Zilliqa (ZIL) | 17K | 3M | 0.56% | 0.51 |
Ethereum (ETH) | 553K | 78M | 0.7% | 14.4 |
Solana (SOL) | 296K | N/A | N/A | 1,800 |
Harmony One (ONE) | 55K | N/A | N/A | N/A |
Source: Misc block explorers, data pulled on 4/7/22
As you can see, not every chain provided enough data to do a full usage comparison. So we’ll focus on what we do know. For one, ZIL’s 24-hour active addresses are on the lower end. And this is coming off a high of 40K 24 hour active addresses after the Metapolis announcement. Besides this, ZIL’s TPS is shockingly low. The Zilliqa white paper promised transaction speeds in the thousands, but I suppose the project hasn’t been able to reach its full potential yet.
On the surface Zilliqa appears to be overvalued compared to its peers, with lower TVL, DApps and Active Addresses while being centralized in regards to staking. But this doesn’t necessarily mean the coin won’t pump going forward.
If they continue to offer attractive staking yields, work on increasing transaction speeds and deliver on the Metapolis project, it’s not impossible for this coin to trade higher with an upper limit of $10 billion in market cap or ~$1 per ZIL. But that’s a big if.