VCs bet big on layer two as StarkWare raises a staggering $75 million

Scalability is a hot investment as venture capitalists and retail pour into rollup and sidechain solutions.

As Ethereum gas fees soar and the demand for scalability reaches fever pitch, layer-two scaling solution StarkWare has announced on Wednesday a $75 million Series B funding round led by Paradigm, Three Arrows, Alameda Research, Pantera Capital and Sequoia, among others. 

The team announced the raise in a tweet:

Announcing our $75M Series B, led by @paradigm, with new investors (Three Arrows & @AlamedaResearch), and old ones too (@PanteraCapital, @sequoia, @foundersfund, @DCVC, @Wing_VC).

— StarkWare (@StarkWareLtd) March 24, 2021

StarkWare, which previously raised $30 million in 2018, offers zero-knowledge rollup technology allowing for off-chain computation and beefed up transactional throughput, and it claims to offer mainnet-comparable security guarantees. CEO Uri Kolodny has cast shade in the past on Ethereum’s native scaling efforts, headlined by the forthcoming Ethereum 2.0 upgrade. StarkWare has formed deals with decentralized exchange projects DiversiFi and dYdX, and it more recently announced an offering focused on nonfungible tokens, or NFTs, allowing for highly cost-effective mass minting:

600,000 NFTs *minted* on L2 with a single STARK proof.
Minting an NFT costs less than 10 gas, much less than a penny.@Immutable X Alpha on Mainnet imminent, massively scaled by StarkEx. pic.twitter.com/0nCXEduvUk

— StarkWare (@StarkWareLtd) March 22, 2021

So far, however, rival Ethereum Virtual Machine chains and complimentary “sidechains” have absorbed the majority of the refugees fleeing Ethereum fees. Binance Smart Chain is now home to implementations of many top projects (both official and dozens of unofficial “forked” versions), and Polygon (formally Matic) has attracted a number of NFT projects like Aavegotchi. 

StarkWare isn’t the only project to cash in on growing demand for scaling solutions as well, as the growing traffic has been a boon for scaling-solution tokens.

Multiple projects are also investigating using Optimistic Rollups, a similar solution to StarkWare’s zero-knowledge rollups, to scale. MakerDAO is planning a “game-changing” Dai optimism bridge, and Ethereum co-founder and figurehead Vitalik Buterin has crowned Optimistic Rollups as a potential “100x” improvement to Ethereum throughput that could be implemented in a matter of “weeks.”

Given the range of possible products — not to mention the eye-popping funding numbers flowing into them — it seems like a solution to scaling will come sooner rather than later.