A Crypto Pragmatist Deep Dive: SKALE Network

Disclaimer:

This is the second sponsored deep dive we’ve posted. In this article, we will go in depth on a protocol we’ve partnered with and explain to you how the project works. While we’ve been paid to write this post, it represents no endorsement to purchase the token of the project mentioned below, nor is it an endorsement of the product. It is simply an educational primer on the products and history of a specific crypto protocol, in this case, SKALE Network.

You can see our entire crypto portfolio disclosed here and our piece on how we manage our advisory token allocations here.


In the crypto space, with so little fundamentals to operate off, sometimes it’s tricky to understand the true value of a project. Many detract alternative-layer 1 networks for this reason–what is Solana really trying to do, they say, if it’s not decentralized? What is Fantom accomplishing as an Ethereum clone with less network effect?

If it has no fee revenue, no economy of scale, a limited community, well, how can we even value it?

We value new networks like these based on their new assumptions, their new, unique selling points. In some ways, it’s an error to evaluate these projects on the same metrics as their competitors (Fee Revenue, DAUs, throughput). In fact, what we should really do is value them on their differences:

  • The different approaches they take to consensus
  • The different assumptions they make on execution and roadmap plans
  • The different steps they take to building out a community

Ethereum makes the assumption that the first, most decentralized network will win. BNB Chain thinks that a more centralized, but more inexpensive chain will win broad adoption. Bitcoin avoids smart contracts entirely.

And arguably, all of these networks are successful based on this uniqueness: in a world of forks, copies, and open-source code, it sometimes feels rare to get something completely novel. Uniqueness seems to breed success; most copies are just making an adjustment; not creating a whole new niche.

The world of startups has a term for these category-defining differences: USPs, or Unique Selling Points. And Skale Network, the blockchain startup that sponsored this post, and the one we’ll be chatting about today, is one of those rare networks full to the brim of unique selling points.

What are the USPs that make SKALE worth looking into?

  • It’s an Ethereum Layer 2 scaling solution, in part inherting the security of Ethereum
  • It’s a gas-free network: it’s totally free to transact on for users
  • SKALE encompasses different types of networks under its architecture: architectures that can be used by enterprises, architectures that can be used by GameFi projects, as well as the larger permissionless networks that we see in projects like Ethereum and Solana


But to understand how SKALE can encompass all of these possibilities in a single architecture, we have to understand a bit about the technology it uses first. We’ll break down it’s POS Sidechain/EVM architecture here:

Competitor Layer 2 network Polygon has occasionally come under heavy fire for being ‘just a sidechain.’ While it claims to be an Ethereum Layer Two scaling solution, sitting on top of Ethereum’s Mainnet, it is in fact, just a separate chain that ties itself in branding and positioning to Ethereum–although it’s making strides to actually settle back to Ethereum’s Layer 1 with new tech that will be deployed someday.

So what about SKALE? Is it just another sidechain? Well, yes and no: SKALE is a sidechain that operates in parallel to Ethereum, yes. But it is also a network that relies on Ethereum for parts of its security model, giving it more collusion resistance and security than sidechains that are only as strong as their native validators.

See, SKALE produces shards and pooled-security chains as opposed to completely independent sidechains, which lets individual SKALE chains share the security of the entire SKALE and Ethereum Networks. Simultaneously, SKALE, despite having an independent consensus model, relies on Ethereum to pick a random autonomous node until the network as a back up–there are no outages as with networks like Solana. Security for SKALE itself is run on a proof-of-stake consensus mechanism, one you can read a bit more about here.

This, all in all, theoretically gives SKALE the security properties of Ethereum with the scaling properties of competitive Layer 2s. And with a ZK-chain in the works, SKALE will be positioned in multiple ways to be the L2 of the future.

What Future is SKALE Building For?

No one can be 100% positive on where crypto is heading in the long-term. Perhaps everything besides Bitcoin fails. Perhaps enterprise blockchains take over. Perhaps Alternative Layer 1s fall apart, and Ethereum scaling solutions are the networks that bring crypto into the mainstream.

When evaluating SKALE Network, there are three ‘universes’ we must rectify:

  • The way the world will look in the future
  • The world SKALE is building for
  • How we think the world will look in the future

If all of these worlds converge, we’ll likely be happy campers. And SKALE is building for multiple assumptions; four worlds that we can classify into categories:

1. App-Specific Chains

The SKALE team believes that Ethereum will be the smart contract platform that ultimately wins–it’s a view that’s shared among many observers in the crypto space, and a view that we at Crypto Pragmatist are highly convinced of as well. But SKALE chains won’t pay gas back to SKALE, or (someday) Ethereum at all–the business model for SKALE is around a subscription fee paid back to SKALE validators.

A new SKALE chain can be spun up for any purpose; want an easy, out of the box chain? Pay a small fee, and enjoy gas-free transactions for your entire network using a SKALE network. These chains can have a single app or many apps running on top of them.

Interestingly enough, the way SKALE has created a viable scaling solution on Ethereum isn’t a one way street. SKALE, in many ways, executes on the same plan as Ethereum–creating a system based on pooled security, sharding, and staking. In fact, while Ethereum hasn’t directly copied SKALE, it’s surprising how much the Ethereum roadmap has in common with how SKALE has already executed.

Let’s look at sharding as an example. The original idea of sharding, or breaking a blockchains’ database into many pieces and distributing it across validators? SKALE already has implemented a dynamic sharding approach well in advance of Ethereum’s eventual adoption of the technology, slated for 2024.

2. Ethereum-Based Scaling

The second thing SKALE builds for is an Ethereum-based future: SKALE does not imagine many Layer 1 networks, but a host of Layer 2s that all rely on the most secure and most important network in existence today–Ethereum. That’s why SKALE has built itself out as a Layer Two, relying in part on Ethereum but also designing in a way that makes it cheaper and quicker than Ethereum Layer One itself.

To be fair, though, the Zero Knowledge-proof based network that SKALE is currently working on will operate, on some level, as an independent network (post EIP-4844, no Ethereum Layer 2 will be required to pay rent to the base layer). This will tilt the tables well in favor of Layer 2s (and SKALE) over other Layer 1 networks (Solana, Avalanche, etc.)


3. Enterprise Use

Is there room for SKALE Chains here?

A third competitive advantage and design philosophy that SKALE relies on is the idea of enterprise use cases for blockchain tech.

While that starts with making sure their architecture is friendly and useful for large organizations, it also requires a strong business development team and the technical ability to easily and quickly spin up a new SKALE chain. The fact that SKALE operates so far with zero gas fees is a strong competitive edge as well; many enterprise applications eat the cost of gas fees to help push adoption forwards (Starbucks and Reddit among them). With millions of users, SKALE requiring no gas fees is a big selling point for big corporations.


4. The Use of Permissionless and Permissioned Blockchains

An age old adage: ‘use the right tool for the right job’. Right now, open-source, permissionless, censorship-resistant blockchains have dominated, but will highly-regulated US-based banks be eager to use a network that the US government has not been even slightly supportive of?

The architecture of Skale, with the ability to build-out customizable, permissioned enterprise networks, while still settling back to the security of Ethereum, seeems compelling for many types of applications: whether you’re an app looking to build on an indepedent chain, an enterprise or corporation looking to explore, or a decentralization maxi looking to pick up the security properties of Ethereum, SKALE has a strong selling point for anyone looking to build.

What is SKALE Good For?

In the future, will users onboard to monolithic Layer 1 or Layer 2 networks like Ethereum, Polygon, Solana? Or will users onboard directly to applications?

Let’s look at the past to get some clues. Did people onboard to Microsoft so they could use Windows 97? Or so they could use Word, Outlook, and Excel? Was it the iPhone that brought smartphones mainstream? Or was it an improved interface for phone calls, Maps, watching YouTube videos, and listening to music?

A strong app ecosystem versus a lackluster one

In many cases, while a new platform might drive geeks and first adopters, it’s the widespread proliferation of new applications that drives the mainstream to use blockchains. Perhaps we can work backwards from this logic as well; is the most important factor for a new network its features and capability, or the ease of which a developer can create and deploy a new application?

Do we need forks of existing apps deployed across all networks, or do we need novel apps on differently-capable networks. (Ethereum for DeFi, but Skale for GameFi and enterprise applications, perhaps).

I think the future looks a lot more diverse, exploratory, and creative than the crypto past. DeFi has proved fertile ground for speculation, but it’s likely that GameFi and these consumer-focused apps will focus on more flexible, inexpensive, and customizable networks than deploying on something like Ethereum: and that’s what SKALE is good for: inexpensive, fast, adaptable, and secure blockspace that settles back to Ethereum.

How Does Skale Network Win?


When I talked to Skale Network CEO, Jack O’Holleran, I asked him his goal, with the project, and he was explicit. He wants to bring blockchain to next billion users, and the decisions and roadmap that SKALE is executing on clearly illustrate the dedication to these goals. See, SKALE is not a network that has thrown billions in dollars at its ecosystem to try to gain an early lead for its developers, nor is Skale an ecosystem like Ethereum that has the advantage of being a first mover.

SKALE, while not quite yet a name as widely known as Polygon, Arbitrum, or Optimism, is a chain that refuses to endure mischaracterizations: Skale is an independent blockchain that sits parallel to Ethereum, yes, but in no ways is it just a sidechain.

As we touched on above, SKALEs security model is arguably more robust and (ha-ha) scaleable than something like Polygon, which protects against collusion attacks only to the extent that 2/3rds of the validators stay honest. But what does this tech mumbo-jumbo mean?

Think of SKALE’s POS network as a factory-built V8-engine, powerful and reproducible. Since SKALE chains can inherit security, this V8 model can be applied to any project or network that decides to spin up its own SKALE chain–all connected to the SKALE network.

In this analogy, we can see how SKALE can easily turn into the Ford or Toyota of blockchains, with projects, companies, and enterprises looking to build their own networks on top of it. Perhaps in this analogy, Ethereum is a custom subway line: powerful but not adaptable enough, and too expensive for private use.

And something like Polygon would be a custom-ordered V16, powerful as well, but not reproducible. Let’s conclude; SKALE is:

  • A network that can be replicated for many use cases
  • A network that can be used permissionless or gated for enterprise use
  • A network that settles back to (and thus shares security with) Ethereum
  • A network that shares compatibility with other EVM ecosystems

Altogether, this feels quite compelling. While SKALE hasn’t really commanded meaningful developer or user adoption (yet?), it does feel like SKALE manages to get remarkably close to checking all of the boxes necessary:

What Exists on SKALE today?

As of today, the SKALE ecosystem is growing but does leave room for more to be desired. The network hosts:

  • Decentralized Exchange Ruby
  • CryptoBladez, the top blockchain game in the world
  • Crypto Coliseum, one of the top 10 games on Polygon
  • OwnYourSteram, a pre-launch service set to mint pieces of stream to create NFT assets
  • Ecommerce platform Solydaria
  • Fireside, a Web3 social NFT product launching with 50m followers.
  • Experimental cryptography and messaging protocols
  • An NFT ticketing project
  • NFTrade, a project enabling users to buy and sell NFTs using SKALE Network

And these are just SOME of the apps available…

You can explore the rest of the SKALE ecosystem here–we welcome you to try it out, as it’s an instantaneous and free experience.

Competitors:

SKALE faces abundant competition, challenging other Layer Two networks such as Arbitrum, Optimism, and ZK-sync while also competing with networks like Solana and Avalanche for adoption by users and enterprise/consumer apps.

Thankfully, SKALE has a response for nearly every competitive advantage:

On a performance level, the L2 network is superior to Ethereum and competitive with Solana, Avalanche, and Polygon’s current sidechain model–it doesn’t have the adoption and developer traction yet, but it is competitive from a performance standpoint.

Among Layer Twos, the SKALE model has meaningful advantages over optimistic rollups, although it struggles with adoption when lined up against Optimism, Metis, and Arbitrum. ZK-rollups, which should launch before the end of the year, might be another challenge, but again, SKALE is planning to launch their own ZK-rollup. And for that launch, it will take time to roll out–but it doesn’t take any inertia from social/gaming products/NFT-gating or other bizdev initiatives.


A Conclusion (and a Warning)

Remember the startup Quibi? They raised $1.8b of dollars from the biggest media brands, celebrities, and venture capitalists in the world, with a strong thesis around the future of media programming (and even a thesis around short-form content that turned out to be correct).

Mere months after launch it had collapsed: why? No users.

The lesson? A good concept, strong backing, even strong applications are no match if users go elsewhere.

Perhaps the biggest question to be answered around SKALE is around adoption: despite Ethereum’s friction and cost, DeFi almost exclusively takes place on their Layer One network. Despite SKALE’s superior security model to Polygon, their competitor continues to secure Web2 partnerships. And despite Solana’s downtime and criticism, large consumer-focused apps like STEPN continue to build and deploy there.

So I think the biggest question around SKALE doesn’t revolve around technology or security, but a less-tangible, more important question (and one crypto as a whole would be smart to address).

“We’ve built it…but can we get people to use it?”

You can check out Skale Network here.