Over the last five months, zkSync, a prominent Layer 2 (L2) solution for Ethereum, has experienced a sharp decline in network activity, leaving many to question its fall from grace. Once hailed for its potential to enhance scalability and reduce transaction fees, zkSync is now grappling with significant drops in both user engagement and transaction volume.
Daily active addresses on the network have plummeted by 79.7%, reaching their lowest levels of the year. In September, the network had around 92,620 active addresses, a significant decline from the peak of over 455,000 in April.
Similarly, daily transactions reached a year-to-date low of 293,000 as of July 23, down from 34.7 million in December 2023. This slump is further mirrored in zkSync’s Total Value Locked (TVL), which fell to $78.13 million, the lowest since April 2023.
The downturn is extended to zkSync’s native token, ZK. On July 3, the token was valued at $0.1908, but by the end of the month, it had dropped to $0.1461, representing a decrease of 23.43%. This decline continued into August, where the token fell by 29.3%, starting at $0.1461 and ending the month at $0.1033. September has shown no signs of recovery, with the token maintaining a downward trend through the first eleven days.
Despite efforts to revitalize the platform, such as the much-anticipated airdrop of 3.7 billion ZK tokens and the introduction of its Elastic Chain upgrade, the network has yet to see the rebound it hoped for. The post-airdrop boost in engagement never materialized, with active addresses and TVL continuing to drop.
Even the Elastic Chain, designed to resolve issues like fragmented liquidity and high fees, has struggled to draw users back to zkSync, raising concerns about the platform’s ability to maintain its foothold in the competitive DeFi environment.
What Went Wrong for zkSync?
In early June, zkSync launched its native ZK Token (ZK) alongside a highly anticipated airdrop, aiming to distribute 17.5% of the token’s total supply of 21 billion.
Normally, such events create a surge in network activity as users rush to claim their tokens. However, zkSync experienced the opposite effect, as daily user numbers and transaction volumes plummeted rather than surged.
One significant factor behind the drop in zkSync’s daily users was the mishandling of the airdrop itself. Despite meeting the eligibility criteria, many users reported not receiving their ZK Tokens, leading to widespread frustration within the community. The allocation formula, which favoured users with larger holdings and longer asset retention, left smaller holders feeling excluded.
Complaints mounted as wallets that met the criteria failed to receive the promised tokens, further eroding trust in the process. To make matters worse, discrepancies surfaced, such as one wallet receiving 104,806 ZK—surpassing the 100,000-token limit set by zkSync. This apparent violation of the platform’s own terms further damaged its credibility.
According to Adam Cochran, a partner at Cinneamhain Ventures, “The airdrop wasn’t well-planned from a Sybil perspective. The eligibility criteria were too easy for a farmer to meet and too difficult for genuine users, plus there was no anti-Sybil program in place.”
Following the backlash, crypto analytics firm Nansen clarified that it did not conduct anti-Sybil checks or provide advice on allocations for the ZK token drop. Instead, it “provided data on some specific wallet segments,” including those of “whales and known scammers.”
Meanwhile, crypto researcher Ignas pointed out that zkSync deliberately chose not to implement strict anti-Sybil measures. Ignas noted that zkSync’s press release argued, “Sybil detection often cuts out real users with arbitrary filters.”
Another unexpected issue came from Element, the largest NFT marketplace on zkSync. Despite being a major player within the ecosystem, Element claimed it didn’t receive any ZK tokens. This added to the controversy surrounding the airdrop and raised questions about how the tokens were distributed.
zkSync attempted to address these concerns, explaining that the allocation was based on several factors like transaction volume, asset duration, and organic behaviour. However, this didn’t resolve the concerns, and many users felt the clarifications failed to correct the unfairness in the process.
User confidence in the platform was undermined by these mishaps, leading to a sharp decline in network activity. Instead of the anticipated boost in engagement, zkSync saw user numbers and transaction volumes hit year-to-date lows as a result of these unresolved issues.
What Next for zkSync?
Looking ahead, zkSync has several promising developments that could shape its future trajectory. One such innovation is zkStack, an open-source framework that allows developers to build custom zk-rollup chains. These chains operate independently but remain interconnected through zkSync’s Bridgehub, offering a more modular and scalable solution for diverse applications. Building on this, zkPorter, another major extension under development, aims to keep transaction data off-chain, significantly reducing costs while improving scalability.
In terms of governance and community involvement, zkSync has made long-term sustainability a priority by dedicating a significant portion of its native token (ZK) supply to community initiatives.
Over two-thirds of the token supply is allocated to users, ecosystem projects, and investors. This distribution model is designed not only to foster community engagement but also to ensure that the platform’s growth benefits all stakeholders.
However, technical indicators are signalling potential trouble ahead for ZK, that further losses may be on the horizon. The Relative Strength Index (RSI) has dropped to 42.10 as of July, indicating weakening buying activity. Additionally, the Directional Movement Index (DMI) shows that ZK’s negative directional indicator (-DI) has crossed above its positive counterpart, marking a shift from bullish to bearish momentum. Together, these indicators indicate increasing selling pressure and a growing risk of ZK continuing its downward trajectory.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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