It’s a huge misconception that the upcoming Ethereum merge will solve the problem of gas
fees.
This is because gas fees are simply a function of network demand.
Ethereum can only process a certain number of transactions a second, so gas fees will
increase when there’s more demand for network activity.
Over the last year, Ethereum has processed about 13 transactions per second.
After the Ethereum merge, it’s expected to increase to nearly 3,000 transactions per
second - but this may not be enough.
With enough network activity, gas fees could still become an expensive cost for users.
And this means that scalability will continue to be a pain point for Ethereum long after
the merge.
This is why so many layer 2s, or L2s have emerged, such as Polygon, Loopring and Arbitrum,
to name a few - they move transactions onto another blockchain built on top of Ethereum
to make transactions cheaper and faster, while still eventually posting finalized transactions
on the underlying Ethereum network.
Unfortunately, the creation of all of these L2s brings more issues for the future.
These L2s are not interoperable, so transacting between two different layer 2s is either impossible
or expensive.
A common analogy is that perfect L2 solutions would be like legos - they can be mixed and
matched to build something together even though they use different pieces.
Instead, L2s today are something a little more complicated because they have each chosen
unique technologies to bring scalability to Ethereum.
It’s like Polygon solutions are lincoln logs, Loopring is Knex, and neither can be
easily combined with Dapps built directly on Ethereum with Legos.
Ultimately, many L2s end up diluting the potential of Ethereum instead of adding to it.
Outside of the Ethereum ecosystem, there have been a ton of projects that aim to solve these
problems by building new layer 1 blockchains from scratch.
This includes things like Solana, Avalanche, Cardano and Cosmos, all dubbed “ethereum
killers” because they are directly competing with Ethereum.
Of course, they lack the massive ecosystem and history that Ethereum already has behind
it, so some people would prefer to fix the problems with Ethereum than migrate elsewhere.
Whatever the future holds for Ethereum, it will need a truly native, flexible and cost-effective
scaling solution to survive against competing Layer 1s.
That’s why I’m so excited to cover the SKALE Network project in this video, which
could be this perfect scaling solution.
SKALE offers a modular hybrid structure between an L1 and an L2 using multichain technology,
but still enabling all of its chains to run natively on Ethereum.
I know that’s a lot of jargon and buzzwords, so we’ll start by breaking down this technology
in simpler terms.
I’ll explain how Skale provides scalability without the shortcomings that plague Ethereum,
Ethereum Layer 2s and competing Layer 1s.
One of the coolest parts is that Skale is a completely gas-free solution for users,
so we’ll dive into how exactly it enables us to transact on Ethereum without gas fees.
And as with any crypto project, it’s important to take a look at the tokenomics to ensure
that they are favorable for all token holders, so we’ll cover that too.
Finally, SKALE seems to be getting a lot of traction in recent months especially, so we’ll
wrap up with taking a look at some of their partnerships and big things coming to the
SKALE network.
Let’s dive in!
SKALE Network Overview SKALE has 3 core pieces of technology that
sets their Ethereum scaling solution apart from the rest.
First, it’s a multichain network, not a monolithic network.
This means everything built on SKALE will get its own dedicated blockchain, whereas
many L2s force everything to run on one blockchain.
Ultimately, this keeps SKALE really scalable to prevent network congestion.
We’ll dive deeper here momentarily.
Second, it’s Ethereum native, so every SKALE blockchain is interoperable with the Ethereum
blockchain.
Conversely, many L2s require dApps to be built upon the L2 itself, where they communicate
exclusively with that L2 blockchain.
In this case, SKALE blockchains are directly connected and compatible with the Ethereum
blockchain without needing to go through a bunch of bridges or transactions.
This is possible because most of the SKALE network is built on Ethereum, where many of
its essential network operations take place.
Again, more on this shortly.
Lastly, SKALE provides a completely gas-free solution to end-users.
No other L2s or L1s can make this claim, which is one of my favorite things about SKALE.
Absolutely 0 transaction fees across SKALE blockchains.
We’ll talk about how this is possible and how SKALE has even managed to reduce gas fees
where the Ethereum blockchain is involved.
SKALE’s Multichain Approach SKALE’s first differentiator is their multichain
approach to scalability.
Most Ethereum scalability solutions focus on building a single blockchain that can handle
all of the transactions of the applications built on top of it.
For example, a blockchain like Arbitrum builds a single layer 2 blockchain that is capable
of handling more transactions per second than Ethereum, making it cheaper and faster to
transact.
Currently, Arbitrum offers up to 4,500 transactions per second according to their website, at
about 10 to 20¢ per transaction at the time of writing.
After settling tons of cheap transactions on the Arbitrum blockchain, it syncs that
data with Ethereum, paying those infamous Ethereum gas fees.
And this type of scaling solution is fine, but it could still eventually reach congestion
on the layer 2 network if demand is high enough.
SKALE fixes this by providing every dApp, protocol, DAO or whatever else its own individual
SKALE blockchain.
Each individual chain is capable of up 2,000 transactions per second depending on the size
of the chain, and furthermore, the SKALE network has the capacity for an unlimited number of
chains.
So if the transaction volume on a single chain ever becomes problematic, a new blockchain
can be added to scale further.
And you might think this would create interoperability issues between SKALE blockchains.
However, this was solved with SKALE V2 - a major recent update to the SKALE network.
With it, all SKALE chains are able to communicate with each other for free within seconds.
This means easy bridging between SKALE chains, no transaction costs or anything.
They have a great example scenario on their blog that describes how a user could earn
tokens on a play-to-earn game, effortlessly connect to a DEX to swap them for stablecoins,
move those to a metaverse application to buy an NFT, then later sell that on an NFT marketplace
- all within seconds, and without any transaction costs.
While this sounds like a logistical mess, SKALE plans to keep interoperability easy
to integrate with the creation of hubs.
Each of these hubs will be focused on a particular ecosystem, such as NFTs or decentralized exchanges,
so that it’s easy for new dApps and chains to connect to other chains that are closely
related.
With this multichain strategy, unlimited scalability and interoperability is readily available
for anyone who wants to bring a project to SKALE network.
And this isn’t far off from multichain Layer 1 solutions, such as Polkadot or Cosmos.
But, these ecosystems are starting from scratch and therefore don’t benefit from Ethereum’s
battle-tested history, security and developer community.
SKALE is Ethereum Native And this is why another huge advantage for
SKALE is that the SKALE Network is Ethereum native - here’s what that means.
The entire SKALE network is managed by a series of over 35 smart contracts that operate on
Ethereum.
These smart contracts are responsible for many of the network’s core functions, such
as chain creation, staking and more.
This is different from a Layer 2 that operates natively on its own chain, and merely connects
to Ethereum through a bridge, because very little of that activity actually happens on
the Ethereum network.
Additionally, another half of the network operates on machines that are running SKALE,
which are owned and run by independent validators for decentralization, effectively splitting
the network onto both Ethereum and SKALE.
This allows SKALE chains to benefit from Ethereum’s security, while still having access to the
huge scalability and transaction capabilities of the SKALE network.
This idea of being Ethereum native gives SKALE chains a few key advantages.
First, as we briefly mentioned, this means that all SKALE chains are immediately interoperable
with Ethereum, providing a lot more flexibility in bridging between the two than other layer
2 solutions.
Second, this means SKALE supports all of the developer tools, the Solidity programming
language, wallets and more that are native to Ethereum.
In other words, developers looking to get started with SKALE can migrate to the ecosystem
very easily.
Finally, being Ethereum native means that SKALE actually adds to the value of the Ethereum
network, instead of sucking liquidity and activity out of the network like other layer
2s.
This is because running on Ethereum smart contracts means that the SKALE network is
paying fees to the Ethereum network, aligning the incentives between both.
SKALE is Gas-Free Speaking of fees, one of the coolest parts
about SKALE is that end users can transact on the network without any gas fees.
It may sound too good to be true, but it’s simply because gas-fees are essentially prepaid
by the developers of a given chain.
Here’s how it works.
If you want to bring your dApp, protocol or whatever it may be to the SKALE network, you’ll
have to buy SKALE tokens, which trade under the ticker SKL.
You then have to lock those tokens into a smart contract to “rent” a chain.
Essentially, it’s a subscription model.
Developers pay in the SKALE token to keep their chain running for as long as they’d
like.
Every month, a portion of those tokens are paid in fees to validators and delegators
who run the network, so developers will have to continue buying SKALE tokens to keep their
chain running.
However developers choose to move forward with their chain, they’ll be given SKALE
chain fuel, or sFUEL.
This is a gas token required for transactions, but has no value.
Developers can then give these sFUEL tokens to users at their discretion, and sFUEL balances
are continually topped up for the chain owner.
This helps to prevent DDOS attacks and serves other purposes.
So ultimately, SKALE developers pay up-front to bring their users a gas-free experience
on the SKALE network.
But, this is only the case when transacting on the SKALE network.
As we discussed, half of the network operates on Ethereum, too.
So for this reason, developers will also need to have Ethereum balances to fund gas fees
for the necessary Ethereum network transactions.
Developers are encouraged to structure dApps in such a way where the users transact the
bulk of their transactions on the SKALE network, and use Ethereum only when totally necessary.
So generally, users can enjoy gas-free experiences when transacting in the SKALE ecosystem, with
one exception: and that’s bridging assets back and forth between the Ethereum mainnet.
This may not be a common activity or even necessary for most users if the SKALE system
continues to bring on more applications, but it will be required if anyone wants to move
digital assets out of the SKALE network and into Ethereum.
Gas fees are unavoidable here, but SKALE claims they’ve optimized the network to make them
as affordable as possible, typically costing about the same as a Uniswap transaction.
SKALE Tokenomics Since buying and staking SKALE is a requirement
for developers wanting to create chains on the network, let’s take a look at the full
tokenomics at play here.
In addition to being used to pay for SKALE chain deployment, SKALE tokens can be used
to work as a validator for the network or can be delegated to validators.
Staking and validating are essential parts of the network, and as such, token holders
that participate will get rewarded for doing so.
These rewards come from two sources: first, the monthly fees that SKALE chain developers
pay, and second, through token issuance, also known as inflation.
This inflation is higher in early years to reward early supporters and drops off after
6 years, diminishing over time until the network reaches its maximum token supply of 7 Billion
tokens.
Out of those 7 billion tokens, the majority is allocated to validator rewards through
this inflation schedule.
Some of the other groups you see here, particularly the team allocations, aren’t even minted
until certain unlock dates.
And while there’s a small bump in these token unlocks a couple months after the mainnet
launch in 2020, it’s great to see that most of these unlocks happen very gradually over
time.
In other words, the team is really incentivized to see this through for several years and
make the SKALE network as strong as possible.
Currently, there are almost 4.5 billion tokens staked with inflation sitting at 8.7%.
Current staking rewards can range up to 20%, but higher staking rewards will require longer
staking periods.
The shortest available period, 2 months, pays an estimated 8% at the end of the staking
period, minus any validator fees, most of which look to be around 10%.
All these numbers are from the Consensys Activate staking platform available at activate.codefi.network,
but you can also stake on Binance, OKX, MyEtherWallet and Unagii, with other options coming.
As far as staking rewards go, you can currently stake on several platforms - these include
Consensys Activate, Binance, OKX, MyEtherWallet and Unagii, and this list is still growing.
According to Unagii, the current staking rewards rate is approximately 11% APY.
You can use the calculator at StakingRewards.com to estimate your rewards with various token
amounts and time frames.
They also show that nearly 60% of the current supply is participating in staking, which
is a pretty aggressive staking rate - likely thanks to the subscription model we mentioned
earlier.
But, do keep in mind that a large chunk of these staking rewards still come from token
issuance or inflation, which started at 9.3% per year, but is currently sitting around
8% and will continue decreasing over time.
SKALE Partnerships So with that, let’s wrap up with some of
SKALE’s current chains and upcoming partnerships.
Currently, SKALE has 28 active chains on the network.
But this is growing fast, largely due to some generous grant systems helping to kickstart
development on the network.
In May 2022, SKALE partnered with Fireside for “Creatives Unleashed”, which allows
creators to apply for grants from a $100M ecosystem fund to bring their web3 creations
to market.
Fireside, of course, is the platform co-founded by both Mark Cuban and Falon Fatemi.
Their partnership is mostly focused on NFTs, an application that is well-suited for the
SKALE network.
It starts with a $5 million grant focused on blockchain gaming, which is currently open
for applications but is open to many other opportunities.
But there are already several games on the SKALE network.
Snook, an NFT game reminiscent of snake.io, is building on SKALE, which boasts 250,000
mints to date and 6,000 active users.
CryptoBlades is also building on SKALE, which boasts over 1 million users and recently had
over 22,000 NFTs transferred over to SKALE in a 6-day period.
Crypto Coliseum: Larva Maiorum is a play-to-earn NFT game that launched in June as a sequel
to Crypto Coliseum: Classic, which spent its lifetime in the top 50 list of crypto games.
Other games include Prospectors NFT, Block Brawlers and Dex Game.
And it’s not much of a surprise why they chose SKALE, because gas fees are one of the
biggest pain points for NFT investors, traders and gamers.
This is likely also why SKALE is the network of choice for NFTY Labs’ Social Pass, which
is a web3 events platform that is centered around NFT ticketing.
But there’s more than gaming and NFTs here, because Ruby Exchange had a soft launch on
SKALE in June.
The platform serves as a bridge, decentralized exchange, yield farming protocol and NFT marketplace.
Not to mention SKALE has a long list of supporters that includes well-known crypto investing
firms and some of the top blockchain validators in the industry.
Overall, it looks like SKALE has developed a robust solution for Ethereum scalability
that might be the key to Ethereum’s long-term survival.
By offering a native multi chain solution and no gas fees for users, it's no wonder
why developers are eager to build their projects there.
Sponsorship Disclosure To be fully transparent, this video was sponsored
by the SKALE Network team, and I own no SKALE tokens at the time of this video’s launch.
But I can confidently say I’m really fascinated to see what’s to come for SKALE, and I’m
eager to put some of their dApps to the test to experience the gas-free transactions for
myself.
If you want to learn more, you can find tons of info on their website, Skale.Space or follow
them on Twitter @SkaleNetwork, both of which will be linked below.
If you have any thoughts on how SKALE stacks up to other scaling solutions, I’d love
to hear from you in the comments.
Otherwise, thanks for watching and I’ll see you in the next video.