GM,

Matter Labs is the story of the year. Its zkSync platform is used by millions who enjoy faster and cheaper transactions on Ethereum. Oh, and it is about to launch the year’s most-anticipated token.

But it became talk-of-the-town for all the wrong reasons last week when it emerged it had filed to trademark a core Web3 technology. The company u-turned and canceled those plans this week following the backlash, but the saga might just have dented what was set to be a blockbuster launch.

Let’s get into the drama.

Best,

Jon and Gary

What’s going on?

This week’s issue is complicated but important—let us start with a brief explanation of what layer-two (L2) blockchains are and how zero-knowledge (ZK) technology works.

Matter Labs is the creator of zkSync, an L2 that allows Ethereum to process significantly more transactions per second (TPS) and with lower gas fees per transaction. 

L2s use ‘rollup’ technologies that process transactions off-chain and then submit them to a blockchain in batches to gain those speed and price benefits over simply running transactions on Ethereum or other layer-one (L1) chains.

Rollup technologies take two forms: 

• Optimistic rollups which run on the assumption that all transactions they handle are valid unless proven otherwise
• Zero Knowledge (ZK-Rollups), meanwhile, assume all transactions are false until proven to be valid

This difference tends to mean Optimistic rollups are faster whilst ZK-rollups are more secure and private.

Matter Labs, though, believes zkSync combines the best of both. That premise has helped it to raise over $450 million from top investors, including LightSpeed Venture Partners and Andreessen Horowitz. More than 200 projects are already building on zkSync, and it has a $200 million ecosystem fund to encourage more to join.

It is no surprise then, that the launch of its token—and airdrop for the community—has been one of the most talked about developments in Web3. By all accounts the launch will happen this month, but the company waded into controversy when it announced last week that it had applied to trademark ZK and some related terms.

SO WHAT?

1. “An attempt to claim something that does not belong to it”

Trademarking is part of the technology world but, in this case, the move was a huge overreach. Matter Labs makes use of ZK technology, but ZK is not proprietary to the company. Instead, ZK is a branch of cryptography built off of mathematical proofs— proofs that academics, mathematicians, and engineers have all spent years refining.

Indeed, dozens of companies make use of ZK in one way or another making it difficult to define exactly who it belongs to. As a result, condemnation of the trademark efforts was swift and direct.

“We condemn this behavior in the strongest possible terms, as a transparent attempt by a corporation to claim ownership over something that does not belong to it," wrote a group of prominent companies that use and develop ZK technology.

The letter argued that ZK technology is a public good that belongs to everyone since it is powering a range of technologies, and is tipped to play an even more prominent role in the future—Ethereum creator Vitalik Buterin believes ZK rollups will be a core part of how blockchains operate.

Matter Labs was also accused of using the trademark applications as leverage in a dispute over the ticker for its upcoming token. The firm intended to use ‘ZK’ but another Zeroproject, ZK company Polyhedra Network, used it for its already-trading token.

Polyhedra Network claimed Matter Labs showed crypto exchanges its trademark applications in order to “snatch” the ZK ticker away from it. The company has since agreed to rebrand its token to ZKJ, leaving the green light for Matter Labs, but the letter signatories believe that securing the ZK token will “further cement [Matter Labs’] claim over an entire technology that they played no role in creating.”

2. Did Matter Labs have a point?

This controversy has put a dampener on one of the most anticipated Web3 launches of the year, but was there any merit to what Matter Labs tried to do?

The company has made big pledges around decentralization. Last year, it released a manifesto called ZK Credo which claims that "to ensure lasting protection, the community must deeply embrace the elusive concept of decentralization.” It extols the virtues of censorship-resistance and trustlessness.

Matter Labs has also made a commitment to open source and, in the same post announcing the copyright applications, CEO Alex Gluchowski voiced his public rejection of “the very idea of Intellectual Property.”

Filing these applications appeared to violate those pledges, so why do so?

Putting aside the aforementioned criticism that Matter Labs sought to bind its brand with the term ZK, the company did argue it was making the move for the best of the community.

Gluchowski claimed that the patent submissions were an act of defense “to prevent dishonest actors from misleading their customers and confusing their products and services with the ones offered by Matter Labs.”

Matter Labs also claimed:

• “ZK technology belongs to the community. Full stop.”
• That it was “committed to finding an appropriate structure for the ZK trademark that is accessible to everyone building ZK tech”
• Other ZK projects were invited to join the initiative

The problem with these claims is that the initial announcement comes across aggressively. The language also hints that there has not been any prior communication with fellow companies in the ZK space—hence the immediate backlash and rearguard action.

Gluchowski referenced the fact that Matter Labs had “earlier reached out to the legal team of the Ethereum Foundation and offered to cooperate on creating a legal framework to make the use of “ZK” and similar important tech terms in the public domain.”

That passage doesn’t suggest that there was a two-way dialogue, or even that Matter Labs received any kind of response to its communications.

Communicating with the industry beforehand could have saved this saga from ever happening, but you’d imagine there was a desire to quickly file for the trademarks before others with a potential claim were aware.

3. Going against the spirit of Web3

But the fact remains that any patent claim—made with or without the support or prior knowledge of industry peers—flies in the face of how Web3 works, and indeed how technology like ZK comes to be in the first place.

The Bitcoin whitepaper, the genesis of Web3, was published only 15 years ago. That makes it a very nascent industry compared to other sectors within technology. With much built in open source, among peers or collaborators, it really is a community-led industry at this point as the letter from ZK companies eloquently explained. 

“Those of us that work on ZK technology understand that we are standing on the shoulders of giants, of researchers and engineers that created and developed the technology that we use,” it reads.

More broadly, the actions of Matter Labs serve as a reminder of the tension as Web3 continues to become more mainstream. There will continue to be tradeoffs and there will be decisions that perhaps don’t align to the purest interpretation of the Bitcoin whitepaper or the way that advocates of decentralization and other core tenants of Web3 view the world.

The arrival of Bitcoin ETFs, and the upcoming Ethereum ETFs, in the US are a prime example.

On one hand, ETFs bring mainstream adoption at an unprecedented level. Millions more Bitcoin owners will be created, the tens of billions of new dollars flowing into Bitcoin will establish it as a viable alternative to fiat currency.

But there is a flip side. No Bitcoin ETF customers will hold their own digital asset. Self-custody is a primary belief of Web3—freeing an individual from the limits of bank accounts and regulated financial products. Likewise, ETFs don’t trade 24/7—a concept that’s unthinkable in Web3.

Those tradeoffs happen for the greater good, but one company trademarking technology that is developed by the herd with the intention to be used by all, does not fall under the bracket. While there is plenty of malpractice and malicious actors continue to operate in Web3, there is some reassurance to know that the industry will pull together as one. In this case, the right outcome was reached—it will be interesting to see if the ZK token launch is impacted.

News bytes

Fairshake, a US political action committee (PAC) that funds ads for congressional candidates who are pro crypto, landed a $25 million donation from Coinbase—that follows similarly sized donations from Ripple and Andreessen Horowitz and gives it a formidable warchest 

Binance, the world’s largest exchange based on trading volume, will restrict access to stablecoins considered "unregulated" by the EU for users in EU countries from 30 June

Crypto exchange OKX has launched its services in the Netherlands 

We wrote that the halving would massively impact small Bitcoin miners, and Bitfarms just announced its mining revenue fell by 42% between April and May, the first full month with “post-halving economics”—Bitfarms has been the target of a near-$1 billion acquisition offer from rival Riot Platforms

Australia has launched its first spot Bitcoin ETF that will hold Bitcoin directly—the country has two ETF products that indirectly hold Bitcoin

Solana continues to be the biggest platform for memecoins, with close to 500,000 new tokens launched in May alone—that’s the highest number recorded by The Block, and far beyond the numbers of rival blockchains

That’s all for this week!

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