What is SKALE Network? (SKL)

The popularity of Ethereum has been both a blessing and a curse for the blockchain network’s community. On one hand, adoption has allowed for unprecedented growth in a burgeoning industry. However, increased use has also translated to network congestion, which makes using the network slower and more expensive—especially for everyday crypto enthusiasts. This is a problem that layer 2 scaling solutions (L2s) like Optimism, Arbitrum, and zkSync (among others) have tried to solve in different ways.

While SKALE Network is not formally an L2 (as it doesn’t rely entirely on Ethereum’s security and has its own security mechanism), it is another effort to improve the scalability of Ethereum. By taking some computation and activity off of the Ethereum mainnet and adjusting how transactions are processed—like ensuring zero gas fees—SKALE promises its users cheap and fast operations powering the decentralized applications (dapps) it supports.

Furthermore, like Cosmos, SKALE provides an ecosystem for interconnected blockchains on its network. The multichain network is secured by the same group of validators using Proof of Stake consensus to process transactions. Because these chains are supported by the same technology and security, they can pass messages/transactions among them (and Ethereum) with minimal friction.

Underlying the SKALE Network is the Ethereum-based SKL token. SKL is staked by SKALE’s validators (and delegators) to allow them to validate transactions and secure the blockchain, and they receive SKL as rewards. SKL also serves as a medium for decentralized governance and way of paying fees for services on SKALE.

How was SKALE Network developed?

SKALE was created by entrepreneurs O’Holleran and Stan Kladko. Before founding SKALE Labs in 2018, O’Holleran co-founded a life sciences engagement startup called Aktana and fostered its growth over the course of almost a decade. He still holds a position as an advisor to the company. Kladko was a Stanford physics research fellow before moving onto multiple jobs in cryptography and then co-founding two companies before SKALE. O’Halleran serves as SKALE’s CEO while Kladko serves as the company’s CTO.

After launching its first testnet in 2018, SKALE implemented its mainnet in three phases beginning June 30, 2020. A second version of the project, dubbed SKALE V2, was announced in 2022 and incorporated interconnectedness among chains built with SKALE, helping to make transacting cheaper (even free) and optimize decentralized gaming, among other things. At the same time, SKALE Labs announced a $100 million ecosystem fund to jumpstart dapp developers on the network. In June 2023, when more than 20 blockchains were built into SKALE’s network, its developers announced a new focus on incorporating zero-knowledge (zk) scaling solutions into the existing infrastructure of the platform.

Since its inception, SKALE has received financial support from a number of venture capital sources including large investors like Arrington XRP Capital, ConsenSys Labs, and Winklevoss Capital.

How does SKALE Network work?

SKALE Network is built to improve the operations of dapps built for Ethereum. That means that it supports the same execution framework which powers Ethereum—namely the Ethereum Virtual Machine (EVM). SKALE joins other blockchains that claim EVM compatibility, making it able to support dapps and communicate directly with Ethereum when desired. When it comes to basic operations, SKALE Network can be considered a microcosm of Ethereum—with some modifications. Like Ethereum, SKALE uses a Proof of Stake (PoS) consensus mechanism and a decentralized set of nodes.

Some of the most important aspects of SKALE’s architecture are:

SKALE chains:

Each dapp on SKALE has its own chain. Therefore, the network is made up of many purpose-built chains that operate using SKALE’s shared framework. Dapp developers use SKALE’s native SKL token to “rent” their space, and this is how end-users of the network don’t have to pay gas fees—the cost is passed on to developers.

Pooled security:

When a transaction is submitted through a SKALE-based dapp, 16 random validators are chosen to process it. These validators are re-randomized and rotated for each transaction, making the network more secure. Finality (full processing) of these transactions is immediate, and the chain is optimized to process many more transactions per second (TPS) than the Ethereum mainnet.

SKALE manager:

Dozens of smart contracts constitute the SKALE Manager, which is responsible for functions such as staking, registration of new nodes, and connecting SKALE’s operations with Ethereum. SKALE also allows dapps to pull on resources from validator nodes such as external computation power and data storage.

Levitation protocol

In June 2023, the SKALE team announced a new Ethereum scaling effort focused on zero-knowledge (zk) technology. Zk rollups are layer 2 scaling solutions (L2s) that have been incorporated by projects like StarkNet and zkSync for improving the speed and cost of interactions on Ethereum. Taking the lead from these bellwether projects, SKALE’s community introduced the Levitation Protocol. This would see the main SKALE blockchain be renamed “SKALE G” and surround itself with support by zk rollups using smart contracts.

How is the SKL token used?

SKL is an Ethereum-based token built according to the ERC-20 token standard. Its primary uses are for dapp development teams to rent SKALE chains and for ensuring security of the various SKALE chains by becoming a SKALE validator. SKALE’s development team has also stated that SKL will be used for decentralized on-chain governance.

By 2023, more than 50 validators staked their SKL to be granted the opportunity to validate transactions and secure the network. In return, on a monthly basis they receive SKL rewards that are generated from (1) fees paid by developers to subscribe to SKALE chains, and (2) issuance of new tokens—also called inflation. SKL holders can delegate their tokens to validators to receive some of these rewards, as well. However, if validators do not operate with the best intentions, their stake can be taken from them (slashed).

Token economics and distribution

There is a maximum of 7 billion SKL. Until the total supply reaches this number, a certain amount of inflation was set to slowly release new tokens, with token issuance higher in the early years and lower in later years—intending to encourage and reward early adoption.

Of all SKL that will be created, validator awards account for 33% of tokens, 28.1% are allocated to early supporters and the public sale, 16% belong to the founding team, 10% support the SKALE Foundation, 7.7% are for the protocol development fund, 4% are in the core team pool, and 1.3% are reserved for the ecosystem fund.

Conclusion

• SKALE Network is a platform of interconnected application-specific blockchains that is intended to help scale Ethereum.
• Benefits of SKALE include: EVM compatibility, Proof of Stake consensus, feeless transactions for end-users, and fast transactions.
• The SKL token is used by developers to rent their purpose-built “SKALE chains”, and it is also staked by validators to secure the network.