Market Structure
The network coordinates the ecosystem of users, hardware teams, and infrastructure operators with cryptoeconomic incentives. Permissionless participation in the protocol catalyzes a global-scale infrastructure buildout that drives down the cost and latency of zero-knowledge proof generation for all.
There are two primary participants in the network: applications who demand ZK proving and provers who provide proving capacity and infrastructure. The proving cluster and proof contest mechanism jointly induce a market structure with a virtuous flywheel by aggregating supply and demand. This incentivizes global scale competition for developing increasingly efficient proving infrastructure. Tight integration with SP1 development and the network also ensures that technological and algorithmic advances in proving can quickly accrue to users.
The Virtuous Flywheel
The free market for proving induced by the network aggregates demand across many applications and supply across many provers. This has the following implications:
1. A unified request experience means more efficiency: Without the aggregation of supply and demand, it is likely that the market for proving degenerates into applications and provers making bespoke agreements or applications setting up in-house infrastructure. Over the long run, application teams may not be well-positioned to run their own proving infrastructure due to the specialized operational and technical skills involved. Over-the-counter deals are not efficient and lead to frictions in the market. A transparent market with a unified protocol for pricing proofs provided by an aggregated supply chain reduces integration time, development cost, and generates efficient prices.
2. Transparent pricing accelerates infrastructure: With transparent pricing and aggregated demand, provers face economics that are far easier to forecast. Provers can build out infrastructure faster and with more certainty because their cash flows are more predictable. The existence of a transparent market for proving means that provers’ risks can be priced and financed efficiently.
3. Home provers with low cost of capital can form proving pools: The protocol allows for anyone in the world with spare proving capacity to join. Often, individuals with home GPUs and hardware have far smaller capital costs due to spare capacity and lower operational costs due to cheap electricity than larger operators. By allowing home provers to participate, proving capacity can be dramatically increased and efficient prices can be maintained. This also allow for the formation of proving pools, which is a set of provers that pool their capacity together to jointly bid in the proof contest mechanism.
4 Permissionless participation encourages prover decentralization: Because entry into the market from both sides is permissionless, the frictions for joining and beginning to provide proving capacity are minimized. This allows provers to join from anywhere, enabling geographic decentralization. In contrast to a marketplace where only certain actors can participate, this means that downstream users and applications can reliably receive proofs and are not bottlenecked by provers in a particular location.
Proof Contests Incentivize Global-Scale Competition
The proof contest mechanism induces competition on proving and incentivizes a decentralized prover set, ensuring that applications that require high reliability and liveness are able to receive proofs for minimal cost. Proof contests are auctions where provers compete on proving costs to receive fees provided by proof requests sent by users. They can be implemented as a simple reverse auction or via an all-pay mechanism to encourage robustness.
1. Proof contests enable competition between provers: Primarily, proof contests are designed to enable provers anywhere in the world to participate in the network while competing on proving costs. This is achieved by asking provers to bid in auctions to be able to receive fees set by users. Proof contests surface price signals by adjusting their fees to find market clearing prices for proofs.
2. Price discovery allows for reinvestment: Proof contests pay out a large share of fees set by users to provers that perform their core task well: efficiently generating low-cost ZK proofs within a user-specified deadline. This allows returns from the contests to be reinvested in better proving infrastructure and algorithmic and hardware improvements in proving. Provers are incentivized to continually improve their proving infrastructure. Proving pools can also provide smoothed fees to individual provers, allowing them to participate in the network in a “plug-and-play” fashion.
3. Gains from competition accrue to applications: End users are the primary beneficiaries from competition between provers. Over time, provers directly compete with each other on the main feature that users demand: low cost proofs delivered within user-specified deadlines. Importantly, there are applications that require proofs to be delivered at low costs to be viable at scale. The network uses free market competition to serve these applications.
4. The mechanism enables prover decentralization: In contrast to naïve mechanisms in which a prover who can generate proofs at a lower cost than any other would be expected to win 100% of auctions, such as a simple reverse auction, the proof contest mechanism incentivizes decentralization even under the existence of such a prover. This is done via an all-pay feature that resembles Tullock contests or contests for fixed prizes. This incentivizes a broad prover set and prevents prover concentration, which helps ensure long-term robustness of the network. This requires sacrificing some efficiency, since it necessarily involves sometimes allocating proofs to higher-cost provers. In exchange, having a robust, decentralized prover set allows applications to rely on the network.
Note: More details about the market structure are available in the whitepaper.