• Cryptoasset Report
  • March 25, 2020

SKALE is an Ethereum Layer 2 scalability protocol facilitating the formation and operation of on-demand elastic sidechains, which operate according to the SKALE protocol and, along with the SKALE Manager master contract, comprise SKALE’s Elastic Sidechain Network.


SKALE is an Ethereum Layer 2 scalability solution facilitating the formation and operation of on-demand elastic sidechains, which operate according to the SKALE protocol and, along with the SKALE Manager master contract, comprise SKALE’s Elastic Sidechain Network (or simply, ‘SKALE Network’). More specifically, SKALE seeks to mitigate the technical scalability, usability and affordability issues facing decentralized applications (dApps) running on general purpose smart contract platforms. At a high level, SKALE attempts to do so by providing dApps access to a network of highly-customizable and modular sidechains, which retain the low latency and affordability of existing sidechain networks while allowing a dApp to tailor a sidechain’s characteristics to its specific needs. Though development efforts are initially focused on Ethereum, SKALE developers designed the protocol’s underlying logic to be blockchain agnostic, such that it may theoretically be applied to other platforms in the future. The team behind SKALE is led by CEO Jack O’Holleran, founder of software provider Aktana, and Dr. Stan Kladko, a former physicist at Stanford University.

Network and Protocol Details

SKALE is one of many ‘Layer 2’ protocols seeking to enhance the throughput and scalability of distributed ledger systems—most commonly, Ethereum and Bitcoin—by conducting key operations on networks other than the primary blockchain. SKALE, itself, can be more specifically classified as facilitating the creation and use of sidechains: it enables lower latency blockchains to connect to a parent blockchain through a two-way peg. While numerous transactions may occur on the child chain, only a net transfer of assets must ultimately (or periodically) be reported to the parent chain. Many decentralized applications (dApps) stand to benefit immensely from the use of sidechains, whose alternative technical and incentive structures may decrease latency and costs, respectively; however, in their current early stages, many sidechain protocols remain largely focused on their respective niches, making them unadaptable and inapplicable to the needs of many dApps. SKALE’s highly-configurable sidechains may be calibrated to the many needs of a dApp such that their use thereby becomes possible and/or rational, affording a dApp access to the previously unavailable scalability and affordability benefits of sidechains.

At a high level, the SKALE Network is a partially-interconnected series of individualized, on-demand sidechains, whose functions are dictated by the underlying SKALE protocol and performed by a randomly selected subset of nodes, and who are collectively governed by the SKALE Manager smart contract. The SKALE Manager exists on the Ethereum mainnet and serves as an entry and exit point for all other smart contracts in the network. That is, this master contract relays information to and from the Ethereum and SKALE blockchains, and orchestrates the creation, management, and destruction of all entities in the latter. The creation of a sidechain begins when a user—likely a dApp—submits specifications and payment for a proposed chain to the Manager contract. Among the sidechains’ configurable specifications are their size, exact consensus mechanics, virtual machine and parent blockchain, and security features such as the frequency of node ‘shuffling.’ A dApp requiring considerable speed, for example, may choose a sidechain with a smaller number of nodes and perhaps less stringent security measures. A subset of nodes is then randomly selected to oversee this chain from a network-wide pool of approved nodes. Nodes gain the Manager’s approval by running a daemon on their device, which verifies adequate computational capabilities. In addition, twenty-four ‘peer nodes’ are assigned to each node to monitor its actions and ensure proper behavior.

Following the creation of a sidechain, participants deposit assets into SKALE’s Ethereum smart contracts, creating a two-way peg with assets on the new sidechain. Then, transactions on the sidechain may be submitted by parties pre-approved to access the chain and consensus is reached through a variant of the Delegated-Proof-of-Stake mechanism. That is, the nodes selected to oversee a given sidechain must stake a number of SKALE tokens, some of which may be delegated to them by parties otherwise uninvolved with that particular chain, in order to participate in consensus. However, in the SKALE protocol, there exists no one designated block producer; instead, all nodes operating a given chain may produce blocks, and blocks receiving a supermajority of votes are added to a canonical blockchain.

Nodes supporting a given sidechain are rewarded with assets paid to the network by the sidechain’s creator via a subscription model, as well as SKL tokens newly minted by the network’s inflation mechanism. This eliminates typical gas fees paid by contract users and shifts the initial burden of operational costs to the dApp itself, which may then pass on costs to users as it sees fit. In this model, a sidechain creator deposits a sum of tokens into an account, from which funds are withdrawn periodically to pay for network resources. When deposited funds are exhausted and the creator of the sidechain declines to replenish them, sidechain destruction commences. dApps and other users may destroy a sidechain for any number of reasons, with perhaps the most obvious being the establishment of a new sidechain with specifications better suited for a dApp’s current objectives. Before being permanently closed, the chain reports its final state to the SKALE Ethereum smart contract in which the users’ external assets were initially deposited; funds are then distributed to all parties accordingly, nodes are dismissed, and the chain ceases to exist.

Interchain Communication

Another defining feature of SKALE is its interchain communication mechanism, which is claimed to allow for interoperability amongst sidechains with compatible specifications (consensus mechanics, pegged assets, etc.) within the network. At a high level, messages, which may include transactions, are left in an ‘outbox’ with a destination-chain address. Independent ‘agent’ nodes then deliver these me messages to the intended recipient. As a result, it is possible for complex smart contracts to operate on and assets to be sent between sidechains in the SKALE network.


SKALE’s governance is intended to become more decentralized over time, before eventually adopting a delegated stake governance model. During development, SKALE Labs has retained owners of the project’s protected intellectual property, affording the for-profit entity absolute control over network governance. However, prior to launch, the firm intends to transfer such ownership to the N.O.D.E. Foundation, a non-profit it established for the purpose of interim governance and continued development efforts. Following launch, the N.O.D.E. Foundation will make public domain the aforementioned IP, establishing an on-chain governance protocol facilitated by a stakeholder-elected Council and corps of stakeholder-elected Representatives. Per its delegated stake model, votes on all matters may be submitted by stakeholders themselves or by proxy.

Asset Details

The SKALE Token (SKL) is SKALE’s fungible, freely-tradable, ERC-777 compliant, native cryptoasset. This token performs three main functions in the SKALE ecosystem: conferring node-operating rights, delegation to node operators, and payment for nodes’ services via a subscription model. SKL from both fees and the network’s inflation mechanism are used to compensate nodes for resources expended. The initial SKL supply of 4.55 billion tokens expands to a maximum supply of 7 billion tokens at a rate of 7.8% annually due to vesting schedules and the minting of new tokens for node rewards. SKALE conducted two SAFT-based token sales in October of 2018 and of 2019, raising $9.65M and $17M, respectively.