Behind zkLend, a dual solution money market protocol for institutions and retail |
ZkLend is a dual solution money market protocol for institutions and retail. It also provides lenders with the means to select lending products that are both compliant, safe and transparent. The platform improves liquidity in the financial sector by offering low-cost assets on one side of it, while protecting investors from losing their capital due to insolvency or bankruptcy risks on another side of zkLend’s ecosystem.,
zkLend is a StarkNet-based L2 money-market protocol that combines the best of zk-rollups with Ethereum to expand the DeFi market.
To set itself apart from the expanding competition, zkLend provides a unique dual solution to the DeFi problems: a permissioned and compliance-focused solution for institutional customers and a permissionless service for DeFi consumers. All of this while maintaining decentralization.
zkLend = Zk-rollups + StarkNet + Ethereum
zkLend was developed to accelerate DeFi adoption by making blockchain-based financial primitives available to the retail sector and an increasing number of institutional customers. While this may seem to be a straightforward notion, the protocol was confronted with a number of complicated issues to address, the first of which was security.
When rumors of Layer-2 solutions surfaced around 2021, the team behind zkLend began playing with the idea of creating a protocol. While Ethereum was and still is one of the greatest blockchain platforms to launch on in terms of overall security and network impact, the team was forced to explore starting on an L2 due to the congestion and high fees it encountered at the time.
The team’s belief that zk-rollups were the ideal L2 option for zkLend was strengthened when Vitalik Buterin’s guide to rollups was released in early May last year. zk-rollups enabled scalability without sacrificing security by doing calculations off the main blockchain while proving the results and recording state-root changes on-chain.
StarkNet was seen as a potential new use of zk-rollup technology at the time, prompting the team to deploy the protocol on the cutting-edge blockchain.
The team chose StarkWare because of its technological competitiveness, proven efficacy, and technical, developer-focused environment. StarkNet employs encryption based on STARK validity proofs, which is 10 times quicker than SNARK (technology currently used by zkSync).
With validity rollups, transaction costs decrease as the number of transactions in each unique batch grows. This differs from existing L2 scaling systems, in which transaction costs usually grow linearly with the total number of transactions, according to the researchers.
The real performance of StarkEx, a prior dapp-specific scaling engine built by StarkWare, which handled over $200 billion in trades in 2021, underpinned StarkNet’s scaling capacity. This figure has surpassed $600 billion as of May of this year.
“We observed a scrappy and strong development community, with individuals coming up with novel protocol concepts that didn’t exist on L1.” “We wanted to be at the cutting edge of innovation,” said Brian Fu, co-founder of zkLend. “And now, in less than six months, we’ve gone from being part of a fledgling community to one that spans games, DeFi, and infrastructure technology.”
zkLend attempted to future-proof its protocol by building atop StarkNet. Working on a Layer-3 solution for private zk-rollup layering is on StarkNet’s newly revised roadmap, allowing developers to have both public and private L3s on top of the L2, further enhancing its privacy zk-rollup solution.
A dual approach, designed to address the challenges of DeFi adoption.
zkLend has gone to considerable efforts to ensure that its protocol has a strong base. The team isn’t ignorant to the problems that lie ahead, the most significant of which is increased competition from established protocols on other networks.
zkLend has been positioned as a backbone of the network, offering financial infrastructure to thousands of new customers flooding into the gaming and NFT L2 sectors as part of StarkNet’s current campaign to become the go-to gaming and NFT L2 provider. Even Aave, the largest lending protocol now available, has expressed its intention to join StarkNet.
zkLend intends to take use of all StarkNet has to offer in order to become the network’s flagship lending protocol and a household brand in DeFi. Because of the network’s low transaction costs, it will be able to develop more efficient liquidation models, refocusing attention on the borrower.
The company claims that the protocol’s KYC and whitelisting layer, market pool risk isolation, two-sided collateralization, borrowing factor, and a dynamic correlation-linked collateralization ratio set it apart from others.
While these elements aren’t groundbreaking, they do provide the ideal setting for what zkLend is all about: Artemis and Apollo.
The protocol’s two ways to dealing with the expanding scale of the DeFi market are Artemis and Apollo.
Because the team thinks that the next chapter of DeFi will be institutional, it was critical to develop a protocol that would meet the demands of financial institutions and enterprises looking to join the market. Creating a system that met both institutional and retail demands, however, proved difficult.
Instead, zkLend took a split strategy, designing two sister protocols, each appealing to a different audience. The protocols are operationally separate, but they are meant to work together in the future to enhance capital efficiency.
Artemis is zkLend’s retail-oriented solution, an open and accessible permissionless protocol. The team plans to release an MVP in early July, although Artemis V1 will not be available until the end of Q3. Flash loans, asset tiering, a better token utility program, and other protocol interfaces will be included in the final version of the offering.
The protocol’s second edition, which includes adaptive interest rates, long-tailed assets, and free swaps, will be ready by the end of Q4. Aside from these improvements, V2 will mark the beginning of Artemis’ DAO transition, which is expected to be finished next year.
Apollo, on the other hand, is designed specifically for institutional customers joining DeFi. Apollo, unlike Artemis, is a permissioned network that provides verified players with customized and visible permission rights.
Apollo’s emphasis on compliance makes it an excellent match for institutions. The product includes a compliance layer, which is uncommon in DeFi but is common in TradFi markets. It includes KYB and KYC checks, as well as strict regulatory compliance.
At the conclusion of the year, an MVP for Apollo will be published. Parallel to product development, the team is seeking institutional launch partners and an on-chain KYB supplier.
While the team didn’t disclose who those partners may be, they did state that other institutions and investors were involved in discussions on how Apollo’s over- and under-collateralized loan products should be structured.
“We’re already seeing an infusion of conventional participants,” Fu added, “but they tend to be crypto-savvy investment funds and prop trading organizations.” “Plus, they’re still testing the waters with a little TVL.” Clearpool, Goldfinch, and Maple are examples of market success stories. As more of these use cases become public, institutions will feel more comfortable with DeFi and adoption will accelerate.”
(Image credit: zkLend)
When it comes to launch dates, zkLend has a solid plan in place, but it is still dependent on StarkNet’s timeline.
“Our public debut is contingent on the StarkNet public mainnet launch,” said Jane Ma, co-founder and project lead of zkLend. “By releasing alongside a few additional protocols, such as DEXes and DeFi aggregators, we want to provide StarkNet users with more use cases and improved composability.”
Because of this, the protocol’s native token, ZEND, has yet to be released. The token was created to support the zkLend protocol, incentivise activity, reward real network contributors, and provide token holders significant governance rights.
The $5 million seed round that zkLend has obtained will be sufficient to fund the protocol’s development for the time being. The round was led by Delphi Digital and included major cornerstone investments from StarkWare, Three Arrows Capital, and Alameda Research, among others.
The team claimed they don’t have any plans for more fundraising, but they’re keeping their options open in case the situation changes.
“Our major focus right now is to bring our MVP product out to market by the end of Q3 2022, as well as the full-featured product onto StarkNet mainnet by early Q4 2022,” Ma said. “First and foremost, we want to complete our plan and show the value of our product to existing investors and consumers.”
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