How Is ZKX Building The Decentralized Limit Order Book?
Real Yield ETH | ETH L2s vs Alt L1s | Web3 Mass Adoption via Gaming?
GM, this is your Daily Bolt briefing.
Following the ETH Shanghai update, ETH has continued to trade just below the $2k level. In today’s edition, we’ve made sure to include valuable info on an allegiance to simplifying and enhancing LSTs via Real Yield ETH on Sommelier Finance. We’ve also included some key industry thought leaders opinions on the future of ETH, their post-Shanghai predictions, and more.
And later; are you curious about Starknet and the ZK ecosystem? Perhaps the zkSync airdrop rumors have piqued your interest? Read our note of the day to learn more about the value Starknet brings to the table, and the innovative DeFi primitives ZKX is building on top of it. ⬇️
Over and out.
1/ Sommelier Finance Twitter Space - Real Yield ETH Launch
Preview: In this Twitter space, Sommelier Finance is joined by Co-Founders Zaki Manian, Sunand Raghupathi and Stephen Strong aka The Calculator Guy to discuss the launch of Real Yield ETH. Click here to listen to the full episode.
Length: 35 mins | OUR NOTE: 3 mins
Sunard is also the Co-founder of Seven Seas which is a strategy manager on Sommelier Finance.
Stephen, known as the “Calculator Guy” on youtube, is the CEO of Define Logic Labs, a DeFi analytics company.
Define Logic Labs spoke to a number of different protocols and one that stood out for them was the level of attention nearing that went behind Sommelier Finance.
One of the core values of Sommelier Finance is having vaults that have longevity and that scale over time.
Seven Seas, Define Logic Labs and Sommelier developed a mechanism to enter leveraged staked $ETH positions without utilizing flash loans or 10-15 loops with expensive gas costs; instead it’s 2 very simple transactions.
All other leveraged staking products are very much slow-moving and rebalance less frequently.
They have an off-chain script that is essentially monitoring on-chain conditions looking at all sorts of factors.
They’re backtesting numbers that show the yields can be at 10%.
There’s a proposal that was passed to add 200K $SOMM to incentivize deposits.
2/ Empire - ETH L2s Have The Same Flaws As Alt L1s : Roundup
Preview: In this episode of Empire, Jason, Michael, Mike & Miles debate on Mike's tweet that ETH L2s have every feature Alt L1s are criticized for. They also discuss Arbitrum's governance debacle, the value of protocol BD deals, a $25M MEV exploit, Euler's $200M recovery, ETH Shanghai predictions, and more! Click here to listen to the full episode.
Length: 74 mins | OUR NOTE: 6 mins
Here are some key takeaways:
AIP1 (Arbitrum Improvement proposal framework) proposal went live for Arbitrum Improvement and they wanted to move $1B from the treasury into the foundation for BD deals, grants, and hiring.
Blockworks Research voted against it due to a lack of transparency and potential second-order impacts.
ETH L2s have every feature that all L1s are criticized for, including centralized single sequencers, network downtime, opaque resource allocation, and expensive evaluations.
They anticipate some rational price discovery with the LSD tokens and how it could de-risk staking for more conservative participants.
There may be an inverse relationship between the staking rate and percentage return, which could be interesting to follow over the next 12 months.
There is potential for financial engineering and innovation with restaking, such as tranche out different risks and creating restaking indexes.
You also have to consider additional slashing risk that comes with restaking, and how there needs to be thoughtful work done to incentivize people to take on that risk.
3/ CryptoCoinShow - Gaming Industry Is A Perfect Fit For Web3 Adoption
Preview: In this episode of Crypto Coin Show, Ashton Addison speaks with Dr. Ben Zhang, COO & Co-Founder of NodeReal to discuss the adoption of Web3 infrastructure by large companies, why the Gaming industry is a perfect fit for Web3 adoption, Blockchain-as-a-service, and more. Click here to listen to the full episode.
Length: 33 mins | OUR NOTE: 4 mins
Here are some key takeaways:
NodeReal expanded to Ethereum and Polygon and now supports more than 11 chains.
NodeReal also sees more opportunities not just as a blockchain access layer but as a RPC (Remote Procedure Call) service.
People are familiar with NFT (Non-Fungible Tokens) stuff, but not all of them know how to manage storage.
NodeReal is working with the new storage and area named BNB Chain Greenfield to make sure people can quite easily handle the NFT-related stuff.
Web3 games have huge opportunities.
Dr. Ben thinks that in the game, people don’t need to manage the private key. If any game says that the people need to manage the private key, that cannot be sustainable.
Ethereum introduced the account abstraction that can support social logging in and social recovery which is a big breakthrough for the infrastructure side.
On the Revelo Intel platform, we’ve summarized these 3 episodes and in total, would have saved you: 2 hours and 22 minutes!
DeFi Sparks Ep. 19 - with Eduard of ZKX
In this episode, Nick Drakon is joined by Eduard of ZKX to talk about zero knowledge proofs, StarkNet, account abstraction, DEX vs. CEX and more.
Read or listen to our notes below to learn more.
About Eduard and their team
The founding team of ZKX started around 2014 or 2015 holding some $BTC, mining, Web2 and venture capital.
They were involved with venture capital in the U.S. that has a global footprint in the emerging markets and took care of the portfolio in Asia.
It was through Bitmex when they understood how perpetual swaps work and how users like to use these instruments to trade because it’s easy to understand.
Some of them started to play with smart contracts in early 2017.
They didn’t take part in the ICO craze because they were building more traditional blockchain projects at that time.
They started to decide to build a project in 2020 using all of their acquired knowledge.
They have 34 people in their team that are distributed in many countries.
Zero Knowledge Technology
Zero-knowledge tech allows you to verify that a computation was done at a certain point in time and if it was done according to the specifications of that software.
It allows transactions to be proved in a zero knowledge environment, bundle it together then post the bundle of transactions to the Ethereum L1.
It will lower the transaction costs massively.
It provides an inverse relationship between transaction costs and number of transactions.
It also provides a lot of scalability.
In an emerging market world, there’s high price sensitivity.
Why build on StarkNet?
They were one of the early teams who actually took part in developing the zero knowledge technology.
STARK is one type of ZK proof system that gives them incredible visibility over how to best deploy systems and how to build them.
They know that StarkNet has a very solid foundation from a technological perspective.
The StarkNet team knows what they’re doing and they understand they bring on the community at the right time.
The ZKX team thinks StarkNet is going to be one of the main ecosystems in the ZK roll-ups space.
StarkNet is not trying to be EVM compatible meaning you can’t deploy Solidity in their chain.
Their system is not constrained by EVM.
ZK roll-ups are not just an extension for the scalability of Ethereum but it is also an opportunity to onboard more users.
DEX vs. CEX
There were a lot of well-known centralized entities that blew up that were used by thousands of users last year.
Most of 2020 and 2021, the narrative was centered around how smart contracts were unsafe, how many hacks were happening and how many scams were happening which painted the DeFi as the wild west.
It paved the way for centralized companies like FTX, who actively talked about being regulated and others.
The fact that these centralized entities failed made users realize that they don’t know if a centralized entity will fail one day all of a sudden and they also don’t know what’s behind the DeFi protocols that they are using.
There’s a lot of issues that remain to be solved from a DeFi perspective.
Everyone on the DeFi ecosystem is still consistent on insisting self-custody.
A lot of people that interacted with DeFi protocols don’t realize that they’re creating approvals and authorizations for smart contracts to use their wallets and spend their funds which means there’s still a lot of complexities to the entire DeFi experience that makes it hard for a normal user to understand what’s going on.
Account Abstraction
It is the idea of wrapping a user’s wallet into a smart contract which all of sudden allows them to program any kind of logic and rules that they want for their account.
It can make it easier to implement decentralized identity solutions.
The design space is immense with the account abstraction.
It will be one of the major advances in the ecosystem.
It will help provide ease of use that levels the field with what users experience on CEXs.
What does ZKX solve?
In TradFi, some of the brokers partner up with financial firms in the last 10 years and sell their order books to leverage profits.
To a certain extent, it also happens with existing CEXs.
It is similar to MEV hunters that countertrades users to scoop up profits.
It led them to the idea of how to make trading more fair.
Virtual AMMs take Uniswap’s code then modify it so they can trade perpetual swaps which leads to MEV, slippage and transaction issues.
The amount of volume and depth that can be achieved with a virtual AMM is somewhat limited.
Single-sided liquidity systems are started by Synthetix in which you have a single pool of capital, the LP deposits capital on that pool and all of the traders are trading against that pool of capital.
If a lot of traders have profit and they also want to close their positions at the same time, all of the sudden the entire system and pool of liquidity have liabilities.
Centralized Limit Order Books or CLOBs in CEXs are usually highly used by market makers and it provides so much liquidity cushioning that allows them to trade easily in and out.
The downside of it for CEXs is that it can be sort of a black box that they can use to countertrade users.
Decentralizing the order book is a huge challenge but it is the key goal of the ecosystem right now.
Decentralized Limit Order Books or DLOB will make it easier for users to trade in and out easily, provide fast transactions and low slippage fees.
Their thesis in order to do it is it should be in a decentralized node network where anyone can participate in the network.
There will be a technical paper that they will release this year.
They want to decentralize the order book while maintaining the speed and security.
Regulatory Compliance
When they first started, they quickly realized that it’s very difficult to comply everywhere and to do it correctly because there are no set frameworks.
Some countries do admit the difference between a security token and utility token but that’s as far as they’ve gone.
Some countries are starting to understand why DeFi is unique, how smart contracts provide transparency and the advantages of it over traditional finance.
It is very difficult for a group of builders how to best navigate the current environment right now.
One of the basic approaches they are doing is auditing everything.
They leverage account abstraction in the right way.
There will be more and more projects that will adopt new forms of compliance like decentralized KYC that is verifiable by ZK proofs.
The regulators have to adapt.
It is too early to say what exactly is the solution.
It can also be considered to block any IP of users that are either living in the U.S. or countries that are considered to be sanctioned or high risk.
Liquid Governance
The premise of liquid governance is how they can make a natural representation of all the stakeholders of an open source protocol.
The initial method of distribution of tokens as of now is airdrops.
Most of the users don’t want to participate in DAOs and don’t want to vote.
It’s a matter of giving a voice to everyone that’s interacting with a protocol.
They assume that representation doesn’t need to come from governance tokens.
It all comes down to separating representation from token holders.
Liquid governance is building a flexible model or system of smart contracts that allow to provide DAO governance and representation of different actors acting within a protocol.
They are opting for an initial approach in which they are giving equal representation to token holders and market participants.
They can flexibly award representation to who provides value in the protocol.
Their system analyzes all the users activities within the protocol so it values volume, losses, profit, how much the users trade and other inputs which assigns them a score or a number of representation that slowly decays and declines over time.
The amount of participation in their protocol is always tied with how much skin in the game the user has.
Whoever stakes their token will decide how much they will lock and how long will they lock it and the longer the time and the greater amount they stake it for, the greater representation they will get.
Current Progress and Roadmap
They are currently running a testnet.
In the first 4 days, there were 2,000 trades and the volume was way above expectations.
They will have 20,000 more users coming in the next 4 days.
They are doing a community program which is called ZKX Yakuza which has an entire storyline where users can complete quests, bounties and obtain roles in the community.
They have a total of 500,000+ completed quests within the duration of the community program.
They are incorporating everything that they learned in the testnet to a newer version of the testnet.
They are preparing a commemorative NFT collection for participants in the ZKX Yakuza.
They are working to go live this year.
They are doing another set of audits of their contracts right now.
They are not planning to do a token sale for the users at the moment.