What is the ZKX Protocol? — A Complete Guide
Introduction to the Inception
Sometimes, the most revolutionary ideas come from simple observations. In our case, it all started with Eduard and Naman’s astute observation of the potential of emerging markets, combined with their first-hand experience with Bitmex’s rise (since it was a portfolio company while they both were at SOSV) and the realization that there was a significant gap in the market waiting to be filled.
Asia’s promising potential, combined with the rise of the DeFi wave and Eat the Rich narrative fuelled by the GameStop phenomenon in 2021, highlighted the need for an offering that provided equal opportunities for all.
This culminated into — Why not create something that provides equal opportunities not available to them before?
ZKX was born with a very exciting combination of real market insight, the gap in the market, and an offering that nobody was thinking about.
Why did we choose to build a DEX > CEX?
Before getting into the Why, let’s jump into how a CEX works.
CEXs are popular platforms where people can buy and sell crypto assets. These platforms make it easy for users to transfer funds from their bank accounts and trade crypto assets, allowing them to withdraw funds back into their accounts.
Despite the ease of transferring money from bank accounts onto CEXs and back, users don’t have custody of their accounts, which can be a problem when it comes to transparency and the security of funds. There is also fear of losing access to your funds if the platform goes insolvent. In 2022, the trust that people have placed in CEXs has been put to the test.
Think of CEXs essentially as web2 companies who operate in a web3 world, the ones the crypto industry was built to replace. It negates the point of being in web3 in the first place.
So why do people still use them? Let’s jump into the next section.
The DeFi Nodus
Firstly, to answer the question in the above section on why people still use CEX? It comes down to a familiar user experience of the web2 world that these CEXs offer. DeFi, on the other hand, is known to have an intimidating user experience, which is one of the major problems DeFi platforms are currently addressing.
The second challenge is scalability and high throughput on-chain for DeFi platforms and matching those volumes to their CEX peers.
Thirdly, bootstrapping depth-of-market and liquidity for new derivatives is only possible with incentive structures that bring market makers and traders together.
How can we move ahead from this?
What is ZKX? Starknet’s first perpetual futures DEX with self custody and true community governance.
As the heading indicates, we decided to build a decentralized perpetual futures exchange on Starknet with the final say truly in the hand of the user by offering self-custody and true community governance.
We’re not just another DEX. We’re offering the scalability of a centralized exchange (CEX) through our node network architecture developed to provide linear scaling of the exchange while providing the benefits of on-chain trading, such as account abstraction and low transaction costs, by building on Starknet.
Our goal is to create a decentralized and permissionless infrastructure that allows traders to engage in derivative trading on an L2 network with an extremely fast decentralized order book. A robust risk management engine supports the exchange to ensure liquidation and a new funding rate that adapts to the underlying asset’s volatility and offers innovative payoff structures.
We’ve partnered with industry giants like Amber Group & others to serve as market makers and users of our protocol, addressing the issue of liquidity in DeFi, depth of market. Our partnership with these CEXs ( Huobi and Crypto.com) will provide us with low-latency data feeds, demonstrating the high performance of our protocol as we move closer to Mainnet.
But we didn’t stop there. We’ve also improved the token economics by ensuring the staked native token receives a share of the revenue. This means that anyone in the community can participate in the growth of ZKX and own a stake in the exchange through revenue sharing.
The crypto derivatives market is still evolving, and several models, such as virtual AMMs, Synthetic Models, and CLOB, have their limitations. At ZKX, we’ve taken matters into our own hands and created a node network that combines the best of Virtual AMMs and CLOB without their weaknesses.
The Node Network consists of nodes that use a consensus algorithm for decentralized order matching. We prioritized scalability and performance while building a network that , and our tests reveal the current network can handle over 9000 TPS.
The Node Network has two fundamental parts -
- DEX users can now switch from automated market makers (AMMs) to a decentralized limit order book (DLOB) without intermediaries.
- The DLOB directly interacts between users, smart contracts, and the ZKX node, providing the much-needed security and reliability users demand.
- The ZKX Decentralized Node Network hosts the DLOB, data provider services, price engine, and trade matching component, all while ensuring DLOB security through a new custom made consensus algorithm and a future permissionless node client, one of its most innovative features.
- The Data Provider Service (DPS) serves as a bridge between external data sources and ZKX’s pricing allowing for greater flexibility in procuring assets, data sources, and prices.
- It enhances the system’s scalability since all order book matches will happen off chain within the node network
- That said, all fundamental checks are still within the L2 of Starknet. The order book will always be validated within the ZK-rollups and ZK-proofs framework to ensure security and privacy.
Tokenomics and Why do we stand out with Liquid Governance?
Before diving into tokenomics, it’s important to note that details regarding our total supply and distribution will be disclosed closer to token launch.
We created a governance mechanism called liquid governance which separates the voting power and token holding. A new take on the traditional model where the token holders such as whales and institutions dictate the direction of the protocol without being the actual user or value provider. A technical paper will be released soon in the summer.
How does it work?
In this model, ZKX token holders can stake their tokens to gain access to digital shares of ZKX, which is linked to both governance and protocol rewards.
The community has a chance to earn USDC revenue from the ZKX DAO by trading, staking, providing liquidity, or becoming a node provider The more actions a stakeholder performs, the more digital shares of ZKX he will accumulate. Each digital share equals one vote, allowing holders to participate in the DAO and shape the protocol’s direction. However, these tokens are non-transferable and non-tradeable.
This governance mechanism aims to incentivize positive behavior and promote long-term growth. The benefits of holding digital shares include access to protocol fee revenue, discounted trading fees, and unlocking premium features in the exchange.
Our UI game
In addition, we wanted to give a gamified experience to our traders by offering three different UIs tailored to different experience levels: Standard, Advanced, and Professional.
We understand the importance of user experience and are willing to go the extra mile to make trading as easy and enjoyable as possible for the users.
Here’s a sneak peek of our trading terminal, and it looks sleek as hell.
You will now experience the ZKX Exchange with our 𝗧𝗲𝘀𝘁𝗻𝗲𝘁 on StarkNet on 14th March.
We’re also open-sourcing our smart contracts to ensure transparency, accountability, and baring for the community to see.
Not only did we nail the technical side of building a decentralized exchange, we also built a kick-ass community of over 40+ on our Twitter and Discord.
And now, we’re taking it to the next level with our gamified Community Incentives Program, ZKX Yakuza. It’s like a whole universe with 8 characters, 3 seasons, and a storyline linked to specific initiatives. Plus, you can earn exclusive Yakuza NFTs and future ZKX tokens by navigating this universe as a Contributor, Ambassador, or Testnet trader.
We’re on the hunt for a pack of brave Contributors and Ambassadors to join our DAO and help steer the protocol’s future in Season 1. So, if you’re ready to immerse yourself in the world of Yakuza and earn some sweet rewards, check out our recent blog and join our Discord. Trust us, this level of gamification has never been seen before in DeFi
The FTX implosion may have a silver lining, as it could spark wider adoption of DeFi. This serves as a timely reminder to the crypto world of the risks involved in relying on opaque, custodial entities. As perpetual DEXs continue to gain traction, with each one boasting unique protocol designs, tokenomics, and operational performance, it’s clear that the decentralized finance sector is heating up and shows no signs of slowing down.
US vs Others
Catch all our important announcements here -
ZKX is the first perpetual futures exchange on StarkNet with self custody and true community governance. The protocol is designed to provide further scalability with a decentralized node network, an elevated trading experience and offer perpetual swaps and derivatives to any user on Starknet and Ethereum. ZKX’s mission is to democratize access to global yields through its offerings to anyone, anywhere.
In July, ZKX raised $4.5m in seed funding from backers including StarkWare, Amber Group, Huobi, Crypto.com and others.