Zaros - Project Breakdown | Revelo Intel


Up to date as of January 15, 2024


Zaros is a DeFi protocol at the intersection of liquid staking and perpetual futures trading. Rooted in the pursuit of real yield and enhanced capital efficiency, Zaros empowers Liquid Staking Token (LST) and stablecoin holders to optimize their rewards by contributing their liquidity to create perpetual markets. In addition to offering a market for trading perpetual futures on-chain collateralized by $USD and LSTs collateral vaults, Zaros also introduces the $zrsUSD native stablecoin.

Perps Powered by LSTs

Current protocols offering perpetual futures trading suffer from limitations such as limited trading pairs, untimely liquidations, liquidity fragmentation across pools, open interest imbalances resulting in losses for liquidity providers (LPs)… To address these challenges, Zaros has devised a two-pronged solution:

This approach shifts the responsibility of managing risk in new perpetual markets to the traders, thereby enabling a wider array of perpetual markets while ensuring economic sustainability for the returns of LPs. In essence, this unified liquidity pool can allocate liquidity efficiently across all perpetual markets, resolving the issue of liquidity fragmentation. 

Crucially, Zaros is guided by 3 key principles that aim to significantly enhance capital efficiency for liquidity provisioning, broaden open interest limits to enhance the trading experience, and diversify asset options for traders:

Soft Liquidations

In Zaros, when an individual position within a Vault approaches the liquidation threshold, the protocol enters a state known as “soft liquidation mode”. This mode is designed to create an opportunity for arbitrageurs to acquire collateral assets at a discount, as determined by Zaros’ decay curve.

Each Vault on Zaros has a predefined liquidation threshold for its underlying collateral type. When the value of the assets within an account’s position falls below this threshold, it indicates that the LP position is at risk of being liquidated. In this scenario, when a position approaches its liquidation threshold, it enters the soft liquidation mode. 

In this state of soft liquidation, the Vault allows arbitrageurs to step in and acquire the position’s collateral assets at a discounted rate, where the discount is determined by the Zaros Vault’s price decay curve. This curve is applied by a Balancer hook that runs before a swap from the collateral asset to $zrsUSD is executed. More specifically, this curve represents a mathematical function that determines the rate at which the discount increases over time. As time progresses, the discount increases, encouraging arbitrageurs to compete and act as soon as the transaction becomes profitable.


$zrsUSD is a stablecoin that is native to the Zaros ecosystem. It’s designed to serve as a stable and reliable source of value within the platform, enabling leverage trading and liquidity provisioning.

As a stablecoin, $zrsUSD is pegged to the US dollar, but this is achieved by pegging to $USDC. One notable difference is that $zrsUSD utilizes a strategy mechanism based on the ERC4626 standard. With this approach, the strategy vault can mint/burn $zrsUDS based on the demand/supply forces on the underlying Balance Stable Pool (initially $zrsUSD-$USDC). This resembles the algorithmic market operations executed by other stablecoins like $FRAX. 

$zrsUSD’s stability is achieved through a combination of strategies and collateral within the protocol:

Another point worth noting is that, while staking rewards are not part of the stability mechanism, Zaros collateral vault actually take the LSTs from LPs and uses the underlying ERC20 token as collateral to back the $zrsUSD supply. As a result, even though the staking rewards are entirely owned by the LP, they increase the system’s collateralization.

Using the Protocol

 In Zaros there are two types of users: traders and liquidity providers (LPs).

Liquidity Providers

Liquidity providers (LPs) play a pivotal role in the Zaros ecosystem, contributing to the overall functioning of the platform by lending liquidity to mint $zrsUSD. This mechanism enables the protocol to seamlessly support Liquid Staking Tokens (LSTs) as collateral, effectively bootstrapping highly liquid leverage trading markets.

In exchange for the risk they are taking, liquidity providers are entitled to benefits such as:


Zaros stands out in the DeFi perpetuals trading space by providing access to a diverse array of oracle-based perpetual markets. This breadth of offerings allows traders to engage in leverage trading on a wide range of assets, providing greater trading opportunities compared to traditional DeFi platforms.

Zaros prioritizes user experience by offering an intuitive and easy-to-use platform. It caters to both novice and experienced traders, while also supporting professional-grade trading tools. 

The trading experience is enhanced by features such as:

The image below shows correlation clusters using Spearman’s rank correlation and fractional differentiation. In the picture, $BTC, $ETH, and $BNB are highly correlated, which means that they are strong candidates to participate in the same liquidity share of the cluster. We can also see that $ADA, $DOT, $SOL, and $XRP also have moderate to strong correlations, so they can be grouped together in the same liquidity cluster as well. On the other hand, we can also observe that $PAXG is an asset with no correlation inside the cluster. This means that its risk/liquidity provisioning should be treated separately. 

Protocol Architecture

The protocol allows LST holders to boost their staking rewards by lending their liquidity to underwrite trading perpetual futures markets. This is achieved by introducing a $USDC and LSTs collateral Vaults, as well as an over-collateralized protocol-native stablecoin: $zrsUSD.

The protocol relies on a modular architecture using the EIP-2535 Diamond Pattern.


At the heart of Zaros’ protocol architecture lies a meticulously designed system that integrates various components to create a seamless and efficient ecosystem for perpetual futures trading, collateral management, and liquidity provision. 

$USDC Vault and Strategy Manager

The USDC Vault contract serves as a pivotal element within Zaros, and it is intricately linked to the Strategy Manager module.

The Strategy Manager is responsible for deploying $USDC collateral and delegates it to underwrite the execution of specific strategies. 

One such strategy involves connecting to the Balancer Strategy, a component designed to bootstrap spot liquidity for the stablecoin $zrsUSD.

Balancer Vault

The Balancer Vault is a crucial component of the architecture, responsible for facilitating liquidity provisioning for the stablecoin $zrsUSD. This liquidity is essential for the smooth operation of Zaros’ perpetual futures markets, since $zrsUSD is used for leverage trading.

Market Manager

The Cluster Manager relies on the liquidity provided by the liquidity engine’s Vaults to function effectively. It is designed to offer support for Liquid Staking Tokens (LSTs) like Lido’s $stETH, or Frax’s $sfrxETH, thereby boosting $zrsUSD liquidity to be used for trading on Zaros’ perpetual futures markets.

LST Vaults

LST Vaults allow for the efficient management of Liquid Staking Tokens. They are responsible for overseeing a portion of protocol-controlled $zrsUSD, ensuring the proper allocation of assets within the ecosystem.

Traders and $zsrUSD

Within this architecture, traders are the central actors. They interact with the protocol to buy $zrsUSD. The purchase of $zrsUSD is what enables traders to engage in leverage trading on Zaros’ perpetual futures markets, capitalizing on the liquidity and trading opportunities offered by the ecosystem.

Liquidity Engine

This module is at the core of the protocol’s functionality, empowering liquidity providers to participate effectively in the ecosystem. It consists of a Liquidity Engine that runs on Ethereum mainnet and uses Chainlink’s CCIP to delegate L1 liquidity to Zaros “Perps Engine” on Arbitrum.

Zaros’ Perps Engine

The Perps Engine facilitates access to standalone smart contracts that represent isolated markets. Therefore, the creation of each new market requires that an independent smart contract is deployed. This ensures that all trading pairs and their associated risks remain isolated from each other. As a result, the performance of one market does not impact others.

In order to start trading, traders must deposit collateral into a margin account. This step is directed towards the Perps Engine contract, which is the proxy managing both connected liquidity clusters, hence all connected markets, and the margin collateral held in trading accounts (represented as NFTs). 

Once traders have deposited collateral into their cross margin trading account, they have the flexibility to create leveraged positions on any of the supported perpetual futures contracts and automatically have their open positions’ profit used as margin balance. Cross-margin is the default leverage trading mode on Zaros’ perpetuals DEX, but traders that desire to separate their strategies into different portfolios can easily mint multiple trading account NFTs under their same EVM wallet to achieve granular margin & risk control.

Cross-Chain Liquidity Module

Zaros has strategically integrated Chainlink’s Cross-Chain Interoperability Protocol (CCIP) into its ecosystem, ushering in a new era of synchronized liquidity and interoperability. This integration plays a pivotal role in realizing Zaros’ vision of providing traders with seamless, deep liquidity while simultaneously enhancing rewards for liquidity providers (LPs) across deployments on various Layer 2 (L2) networks.

In practice, this means that the liquidity provided by LPs on the Ethereum L1 can seamlessly support trading activities on L2 deployments.

This is achieved by CCIP-enabled smart contracts on Ethereum that are responsible for transmitting essential data from Ethereum’s L1 (debt, fees…) while keeping gas fees at a minimum for traders utilizing Zaros’ products on Layer 2 solutions.

Zaros Vaults

LPs deposit their collateral into specific Vaults within Zaros, and each Vault is designated for a particular type of collateral, delegating its liquidity in form of credit to the Cluster Manager module to ensure proper allocation to markets and parameters management.. As a result, each LP position inside a Vault operates under a pre-defined collateralization ratio, which is established through a rigorous risk analysis. This ratio ensures that the Vault’s positions maintain a healthy level of collateral relative to the clusters’ liquidity  it supports.

In the event that  an individual position within a Vault breaches the liquidation threshold, Zaros activates a “soft liquidation” mode. This mode is designed to address potential undercollateralization issues promptly.

During the soft liquidation phase, arbitrageurs have the opportunity to step in and acquire the undercollateralized collateral at a discount, where the discount rate is determined by Zaros’ specified price decay curve.

Note that the curve displayed above  is just for illustrative purposes. The final parameters will be defined after conducting a risk assessment leveraging a proprietary agent-based framework.

Essentially, the Vault transforms into a custom Protocol Pool within the Balancer Vault, providing arbitrageurs with a mechanism to participate in the liquidation process.

This process serves a dual purpose. It not only safeguards the stability of the Zaros ecosystem by addressing undercollateralization but also offers an opportunity for arbitrageurs to profit from market inefficiencies.

Why the Project was Created

The driving force behind Zaros is the recognition that trading perpetual futures on-chain today is far from optimal. Issues like inefficient collateral liquidations, a limited variety of trading pairs, cumbersome decentralized applications (dApps), and open interest imbalances have persisted.

Despite the advent of new protocols and upgrades of existing ones, the scarcity of liquidity in on-chain perpetual futures markets has been a recurring issue. This, in turn, has resulted in a lack of diversity in trading pairs available on most decentralized exchanges (DEXs), making it less attractive for traders. Not only that, but the suboptimal liquidity provisioning models and risk management strategies utilized by these platforms are a clear limiting factor for introducing new trading pairs.

The image below illustrates the number of listed asset pairs vs their USD volume in a log scale, showcasing both centralized and decentralized exchanges. 


Sector Outlook

The core issue that Zaros seeks to address is the low capital efficiency prevalent in the existing liquidity provisioning systems for perpetual futures trading. 

In today’s environment, two prominent systems, Synthetix and GMX, are undergoing updates (Synthetix v3 and GMX v2) to improve their models. While both models offer flexibility and potential benefits, they also pose challenges:

From the above, it can be inferred that, while both models aim to enhance market-making flexibility, they also run the risk of further fragmenting liquidity across various markets and collateral types. This fragmentation is evident in the utilization rates of certain markets, where high open interest ceilings contrast with low utilization percentages, such as in the cases of long-tail assets like $PEPE and $DOGE.

In this landscape, Zaros positions itself as a comprehensive solution designed to improve capital efficiency, address liquidity fragmentation, and foster a more robust and efficient ecosystem for on-chain perpetual futures trading.

Potential Adoption and Market Opportunity

The market for perpetuals and futures trading is dynamic, high-stakes, and globally significant, with billions of dollars in assets changing hands daily across various exchanges, including stock, mercantile, and crypto exchanges like NASDAQ, CME, and Binance. 

Traditional Futures vs Perpetual Futures

Traditional futures trading has a historical foundation dating back to the 19th century, primarily linked to central grain markets. Over time, futures trading has evolved into a global practice where individuals and institutions engage in contracts primarily for speculation and risk management.

Perpetual futures, on the other hand, are a more recent development, distinct from traditional futures due to their lack of fixed expiration dates. Perpetual contracts are essentially swap agreements that never expire. Crypto traders utilize them to speculate on digital asset prices and open highly leveraged positions without the need for direct cryptocurrency ownership.

Perpetual futures trading attracts various types of traders, each with their own strategies and goals. That includes speculators, hedgers, or funding rate arbitrageurs.


Centralized exchanges (CEXs) have historically dominated futures trading in terms of volume and asset availability. However, recent events in 2022 (like the fall of FTX) have shed light on transparency issues within centralized entities, making decentralization an attractive prospect. As a result, Decentralized exchanges (DEXs) are gaining traction, as they offer users full custody of their assets and the promise of a more transparent and secure trading environment. This trend presents a significant opportunity for platforms like Zaros. In this context, Zaros will compete against protocols like dYdX, Synthetix, GMX, and Gains Network among others.

  • Better UX.
  • More liquidity.
  • Customer support.
  • Fiat to crypto on and off-ramp.
  • Self-custody.
  • On-chain pseudonymity.
  • Transparency.
  • More assets.
  • Permissionless access.
  • No user custody.
  • Opaque.
  • KYC requirements.
  • Downtime. 
  • Worse UX and usability.
  • Low liquidity.
  • Interoperability issues. 
  • Oracle delays (perps)

Data from September 17, 2023, shows that centralized exchanges still hold a substantial share of the perpetual futures market, with significant trading volume and open interest. Binance, in particular, accounted for more than half of the total trading volume among seven exchanges in the past 24 hours. Decentralized exchanges, however, are still in the early stages of development, contributing a modest percentage to the overall trading volume. However, this nascent stage is viewed as a promising sign for the future.

Zaro’s Role in the Market 

By offering a user experience similar to centralized exchanges while ensuring users retain full custody of their assets, Zaros aims to capitalize on the growing demand for decentralized solutions. For that, the protocol will iterate and improve other liquidity management models, such as those introduced by Synthetix, GMX, and others. 

Zaros plans to address liquidity fragmentation through innovative eClusters and distinguish itself as the most capital-efficient platform, leveraging Liquid Staking Tokens (LSTs) to support its stablecoin, $zrsUSD. 


Starting with perpetual futures trading on Arbitrum, powered by LSTs like stETH and sfrxETH, Zaros aims to empower stakers to increase their yield and provide traders with access to a broader array of markets featuring deep liquidity.

Business Model

Zaros generates revenue by charging trading fees to users who engage in perpetual futures trading on its platform. These fees are typically set as a percentage of the trading volume or a fixed fee per trade. Traders pay these fees when they open or close positions, and Zaros collects them as a source of income and/or distributes it with liquidity providers. The actual distribution of fees will be set by the DAO via governance. 

Fee Breakdown



Zaros Labs has a forward-looking approach to its Liquidity Engine. While they are currently developing core products, they intend to open up their infrastructure to accommodate third-party decentralized applications (dApps) and partner protocols. This will make it possible for other DeFi platforms (Dexs, lending markets, stablecoin issuers…) to tap into Zaros’ liquidity. 

The goal is to foster collaboration and innovation within the broader DeFi ecosystem by enabling external projects to build new products and mechanisms on top of Zaros. For instance, a third-party project could develop ERC4626 vaults that perform atomic funding arbitrage between different derivatives protocols. 


Core Contributors

Zaros is currently a team of 14 core contributors. 

Project Investors

Among the team of advisors we find notable figures such as:

Additional Information

Partnerships and Integrations

Chainlink BUILD

Zaros has officially joined the Chainlink BUILD program. This collaboration grants Zaros enhanced access to Chainlink’s renowned oracle services, technical support, and crypto-economic security measures.

As part of its commitment to the Chainlink community and service providers, Zaros has pledged to offer network fees and other benefits. This commitment serves to incentivize greater crypto-economic security within the Chainlink ecosystem, including support for stakers.


At its core, the Zaros and Balancer integration involves the connection between Zaros’ stablecoin, $zrsUSD, and Balancer’s liquidity provisioning mechanism. This integration allows Zaros to bootstrap spot liquidity for various assets, including LSTs like Lido’s $stETH and Frax’s $sfrxETH.

  1. Users deposit their collateral, including Liquid Staking Tokens (LSTs) and other assets, into Zaros’ Collateral Vaults.
  2. The collateral is used to mint $zrsUSD, the stablecoin within the Zaros ecosystem. 
  3. Once minter, $zrsUSD is deployed to the Balancer Strategy, connecting to the Balancer Vault.


Community Links

Revision History

Version 0.0 | October 17, 2023 – Initial Release