Published: October 17, 2023
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:
- Unified Liquidity Provisioning Model: Zaros tackles the problem of fragmented liquidity by intelligently directing liquidity across various markets in a market-agnostic manner.
- Risk Assessment Strategy: Zaros enhances risk management by categorizing correlated assets into risk tiers and employing a smart funding rate algorithm. This design makes it possible to delegate risk management responsibilities to traders, allowing for a broader array of perpetual markets while ensuring the economic sustainability of the liquidity pool.
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:
- A market-agnostic liquidity provisioning model.
- A risk clusterization method for underlying assets to define maximum open interest.
- A sophisticated smart funding rate system.
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:
- Collateral Vaults: Users deposit collateral, including Liquid Staking Tokens (LSTs) like Lido’s $stETH and Frax’s $sfrxETH, into Zaros’ Collateral Vaults. These assets serve as the backing for $zrsUSD.
- Dynamic Strategy: The ERC4626 strategy-based stablecoin mechanism continually adjusts the strategy based on market conditions, Staking rewards, and other factors to ensure $zrsUSD remains stable.
- Liquidity Support: $zrsUSD plays a crucial role in providing liquidity to Zaros’ leverage trading markets, allowing traders to access a wide range of assets.
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 (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:
- Accessing a reliable source of yield: Ethereum Liquid Staking Tokens (LSTs) are among the most sustainable sources of on-chain yield. In Zaros, LPs entrust their assets to these tokens with the expectation of earning consistent returns. At the time of writing, LSTs offer an annual percentage yield (APY) in the range of 3-4%.
- Finding an alternative yield opportunity: To determine the suitability of Zaros for LPs, a valuable comparison can be made with $stETH holders, who often borrow $ETH on platforms like Aave to re-stake and amplify their rewards. This is the so-called looping strategy, and consists in borrowing $ETH against $stETH collateral to then swap or stake $ETH for $stETH and repeat multiple times to achieve a leveraged position.
- Boosting Staking rewards: By providing liquidity to Zaros’ perpetual futures markets while using LSTs as collateral, LPs have the opportunity to significantly boost their Staking rewards.
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:
- Smart Funding Algorithm: This algorithm is responsible for determining the funding rate of each supported market. It calculates the funding rate by considering off-chain volatility data, which is sourced through custom Chainlink Functions created by Zaros’ Core Contributors, as well as an asset risk tier classification provided by the risk team.
- Margin Collateral Types: Zaros places a special focus on Liquid Staking Token (LST) holders, treating them as first-class citizens within the platform. This opens up various use cases, including delta-neutral algorithmic stablecoins and the opportunity for users to arbitrage Staking rewards and funding rates. In addition to that, assets like WBTC and ARB will also be supported as margin collateral for leverage trading.
- Low-Latency Oracles: Orders within Zaros are settled using an asynchronous flow, making use of Chainlink’s on-chain price feeds in conjunction with a partner low-latency Oracle Provider. To be exact, Zaros leverages Chainlink Data Streams to settle trades in conjunction with Chainlink’s onchain price feeds. This ensures faster order execution, improved settlement prices, and front-running protection.
- eClusters: eClusters enable the grouping of markets based on factors like asset correlation, promoting a more diverse and robust set of perpetual futures markets.
- Grouping Markets for Efficient Liquidity: Zaros’ liquidity provisioning model allows for the supply of liquidity to markets in groups, preventing fragmentation among just a few tokens. This approach expands the scope of available perpetual futures markets, as many markets can be grouped together based on their shared risk characteristics, consequently broadening the range of available liquidity.
- Asset Correlation as a Key Variable: One of the pivotal variables employed by Zaros’ system is asset correlation. Correlation measures the statistical relationship between the price movements of different assets. Asset correlation is used strategically to enhance capital efficiency within the platform.
- Inspiration from AAVE v3 and Hierarchical Risk Parity: Zaros draws inspiration from existing financial models like AAVE v3’s eMode and the concept of Hierarchical Risk Parity. For instance, AAVE v3’s eMode maximizes capital efficiency when collateral and borrowed assets are correlated in price. Similarly, Hierarchical Risk Parity is a well-known technique used for building diversified portfolios.
- Reverse Application of Clusters: Zaros explores a unique approach by applying clustering in reverse. Instead of seeking diversification, it identifies clusters of assets that do not represent diversification. These clusters are strong candidates to participate in the same liquidity share of the pool, as they share similar risk characteristics.
- Delegate Risk to Traders with Smart Funding Rates: The liquidity clusters delegate risk to traders by imposing dynamic funding rates based on the cluster’s specific risks, open interest imbalance, and the latest volatility of the assets. This approach allows for more liquidity and a wider variety of markets for traders while mitigating risks for liquidity providers.
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.
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.
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.
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 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.
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.
- Collateral Allocation to Supported Vaults:
- Liquidity providers (LPs) contribute their collateral to one of the supported Vaults. Each Vault is designed to serve specific purposes and assets, ensuring efficient collateral allocation.
- Backing $zrsUSD Stablecoin:
- The collateral provided by LPs is utilized to back the minting and maintenance of $zrsUSD. This is an over-collateralized stablecoin native to Zaros and serves as the basis for facilitating trading within the perpetual futures markets on the platform.
- Leveraging $zrsUSD for Trading:
- The $zrsUSD stablecoin, backed by collateral from LPs, is instrumental in enabling the creation of liquidity within Zaros’ perpetual futures markets.
- Traders can utilize $zrsUSD as a trading asset, allowing them to get exposure on a wide range of asset pairs available on Zaros, including cryptocurrencies, commodities, and foreign exchange (FX) assets.
- Trading Fees as Compensation:
- In return for the credit provided by liquidity providers (LPs) in the form of $zrsUSD, the integrated markets within Zaros pay trading fees to each respective Vault.
- These trading fees serve as compensation to LPs for their contribution to the liquidity pool.
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.
- Traders on L2s can access deep liquidity pools for trading perpetual futures contracts, thanks to the synchronous nature of Zaros’ liquidity.
- By leveraging Chainlink’s CCIP and synchronizing liquidity, Zaros is also able to optimize LP rewards, creating a more attractive proposition for those contributing their assets to the platform.
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.
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.
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:
- Synthetix v3:
- Pros: Users can create pools with flexibility in selecting collateral and trading pairs, as well as the ability to follow other users’ strategies.
- Cons: Liquidity remains fragmented, with the $SNX token underwriting all of the trading volume.
- GMX v2:
- Pros: Greater flexibility and scalability through the collateralization of volatile markets with long and short tokens.
- Cons: GMX faces the issue of fragmented liquidity, leading to complex liquidity management for providers – which is something that $GLP already solves in v1, although at the expense of risk management.
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.
- Speculators are traders who aim to profit from price movements in the market based on their beliefs about the direction of asset prices. They are often classified into three categories:
- Technical Analysis Traders: These traders use technical analysis to make decisions based on patterns and indicators in price charts.
- Momentum Traders: Momentum traders seek to capitalize on short-term price movements, often buying assets that are already rising in value and selling assets that are declining in value.
- Swing Traders: Swing traders aim to profit from short to medium-term price fluctuations, often using technical analysis as part of their decision-making process.
- Hedgers use futures contracts to protect their portfolios from adverse price movements. They may be professional entities or individual traders looking to minimize potential losses. For example, a trader might open a long position on Bitcoin to profit from an expected price increase while simultaneously opening a small short position to hedge against adverse price movements.
- Funding rate arbitrageurs exploit differences in funding rates between perpetual contracts and spot markets. They often rely on two primary strategies:
- Funding Rate Arbitrage Between Spot and Perpetual: This strategy involves simultaneous long and short positions in both the spot market and the perpetual contract market. This way, traders aim to earn the funding fee income through perpetual contract trading. For example, you could long 5,000 $zrsUSD worth of $BTC in the spot market while shorting 5,000 $zrsUSD worth of $BTC in the perpetual contract market on Zaros.
- Diverse Funding Rates Across Exchanges: This strategy focuses on making a profit out of the differences in funding rates across various exchanges’ perpetual futures markets. Traders take advantage of lower funding rates on one exchange while shorting an equivalent position on an exchange with higher funding rates. As a result, profit is generated from the divergence in funding rates between exchanges.
CEX vs DEX
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.
- On-chain pseudonymity.
- More assets.
- Permissionless access.
- No user custody.
- KYC requirements.
- 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.
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.
- Maker and taker orders will be charged fees on a bps value set by governance.
- Order fees are collected and distributed to LPs and the DAO.
- Similar to other perps platforms, there is also a dynamic funding rate applied to the positions that contribute to open interest. This is a mechanism that is only used to balance markets’ open interest. Therefore, this delta is not collected by the protocol to be sent to LPs.
- Smart Contract Risk: Smart contract risk pertains to the security and reliability of the underlying contracts that govern the protocol. This risk will vary based on factors such as the protocol’s complexity, audit history, and upgradability.
- Governance Risk: Governance risk involves the ability of the protocol’s governors to modify the underlying logic. This risk depends on the type of governance structure (which is not yet known) including external owned accounts (EOAs), multisigs, or decisions made by decentralized autonomous organizations (DAOs) in a centralized and unilateral way. It is recommended to verify that all DAO decisions are under the influence of a timelock. This will give investors time to withdraw/deposit funds accordingly after a governance decision is made.
- Economic Risk: This involves liquidity risk as a result of liquidity conditions in the overall market. There is a cost associated with fees imposed by external protocols, slippage, as well as depeg risk of $zrsUSD.
- Oracle Manipulation Risk: Oracle manipulation risk pertains to the potential exploitation of oracles to manipulate asset prices and affect protocol operations. This could take place in scenarios when it is very easy to alter asset prices due to low liquidity conditions. However, LSTs are among the most liquid tokens in the market and Chainlink has proven to be a solid Oracle provider.
- Bridge Risk: In the case of Zaros this would be manifested via vulnerabilities on Chainlink’s CCIP. However, CCIP does not increase the attack surface or add any additional trust assumptions than those involved in Chainlink’s Oracle network.
- Liquidity Risk: Each eCluster, managed by the Cluster Manager smart contract, has an Automatic Deleveraging (ADL) mechanism by which the protocol automatically deleverages winning positions during a Black Swan event. This would occur in market events where traders on one side of the market, even with all the protection mechanisms like the funding rate, price impact and order fees applied, still manage to completely drain the credit allocated to a given eCluster and mint all $zrsUSD available to it. If this mechanism were to fail for any reason (e.g smart contract failure), it could potentially mint more $zrsUSD than its underlying backing and cause an undercollateralization event.
- LST Depeg Risk: There could be extreme scenarios or slashing events that might cause a LST to lose the peg with the underlying asset ($ETH in this case). In that scenario, if there is a significant gas spike, the smart contract might not intervene in a timely manner or efficiently offload the LST Vault’s collateral through the protocol liquidations. As a result, the system could end up with undercollateralized $zrsUSD units in circulation.
- However, this is highly unlikely, since this would involve a smart contract failure in addition to a black swan slashing event on a LST combined with significant network congestion on Ethereum.
- If there’s only a Black Swan event, depending on the intensity, the protocol should be able to safely offload LST collateral for $USDC and then keep $zrsUSD backed 1:1 to $USDC.
- It would require a failure in the soft liquidation mechanism in addition to the LST Black Swan event to have it play out in a way that the protocol wouldn’t be able to sufficiently offload the given LST for $USDC.
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.
- Guilherme Bettanin: Guilherme brings a wealth of experience in marketing and e-commerce growth. With five years of experience in e-commerce and two years in blockchain projects, Guilherme has co-founded an investment DAO and a startup accelerator. He is dedicated to driving innovation, growth, and user experience in the blockchain space, with a particular focus on onboarding traditional finance (TradFi) users to DeFi.
- Pedro Bergamini (0xPedro): Pedro is a seasoned blockchain professional with over four years of experience in blockchain projects. Pedro has also served as the Head of Blockchain for Illuvium, a prominent AAA crypto game. During his tenure, he successfully deployed Smart Contracts that secured over $1 billion of Total Value Locked (TVL) on the Ethereum blockchain.
Zaros is currently a team of 14 core contributors.
Among the team of advisors we find notable figures such as:
- @fcmartinelli: As the Co-founder & CEO at Balancer Labs, Fernando Martinelli plays a pivotal role in the development and growth of Balancer. Balancer is well-known in the Ethereum ecosystem for its non-custodial portfolio management and flexible design for liquidity provision.
- @KieranWarwick: Kieran Warwick is the Co-founder at Illuvium, a game studio focused on launching high-quality play-to-earn NFT games within the blockchain Metaverse. He is also the brother of Kain Warwick, founder of Synthetix.
- Danny Wilson: Serving as the CFO at Illuvium, Danny Wilson brings over 15 years of experience in business leadership to the table. His expertise lies in transforming and growing business performance, making him a key contributor to Illuvium’s success.
- @andyteecf: Andy Chen Fang, is the co-founder of Scalene_xyz. He has previously worked with Synthetix_io and also Hallabon.
- @sassal0x: Anthony Sassano, known as @sassal0x, is the Founder of The Daily Gwei. He’s a seasoned independent Ethereum educator, angel investor, and advisor. Through his work, he provides valuable insights and education about the Ethereum ecosystem.
- @kevinjlu: Kevin Lu, is the co-founder of Scalene_xyz. He has previously worked with Band Protocol and is an investor and advisor for Arc.
- @ethlizards: Ethlizards is a collector’s club with exclusive member rewards and a DAO fund to support Web3 games.
- @DeFiDave22: Dave, known as @DeFiDave22, is a multi-faceted figure in the DeFi space. He’s the Founder of Flywheel DeFi and PIF Labs and has been actively producing content and connecting various elements of the DeFi ecosystem for years. His involvement with projects like Frax Finance and Gelato Network underscores his commitment to the DeFi community.
Partnerships and Integrations
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.
- As a member of BUILD, Zaros will have access to essential benefits, including integration with Chainlink Price Feeds and early access to new Chainlink product releases, such as CCIP (Cross-Chain Interoperability Protocol).
- In exchange for these services, Zaros will allocate 3% of its native token supply to Chainlink service providers, which includes stakers, over time. This mutual alignment of economic incentives strengthens the collaboration between the two communities.
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.
- Users deposit their collateral, including Liquid Staking Tokens (LSTs) and other assets, into Zaros’ Collateral Vaults.
- The collateral is used to mint $zrsUSD, the stablecoin within the Zaros ecosystem.
- Once minter, $zrsUSD is deployed to the Balancer Strategy, connecting to the Balancer Vault.
- What are Liquid Staking Tokens (LSTs)?
- Liquid Staking Tokens are tokens that represent staked assets, such as $ETH or other assets, and can be used across DeFi, for example as collateral for trading on Zaros. They allow users to maintain exposure to staked assets while unlocking liquidity and, in the case of Zaros, earn boosted Staking rewards.
- What are the LST Vaults?
- The LSTs Vaults manage a share of protocol-controlled $zrsUSD. Traders can buy $zrsUSD to leverage trade on Zaros’ perpetual futures markets.
- What’s the difference between traditional futures and perpetual futures trading?
- Zaros offers perpetual futures contracts that do not have fixed expiration dates, making them more flexible for traders. It also utilizes Liquid Staking Tokens as collateral, allowing users to participate in trading while Staking their assets.
- What is the role of the Zaros native token ($zrsUSD)?
- Zaros has an ERC4626 strategy-based stablecoin mechanism called $zrsUSD. It supports Liquid Staking Tokens (LSTs) for its backing and helps bootstrap highly liquid leverage trading markets.
- How is $zrsUSD backed?
- Liquidity providers’ collateral is sent to one of the supported Vaults.
- What is ERC-2535?
- It is a design pattern that standardizes diamond contracts, which are modular smart contract systems that can be upgraded/extended after deployment and have virtually no size limit. More technically, a diamond is a contract with external functions that are supplied by contracts called facets. Facets are separate, independent contracts that can share internal functions, libraries, and state variables.
- How does Zaros communicate between its liquidity engine and deployed markets?
- Zaros leverages Chainlink’s CCIP to enable cross-chain communication between its L1 liquidity engine and L2 deployed markets. It’s a crucial piece to achieve the vision of providing traders synchronous, deep liquidity and boosting LP’s rewards across deployments powering products at supported L2s.
- What is Chainlink’s Cross-Chain Interoperability Protocol (CCIP)?
- Chainlink CCIP provides a single simple interface through which dApps and web3 entrepreneurs can securely meet all their cross-chain needs. You can use CCIP to transfer data, tokens, or both data and tokens across chains.