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Trade Perpetual Swaps Like Never Before
Welcome to the alpha please newsletter.
gm friends, I'm bringing you another very cool interview today.
Perps platforms are all the rage right now, and I want to introduce a new player to the game.
ZKX is a perpetual futures DEX launching on Starknet in the coming months. I have been speaking with them for a while and have decided to become an ambassador for their platform because I have been so impressed with what I’ve seen.
ZKX looks to be the first perpetual futures DEX with self-custody.
I sat down with their big-brain CTO Vitaly Yakovlev and asked him a bunch of questions.
Why should you pay attention to ZKX? Many, many reasons…
What’s your crypto origin story?
I don’t have one! There is no crazy story behind it. I started my journey in the crypto world about 10 years ago when I decided to try trading Bitcoin and Ethereum.
My background is in engineering, and I have spent most of my time with enterprise-level software systems, complicated real-time software systems, nuclear energy, and telecom for over 25 years. I started focusing on early-stage start-ups and scale-ups in Web3 and exploring blockchain around 2015/2016 when I was involved in developing a logistics delivery platform where blockchain was a natural fit for the ledger application. This was my first commercial and engineering experience with blockchain, and it helped me to make the crucial differentiation between blockchain and crypto.
Although I initially got into blockchain through trading, I quickly found a way to turn it into automated trading or trading strategies. Since then, I have combined my engineering experience with blockchain and crypto to develop new strategies and technologies.
Overall, my story is similar to that of many other engineers. I found the crypto world fun, interesting, and full of opportunities to learn and grow. And my background in engineering and commercial software development presented a wonderful match.
How did you get involved with ZKX?
When I met Ed (Eduard Jubany Tur) and Naman (Naman Sehgal), I knew we were a perfect match for each other. Our backgrounds were so different, but it was precisely what made us successful. Ed was excellent with products and crypto, Naman was awesome with bidding and finance, and I focused on tech and products. I've always believed that the product is king, not the tech, which may seem odd coming from someone who has spent their entire life in tech. But for me, finding the right application for the tech is what makes great things happen.
That's why I knew that working with these two would be amazing. It wasn't even about the blockchain or our initial ideas. It was about the personal connection and the fact that I enjoyed spending time with them. I'm a weird guy, but friendship comes through working with people I enjoy being around.
What’s the elevator pitch for ZKX?
In summary, the elevator pitch is that ZKX is the future of decentralized derivative trading, providing unparalleled scalability and user ownership through our unique node network architecture and community governance model. The exchange is built on Starknet, offering fast and low-cost on-chain trading with a robust risk management engine that ensures liquidation and adapts to market volatility. And now, coupled with the ability to work with emerging markets where the ideal off ramping & on ramping could be improved, it is a very easy product market fit.
We're also disrupting the status quo of decentralized derivative trading by catering to professional traders. We plan to offer perpetual swaps, futures, options, and traditional trading strategies, allowing traders to apply their knowledge and utilize complex financial instruments. Our unique platform treats our users as professionals, which is unheard of in the industry.
What is one of the big problems you identified in your early stages?
I remember when we started, we did not have a good data provider on the chain, and when we explained to them that we needed to be in a position where we could bring any assets on the chain so that they could trade, the answer from these providers was 'No, you can't. You can only have some assets. We soon realized that we didn't need to create a data oracle but rather an entity that could run computations and get data in a decentralized and permissionless way. This led to the idea of the ZKX node network. Additionally, we recognized that just being on a blockchain does not automatically make a project decentralized or DeFi. This depends on factors such as how data is handled and certain decisions are made. To ensure our products were truly decentralized and permissionless, we built our data provider service in the node network and an ERC-20 universal bridge, which can bring data from one tool to another. All of the products the team has created were done out of necessity to achieve true decentralization.
When deciding where to build our product, we had two options: build with restrictions or build with a tech stack that wouldn't have these limitations. Permissioned roll-ups were out of the question because they went against the idea of being decentralized and permissionless. After researching ZK within the Ethereum ecosystem, we found that Starknet was our best option. The maturity of the tech sector we could apply and the ecosystem were some of the key factors in our decision. The community of Starknet was second to none, which was a huge plus for us. I've never seen a community so friendly and open, which made it easy for us to start building immediately. In the blockchain, you resist sharing ideas if you're a competitor, but it is different. The tech stack, people, and maturity combined led us to choose Starknet.
Was it important that you built somewhere that eventually settled to Ethereum? Was that security important to you?
For me, it's clear that Ethereum is the most secure network with points of accountability and governance of the community. While running a side chain, off-chain, or app chain is fine, if I had to choose one ecosystem to build on, it would be Ethereum. This is because of the amazing products built on it, like roll-ups, Polygon, ZKSync, Meta labs, Starknet, and others. Even if TPS were not an issue with Ethereum, I would still choose it as the natural answer to where I want to build, scale, and extend. Account abstraction is a big thing, and Ethereum brings a lot to the table. While I don't want to sound like an ETH maxi as I started my journey with Bitcoin, which is still an important part of the ecosystem, Ethereum is the way to go.
What makes you different from other DEXs?
At a high level, what sets us apart is our ability to work in a permissionless, decentralized way. Unlike other DeFi solutions that may be centralized, controlled, or hosted, we have a network where we run L1 and L2 smart contracts and a decentralized node network with a limited order book and the ability to bring prices and do consensus for those prices.
Additionally, working with off-chain data sets us apart and differentiates us from other DEXs and derivatives. Anyone can run a node, and we don't control how it's run.
Our account abstraction allows users to bring actual funds, liquidity, and tokens to L2 and have control over them, unlike other DeFi solutions where deposited funds may not truly be the user's own. What unlocks this is our use of zero-knowledge proofs, StarkWare, and Starknet for cost, as well as how we work with off-chain data, which is not really off-chain. You can almost say what we run is as unique as running our own blockchain.
Are you saying your ZKX nodes will act as oracles for the price data?
I wouldn't use the word oracle because an oracle automatically presets how you work with the data on chains, specifically how you wire the data. We operate a permissionless data provider service with our ZKX nodes. Any node can take any price point from anywhere, but we only trust it once consensus is run for the data. We include the data in the smart contract only after consensus, which means the data on the chain is true for everyone. However, if you're on the DPS within the network, the data is very attached to your price point, position, and order. This is the biggest difference.
As for trading assets with lower liquidity, we have something called High Tide that incentivizes traders to trade with less popular assets. Traders can promote their assets and get rewards in the form of any ERC-20 token . The mechanism resolves the issue of empty markets as long as there is demand and an incentive to run the trade. This cannot be done on-chain but with a node network. Our ABR (adaptive balancing rate) is a complex algorithm that can run the consensus of the correctness of the computation and then provide the ABR for your order book. We have published a massive article about the ABR, and we welcome feedback from the world.
What do you think about the current perpetual trading narrative? Why do you think it’s exploded?
I believe its popularity is driven by two key factors: the flexibility in terms of what you can trade and the ability to predict market movements. Additionally, the availability of trading tools has significantly increased, particularly in emerging markets. In contrast to traditional spot trading, perpetual trading allows for greater application of financial tools and skills, resulting in the potential for larger profits. In my opinion, spot trading is similar to forex trading in that it's an industry, but it lacks the excitement and potential gains that perpetual trading can offer.
Explain how you plan to implement ‘liquid governance’ as ZKX evolves?
We are striving to create a more balanced approach in our tokenomics and have come up with liquid governance which separates the voting power and token holding. It's a new take on the traditional model where the token holders are whales and institutions and dictate the direction of the protocol without being the actual user or value provider. Rather than concentrating governance in the hands of a select few, we want active users who are invested in the protocol's future to have a say in decision-making.
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 more actions a stakeholder performs, the more digital shares of ZKX he will accumulate. By incentivizing participation, the community can earn USDC revenue by staking, providing liquidity, or becoming a node provider.
Our decisions will be made with the best interests of the protocol in mind, ultimately resulting in a larger share of the revenue for all involved. It's a shame we don't have Eduard here because he is the real expert on this subject. I wake up in the morning, make myself a cup of tea, and then think about decentralization. He does the same for liquid governance!
What’s the short term and long term goal for ZKX?
In the short term, our goal is to provide emerging markets with the ability to trade perpetual swaps without the hurdles DeFi UX has become known for. This is just the beginning of our vision for the future of decentralized finance. Our ultimate goal is to create a trend where DeFi truly represents decentralization and permissionless finance. We want to show the power of governance and demonstrate what can be achieved with true decentralization. We hope other protocols will follow suit, and the narrative will shift from "why DeFi?" to "why not DeFi?." This would be an amazing achievement and the ultimate goal for ZKX.
How are you going to attract traders?
To attract traders, we have a strategic approach covering various important features. We believe that different traders have different needs, so we aim to provide a range of options to suit everyone. Our cornerstones include a permissionless approach, revenue protocol, and the ability to apply traditional trading strategies. Our plan in V2 of our product is to offer option strategies as swaps, which is difficult to implement but we've managed to nail it.
We understand the market is competitive, and more than bringing a new logo or forking the same protocols is required. We prioritize innovation and bringing unique features to the table. Our trading terminal and platform are absolutely unique, and we're excited to show you in March when we launch our Testnet.
What’s your roadmap from now to full launch?
So, our code and products have been completed since August 2022, audited by Nethermind, and our Testnet went live on 31st March. We believe in growing ZKX based on the environment we are in, which includes our tech stack and understanding of the ecosystem. The roadmap is very simple; we are launching the testnet to get user feedback, which is crucial after spending almost two years building it.
We had multiple tests with real traders and have done significant user testing, research, trading groups, and AB and MBT testing, but now I want to hear what the users think. After the testnet, we may transition to the new version of Cairo 1.0, which was recently released and has significant technical benefits. We do not believe in just one release but rather in a continuous approach where we release more based on feedback. We plan to launch the mainnet in the summer of 2023, which marks the start of public access to our products. We will continue building and adding more features based on feedback from the testnet and mainnet. Ultimately our aim is to offer traders a good variety of trading tools and instruments, and we are planning to expand our node network to benefit other protocols pursuing decentralization.
What are you bullish on right now?
Without sounding like a broken record, I'm bullish on decentralization, which I believe is the future of finance. The problem is that certain protocols claim to be DeFi but are centralized, and this undermines the whole idea. This is why the biggest change we'll see is more people understanding why decentralization and trust are so important. I think real builders will continue to create truly decentralized products and protocols, not just paying lip service to DeFi. It's not a binary choice between DeFi or not DeFi; there are different flavors of decentralization, and it's a sliding scale. I believe that as more and more protocols move further down the scale towards true decentralization, we'll see the benefits of DeFi becoming more and more obvious to users and traders.
Do you have any advice for investors right now?
My advice would be to invest in fundamental parts of the ecosystem and infrastructure that will support the next wave of DeFi. While brands and basic things may come and go, fundamentals like the ability to bridge funds and liquidity, and offer new technologies will remain essential. It's important to invest in things that are here to stay; for me, that means investing in the backbone of the ecosystem. Other investors may have different views, but it's the key to long-term success in this space.
ZKX’s Public Testnet is now LIVE!
I encourage you all to have a play around with the platform: polaris.zkx.fi/
And that’s your alpha.
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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.