Understanding zkLend in One Article: A DeFi Money Market Protocol Built on StarkNet

Author: zkLend

Many people still vividly remember the "DeFi boom" of 2020. During this process, we also witnessed the explosive growth of various Layer 1 and Layer 2 blockchains, all attempting to solve one problem: the scalability of Ethereum.

On the other hand, as the total locked value of DeFi on Ethereum dropped from 97% at the beginning of 2021 to 63% in January 2022, its dominance is gradually declining. In fact, Ethereum does have issues such as high transaction costs and slow operation speeds, making it difficult to meet the growing demand for blockchain infrastructure from users. Layer 1 and Layer 2 blockchains, as alternatives/competitors to Ethereum, have effectively filled this gap, providing users with faster and more economical solutions, freeing them from the burdens of high gas fees and ongoing network congestion on Ethereum. In this context, the newly emerged blockchains naturally took away some of Ethereum's locked value.

However, as the saying goes, there are gains and losses. While Layer 1 and Layer 2 blockchains have solved the issues of transaction speed and scalability on Ethereum, thereby promoting larger-scale user adoption, they have also sacrificed network decentralization and security guarantees. Users who focus on decentralization and security metrics will find that these Layer 1 and Layer 2 blockchains still have many issues, such as a smaller number of nodes, overly complicated validator requirements (hardware and staking requirements), and a low ratio of initial public offering amounts of native blockchain tokens.

Therefore, we believe that true decentralized finance must be built on a blockchain that is economical, efficient, scalable, and does not sacrifice security and decentralization (i.e., Ethereum).

What is zkLend?

zkLend is a Layer 2 money market protocol built on StarkNet, combining the scalability of zk-rollup with the security of Ethereum, allowing users to transparently borrow assets while continuously earning interest on their deposits.

Our protocol offers a dual solution for different users:

• Artemis: For DeFi users focused on decentralization
• Apollo: For institutional users focused on compliance checks

This dual solution can meet the needs of both individual DeFi users and institutional users. Particularly for institutional users, winning their trust (and funding flow) will significantly expand the capital scale of the entire DeFi system, benefiting the entire Web 3.0 community.

In fact, the relationship between DeFi and traditional financial systems is symbiotic. If the top 100 banks globally could invest 1% of their managed assets in the DeFi space, the total funding in the DeFi sector could reach $1 trillion; at the same time, DeFi would fundamentally reform the delivery of financial services on Wall Street, bringing them automation, transparency, customization, open marketplace innovations, and composable "plug-and-play" financial Legos.

With the resource cooperation and active participation of traditional financial institutions and the opportunities brought by the DeFi sector, a new financial model can be built with higher security, transparency, and innovation. At that time, zkLend can position itself as an important foundational component protocol for institutional users in the currency financing market segment.

How to Use Our Protocol?

Although the two lending protocols (Artemis and Apollo) operate independently in the initial stages, the ultimate goal is to make the two protocols interoperable to maximize capital efficiency. These two protocols will include the following two key functions:

1. Lending Assets

Users provide liquidity to each money market by depositing their assets into a reserve pool. In return, users will receive interest-bearing zTokens, which represent their share in the liquidity pool and the right to claim interest earned from the liquidity pool. Over time, as loans continuously generate interest, the total assets in the liquidity pool will also increase, and the interest on users' loans will depend on the interest rate model of the relevant assets. It is worth mentioning that users can deposit any amount into the liquidity pool, and there is no lock-up period.

2. Borrowing Assets

Users can borrow assets stored in various money markets by using their zTokens as collateral. The interest paid by borrowers on each asset depends on the interest rate model (which takes into account market demand and liquidity pool utilization). Generally, the maximum borrowing amount will be determined by the user's borrowing capacity. If the total borrowing amount exceeds their borrowing capacity, their positions may be partially or fully liquidated to ensure the protocol can operate sustainably.

Product Features

Our zkLend protocol stands out among all money market protocols due to its exceptional features. Here are the main characteristics of the two products:

1. Artemis V1:

• Built on StarkNet: Artemis V1 is the first general zk-Rollup technology launched to the market, with its scalability validated by the market. The protocol is positioned as a foundational currency component for the StarkNet Layer 2 platform, actively promoting the StarkNet community and other protocols developed on this platform.
• Focus on Long-Tail Assets: Systematically and gradually expanding support for assets with lower liquidity, such as blue-chip NFTs and long-tail collateral, while balancing the relationship between financial regulation and technical operational risks.
• Algorithmic Interest Rate Curve: Lending rates will rapidly adjust in response to the utilization of the liquidity capital pool, ensuring a smooth user experience.
• Ouroboros Incentive Rewards: Offering rewards in native tokens (ZEND) and partner tokens, focusing on incentivizing participation in high-yield liquidity capital pools, thereby increasing the overall yield of the zkLend protocol.

2. Apollo V1:

• Compliance Layer for TradFi Standards: Conducting strict background checks (KYB) and institutional compliance reviews (KYC) for entities with compliance requirements.
• Low Collateral Ratio Loans: Providing low collateral ratio loans to institutions with absolute autonomy and informed consent, enhancing the efficiency of collateral and funds.
• Stability and Predictability: Offering long-term financing financial products with fixed-term interest rates and lock-up agreements.

Future Plans

In the next 12 months, the two products mentioned above will be launched on the zkLend mainnet, with Artemis set to launch in the third quarter and Apollo expected to launch in early 2023.