zkLend Year in Review
Year in Review
We started this year with our three Co-Founders looking to create a core financial primitive on zero-knowledge rollup layer 2, which we still believe is the inevitable and ultimate Ethereum scaling solution. In the blink of an eye, zkLend is now a 12 strong team, a leading StarkNet community and our V1 mainnet is just around the corner. Here’s our reflection of our first year at zkLend set against perhaps one of the most turbulent years in crypto we’ve had from everyone on the team.
Part I — Spring: The Genesis
It is late 2021. What had begun as an initial research and pet project between three friends, Brian a Private Equity Director, Jonathan a Smart Contract Developer, and Jane a Chief of Staff at a Web2 start-up, turned into a viable business model when they looked to build on StarkNet. Backed by a robust team of cryptography scientists and computer engineers, StarkWare developed StarkNet with the promise of validity rollups offering scale and security of Ethereum. The founding team’s objective was clear — build a top-notch lending protocol on the best L2 there was, and then, zkLend was born.
Despite a general cooldown in DeFi Mania and one of the highest profile Web3 hacks (Wormhole’s $325mn exploit) that dominated headlines, the trio knew that StarkNet was a long-term play and went all in backing StarkNet as the winning L2 horse.
It’s hard to talk about the first quarter of 2022 without mentioning arguably the biggest event of the year. The invasion of Ukraine by Russia sent shockwaves around the world and was a wake up call that we were moving into an increasingly polarised world.
For the team, what was especially difficult was seeing some of our peers and fellow builders in crypto who have had to upend their daily lives as a result of the conflict and ambition of a handful of political elites. We would be remiss not to mention the role the Web3 community played in the fundraising efforts, with UkraineDAO raising over $6mn in just two weeks to support those affected by the war. This served as a reminder of the greatest values and potential of Web3 and crypto, which is agile coordination in a trustless, transparent, and decentralised manner.
Part II — Summer: The build
After closing our $5mn seed and strategic funding rounds in March, we kept our heads down and began building furiously. Against the backdrop of a volatile crypto economy where the events of Terra/Luna, 3AC, and Celsius exposed weaknesses within the system, we continued to focus on the long-term value of DeFi. This sentiment was also shared by many TradFi players who piled into DeFi such as SocGen’s financing through partnership with MakerDAO and JP Morgan’s foray into DeFi when it tokenised BlackRock money market fund shares to use as collateral on its private blockchain.
At the same time, the narrative around L222 was springing into life — Optimism led the way with its mainnet deployment and innovative governance model, followed by the much watched Arbitrum Odyssey launch, while StarkWare and Matter labs (team behind zkSync) raised their Series D and C rounds respectively.
Meanwhile, on the product development side, building on a new network presented unique opportunities as well as challenges. On the one hand the team could contribute and help shape the ecosystem early on. We developed tooling in Rust (see Starknet-rs, a StarkNet library in Rust, Starkli, a CLI for StarkNet) that became widely used by others building on StarkNet. We ran events online (ZEND&FRIENDS), in-person across Europe (Devconnect in Amsterdam, EthCC in Paris) and Asia (Hong Kong & Token 2049 Singapore). All of this allowed us to establish zkLend’s presence alongside StarkNet itself. However on the other hand, key dependencies such as core infrastructure and network performance at times hindered development schedules that kept us as well as our community on our toes.
By the time Artemis testnet went live in August, StarkNet network and infrastructure capabilities had expanded exponentially since Q1 with major partnerships in the pipeline (see Nethermind Juno, Consensys Infura, Metamask Snap, Chainlink, and Snapshot). For starters, users are able to bridge from L1 onto StarkNet through StarkGate and Oribter Finance, and this enabled the deployment of testnet tokens such as GoerliETH, GoerliUSDC, GoerliUSDT on Artemis as well as other AMMs. Furthermore, the introduction of price oracles have allowed protocols like zkLend to fetch asset prices on-chain to calculate borrowing capacity.
We were pleased to see that the StarkNet ecosystem grew from a handful of projects to 100+, rose to become the 4th most popular smart contract language by TVL, and reached a milestone of over 450k wallets installed between the titans of Argent X and Braavos by Q3, not to mention expanding its footprint globally through events like StarkNet CC.
Part III — Fall & Winter: The Enduring
Since the beginning of 2H 2022, the consecutive blows from the Luna collapse and the fall of SBF’s empire shook not just the crypto community but also sent shockwaves into the non-crypto tradFi world. The astounding fall of once titans was suddenly widely covered by traditional mainstream media outlets such as Financial Times, Bloomberg, New York Times, etc. The contagion affected not just many builders and friends around us but also catalysed the wider conversation about crypto regulation and the need for DeFi in the mainstream media.
Yet despite this, the resilience and conviction of the StarkNet ecosystem continued to show — the StarkWare team presented its Regenesis and Cairo 1.0 plans, as well as many projects like MatchBoxDAO, GammaX, JediSwap closing funding rounds to catch the tail end of the summer season buzz. Meanwhile, builders continued to build in the DeFi space with Aave’s deployment on Aztec, Matter Labs’ $200mn raise, Curve stablecoin, the continued expansion of Polygon’s web2 to web3 roll and its zkEVM public testnet.
The autumn and winter in some ways marked a downwards shift in sentiment and morale for the community, but seeing quiet building activity around us was perhaps both a reminder and an assurance that bear markets are for building and only the most determined teams will survive.
On the zkLend front, the closed Artemis testnet deployment and feedback program (“Moonlanding”) allowed us to synthesise comments from our community, ecosystem developers, as well as our investors in a constructive manner. One of the key outcomes from this was the decision to reskin the protocol for mainnet launch in order to simplify the user experience. An updated testnet open to all was deployed just this week as our audit and formal verification nears completion in Q4.
Part V — Where Next? Mainnet V1 & Beyond
2023 will be about users onboarding. We expect the protocol to go live within the first quarter with complete features such as TVL locking and isolated markets. Meanwhile usage and adoption will be supported by the performance optimisations of StarkNet, including commitments by StarkWare on the following:
- Sequencer parallelization
- Rewriting Cairo-VM and sequencer implementation in Rust
- Deployment of Cairo 1.0
Read more about it here.
StarkNet will continue to introduce more performance upgrades, culminating in a faster and more stable network. In parallel, as more protocols go live on mainnet, this would also increase use cases and ultimately amplify the effect of the ecosystem.
Separately, recent examples of loan defaults on institutional DeFi protocols have highlighted the flaws in existing KYC processes and the monitoring of fund flows (Maple, Truefi default instances). We have not abandoned the narrative of institutional DeFi for Apollo, but believe that current lenders suffer from information asymmetry and concentration risk in the borrowers markets, where (i) lenders are not able to assess the full extent of the risks in a transparent manner, and (ii) current borrowing markets are highly saturated with crypto market-makers and hedge funds that are exposed to the same set of market risks.
Every market reset has exposed weaknesses in current systems but has also spurred the growth of new ideas. So as we look out to 2023, we are excited to drive and be part of the next wave of DeFi protocols further simplifying the user experience.
zkLend is an L2 money-market protocol built on StarkNet, combining zk-rollup scalability, superior transaction speed, and cost-savings with Ethereum’s security. The protocol offers a dual solution: a permissioned and compliance-focused solution for institutional clients, and a permissionless service for DeFi users — all without sacrificing decentralisation.