ZKSwap Economy Whitepaper
January 4th, 2021
ZKSwap is the first AMM modeled layer-2 dex using ZK-Rollups technology. ZKSwap has fully enabled trustless and gas-free payment and transfer (ZKPay) and gas-free, real-time, and infinitely scalable token swaps (ZKSwap) on Ethereum layer-2.
With ZKPay, we provide a full suite of layer-2 solutions and support all ERC20 token transfer with gas-free, real-time, and a final TPS over 2000. The follow-up plan focuses on supporting all stable coins and using ZKPay’s payment services.
With ZKSwap, users can deposit layer-1 assets (ETH and ERC-20 tokens) to ZKSwap smart contracts and complete transfer, token exchange, etc., on layer-2. The funds on ZKSwap layer-2 have the same security as Ethereum layer-1. Transactions on layer-2 are executed in real-time, with no need to wait for one block confirmation, no gas fees, and almost unlimited scalability. ZKSwap is free from the bottlenecks of TPS and one block confirmation time from the underpinning native blockchain and hence will bring significant improvement to both DEXes and CEXes.
To achieve the secure, real-time, gas-free, and scalable decentralized exchange, there needs to be a well functioning token economy to incentivize all stakeholders in the ecosystem to maintain ZKSwap collectively. On one side, the allocation ratio to different participants needs to be balanced, and the lockup period needs to be both incentivizing and sustainable. This is mainly to incentivize the project team, developers, investors, and the community, striving for a smooth kick-off and stable long-term development. The other consideration is to incentive liquidity providers, gas providers, and zero-knowledge proof generators to build a sustainable system with zero-gas fees, real-time execution, scalability, and system security.
ZKS is an ERC20 token. As the ZKSwap protocol token, ZKS is a major component of the ZKSwap system. It is also a certificate for users to participate in governance, token listing, transaction verification, and buy-back. This whitepaper will elaborate on the economic model of ZKS.
ZKS Token Allocation and Vesting
ZKS Token Allocation
ZKS is the protocol token of ZKSwap, with a total of 1 billion ZKS. ZKSwap token ticker is ZKS.
The smart contract address of ZKS is https://etherscan.io/token/0xe4815ae53b124e7263f08dcdbbb757d41ed658c6.
The distribution ratio of ZKS is as follows:
- 60% to Community Mining:
Six hundred million ZKS is allocated for community mining. Five hundred million ZKS will be distributed in the first three years, and 100 million will be used for long-term incentives.
The first year will distribute 20% of total token supply, the second year 15%, the third year 15%, the fourth year onwards totaling 10%;
Community mining includes:
Proof-of-Liquidity-Mining (15% of the total supply);
Proof-of-Gas (10% of total supply);
Proof-of-ZK-Snarks (15% of the total supply);
Proof-of-TransFee (10% of the total supply);
Smart Contract Staking (10% of the total supply);
- 15% to the ZKSwap Team:
One hundred fifty million ZKS will be allocated to the ZKSwap team, with a one-year lockup from the mainnet launch. Starting from the second year, 5% of the total token supply will be distributed to the ZKSwap team every year till the end of the fourth year;
- 8% to Ecosystem Developers and Ecosystem Growth:
8% of the total token supply, totaling 80 million ZKS, will be allocated to developers and ecosystem growth initiatives, distributed in 4 years, each year 2.0%;
- 6.7% to Angel Investors:
6.7% of the total token supply, totaling 67 million ZKS, will be allocated to the angel investors. 30% of the allocated tokens will be distributed to the angel investors after ZKS being listed on the centralized exchanges, and the remaining allocation will be locked for three months and then distributed through 6-month linear vesting;
- 5.3% to Potential A Round Investors:
A total of 53 million ZKS will be reserved for potential A round fundraising one year after the project is live. The community will jointly decide whether to launch the Round A investment. Should there be Round A investments, the allocated tokens will be subject to a 3-month lockup and 12-month linear vesting; should there be no Round A investment, the community will vote on the token usage or burning the tokens.
- 4% to the Initial Liquidity:
A total of 40 million ZKS will be used to provide initial liquidity for (ZKS-USDT) on Uniswap and Gate.io at 3 pm on January 6, 2021, Beijing time. The initial liquidity ratio is 40,000,000 ZKS / 3,000,000 USDT. Among them, 50% of initial liquidity will each be allocated on Uniswap and Gate.io.
- 1% to Advisors:
1% of the total token supply, 10 million ZKS, will be allocated to advisors. The tokens will be distributed in 3 years, 0.33% each year;
ZKSwap is a community-based decentralized token swap protocol. Most of the protocol tokens will be distributed through Community Mining and allocated to community members who participate in the system. Tokens allocated to Community Mining accounts for 60% of the total token supply. Proof-of-Liquidity-Mining accounts for 15% of the total token supply, Proof-of-Gas 10%, Proof-of-ZK-Snark 15%, Proof-of-TransFee 10%, and Smart Contract Staking 10%.
Developers are also essential participants in the ZKSwap ecosystem. They are responsible for building and maintaining the technical infrastructures. The ZKSwap official team is responsible for the development and maintenance of ZKSwap and will obtain 15% of the total ZKS Tokens within four years. Community developers and other developers who provide services or products to ZKSwap users will receive from the allocation 8% of ZKS Token within four years, and some of the 8% will be used for airdrops and incentive programs for community members participating in early-stage testing.
4% of the total supply of ZKS Token will be used on decentralized trading platforms such as ZKSwap and Uniswap within the first year of the mainnet launch to provide initial liquidity of ZKS.
ZKSwap has reserved 13% of the total ZKS Tokens to attract angel investors and potential Series A investors, legal/exchanges/media advisors, etc.
Token Lockup Period and Vesting
Most of the ZKS Token will be unlocked within 4 years after its launch, and the rest provides long-term incentives to the system after 4 years. The vesting schedule is as follows:
The 1st Year 33.03% in circulation
Community Mining 20% + Angel Investor 6.7% + Initial Liquidity 4% + Ecosystem Developers and Ecosystem Growth 2% + Advisors 0.33%
The 2nd Year 59.32% in Circulation
33.03% + Community Mining 15% + A Round Investors 3.95% + ZKSwap Team 5% + Ecosystem Developers and Ecosystem Growth 2% + Advisors 0.33%
The 3rd Year 83% in Circulation
59.32% + Community Mining 15% + A Round Investors 1.35% + ZKSwap Team 5% + Ecosystem Developers and Ecosystem Growth 2% + Advisors 0.33%
The 4th Year and onwards 90%+ in Circulation
83% + ZKSwap Team 5% + Ecosystem Developers and Ecosystem Growth 2% + Long-term Mining Incentives (proportion to be determined)
ZKS Community Mining
As listed above 60% of the ZKS Token will be allocated to Community Mining participants, including liquidity providers, gas fee providers, zero-knowledge proof providers, and users who participate in trading as mining. Those participants ensure the correct operation of the system. They are the key contributors to the realization of zero gas fees, scalability, and real-time trading.
We name the three types of mining as Proof of Liquidity Mining, Proof of Gas, Proof of ZK-Snarks, and Proof of Trading.
Liquidity is the most critical factor for the ZKSwap trading experience. Therefore, 15% of ZKS Tokens in the system will be distributed via Proof of Liquidity Mining to reward ZKSwap liquidity providers.
A total of 150 million ZKS will be distributed through PoL. 6% of the total ZKS supply will be distributed in the first year, 4.5% in the second, and 4.5% in the third year.
ZKSwap liquidity mining is expected to start about 2–3 weeks after the official launch. It is analogous to Uniswap’s liquidity mining mechanism. For some specific trading pairs, users who provide liquidity will be rewarded with ZKS. The liquidity provider of specific ZKSwap layer-2 liquidity pool(s) can obtain a corresponding proportion of ZKS Token by the LP Token of the corresponding liquidity pool. The liquidity pool and reward ratio will be announced at the same time when the mainnet is launched. Subsequently enabled pools and respected rewards will be jointly decided by the community.
For each transaction on the ZKSwap layer-2, ZKSwap needs to submit zero-knowledge proofs to Ethereum layer-1 to ensure security. For each interaction with the Ethereum layer-1, a certain amount of Gas fee will be consumed. In zkSync and other ZK-Rollups-based systems, this part of the Gas cost is covered by the user.
ZKSwap proposes Proof-of-Gas (POG), a proof mechanism based on Ethereum Gas consumption, making it possible to allow a third party to pay the user’s gas fees.
The gas fee provider can deposit any amount of ETH in ZKSwap’s payment contract and pay all ZKSwap users’ gas fee. In return, the Gas fee payer gets reimbursed with corresponding ZKS tokens.
The PoG mechanism is implemented by smart contracts. When the ZKSwap goes live on the Ethereum mainnet, a smart contract will be deployed for paying gas fees. Any user can deposit ETH to the smart contract and make a pledge (Gas deduction commitment), the ZKSwap system will use the ETH in the smart contract to pay gas fees for the users.
In the first three years after launching on the Ethereum mainnet, 10% of the total ZKS tokens will be distributed as PoG mining rewards (4% in the first year, the second and third years 3% each, totaling 100 million ZKS).
In the first year, 109,589 ZKS will be distributed to PoG miners every day. The specific rules are as follows:
Suppose the total gas fee consumed by all ZKSwap users in one day is 50 ETH, and the PoG smart contract has already locked a total of 500 ETH. If the PoG miner deposits 1 ETH to this smart contract, then the smart contract will use this much of ETH each day for the amount this miner has deposited:
1ETH / 500ETH * 50 ETH = 0.1 ETH,
And this miner will, in turn, get this much of ZKS on this day:
0.1ETH / total system consumption 50ETH * 109589 ZKS = 219.18 ZKS.
Please note that the gas cost per day is determined by the system’s actual transaction numbers and the congestion level of the Ethereum network. And the total amount of ETH locked in the PoG contract is changing over time, so the minging ratio of ETH/ZKS is not fixed.
All ETH locked in the PoG contract can only be used to pay for the Gas fee required by the ZKSwap system, and will not be used for any other purposes. The PoG smart contract address will be released when the mainnet goes live, and the corresponding security audit results will be announced.
All transactions in layer-2 of the ZKSwap system need to generate zero-knowledge proofs and submit them to Ethereum layer-1, so there will be a lot of computation. In the initial stage of the project’s launch, the ZKSwap team has deployed many high-frequency AMD CPU servers to generate zero-knowledge proofs(ZK-Snarks). In fact, it doesn’t matter who generates and provides the ZK-Snarks, as long as the ZK-Snarks are submitted to the layer-1 in time. In theory, the more people participate in the generation of proofs, the higher the system’s TPS will be, hence to realize safe and real-time transactions.
ZKSwap will open Proof-of-ZK-Snarks mining one month after its mainnet launch to encourage users to contribute their computing power to generate ZK-Snarks. 15% of the total ZKS tokens will be used in the first three years to reward Proof-of-ZK-Snarks miners. (6% in the first year, 4.5% each in the second and third years, totaling 150 million ZKS).
In the first year, 164,383 ZKS will be distributed as PoZK mining rewards every day. The specific distribution rules are as follows:
Assuming that a total of 10,000 ZK-Snarks are submitted in the ZKSwap system that day, and if a PoZK miner submits 10 of these ZK-Snarks, the PoZK miner will get:
164,383 ZKS* (10 ZK-Snarks/Total 10,000 ZK-Snarks) = 164.383 ZKS
as that day’s PoZK mining reward.
Please note that the number of ZK-Snarks assigned to PoZK miners is proportional to the number of
ZKS pledged by the node itself.
The ZKSwap team is also working hard to develop the GPU compatible Plonk. So when we officially announce it, it is expected to support CPU and GPU to generate ZK-Snarks. Of course, if community members are interested, they can also research the Plonk proof FPGA version and even ASIC chips to speed up ZKSwap’s layer-2 proof calculation process and improve ZKSwap’s TPS.
If so, ZKSwap’s trust-free TPS can break through 100 or even 1,000 as soon as possible. By then, the efficiency advantage of layer-2 is comparable to be dozens or even hundreds of times improvement of Ethereum yet with the same security as the layer-1. It will inevitably bring about the explosion of blockchain applications on the layer-2. ZKSwap will also become a portal to layer-2, driving all DeFi based on ZKSwap to achieve a smooth experience on layer-2.
ZKSwap is a new generation of a layer-2 decentralized exchange, and the token swap is the core of the entire system. To incentivize users, ZKSwap introduces Proof-of-TransFee(PoT, proof of transaction fee). All users who trade on ZKSwap layer-2 will get ZKS according to the number of daily transaction fees paid.
In the first three years, 10% of the total ZKS tokens will be used as PoT mining rewards (4% in the first year, 3% for the second and third year each, totaling 100 million ZKS).
In the first year, 109,589 ZKS will be distributed as PoT mining rewards every day. Specific reward rules such as follows:
Assuming that the transaction fee of all liquidity pools of ZKSwap on one particular day is equivalent to $50,000, and a user pays a total of $50 for the transaction fee, then
The user can get
($50/$50,000) * 109589 ZKS = 109.589 ZKS
as a PoT mining reward on that day.
Smart Contract Staking (PoS)
To incentivize long-term ZKS holders, ZKSwap will also support Smart Contract Staking after the mainnet is launched. Staking participation and reward distribution are completed through smart contracts to avoid centralization risks. It is expected that 10% of the total ZKS tokens will be distributed through Smart Contract Staking (4% in the first year, 3% in the second, and 3% in the third year).
Staking participants need to lock ZKS to the designated staking smart contract. The contract will automatically calculate the staking reward based on the locked ratio, and the user can retrieve it at any time.
In the first year, it is estimated that 109,589 ZKS rewards will be distributed to staking users every day according to the lock-up ratio in the first year.
For example, if a user’s effective lock-up amount is 50,000 ZKS on that day, and the total lock-up amount in the staking contract is 50,000,000 ZKS, the user is expected to receive
(50,000 ZKS / 50,000,000 ZKS) * 109589 ZKS = 109.589 ZKS
on the day. The specific rules and smart contracts for lock-up will be released after the mainnet goes live and will be fully open source.
ZKS Usage Scenarios
As the protocol Token of ZKSwap, ZKS represents the holder’s rights and has practical utility value. ZKS can be used in the following scenarios.
ZKSwap is a decentralized project led by the community. ZKS is the certificate of community participation in governance:
- Users who hold a certain number of ZKS can initiate upgrade proposals, such as modifying the transaction fees, editing liquidity mining enabled pools and the ZKS long-term incentive plan, etc.;
- All ZKS token holders can vote on the proposal, and only the proposal with the majority vote will be passed, and the development team is responsible for implementation.
Vote/Pledge for Listing
ZKSwap supports limited trading pairs. Except for the initial trading pairs set by the ZKSwap team, users who hold ZKS can vote or pledge ZKS to list certain tokens:
- ZKS holders can initiate a coin listing proposal through the above governance process, and they can list the coin if they get a majority of votes;
- For users who hold a large amount of ZKS, they can pledge ZKS for listing;
The ZKSwap team will execute token listing based on the results of voting or pledge. All users can create trading pairs or adding liquidity after one token is listed.
ZKS Buyback and Burn
The ZKSwap protocol will charge 0.3% of all layer-2 swap transactions as the transaction fee. Among them, 0.25% will be automatically allocated to the liquidity provider, and the other 0.05% will be used as the protocol fee. All protocol fees (100%) will be used to buy back ZKS regularly, the ZKS obtained will be directly destroyed, and ZKSwap officials will not receive any transaction fees.
Layer-2 Node Plan
As mentioned in the previous section, ZKSwap’s layer-2 nodes are responsible for submitting the transaction’s zero-knowledge proofs to layer-1. The prover nodes will get ZKS rewards by participating in PoZK mining. These Prover nodes responsible for submitting proofs need to pledge ZKS tokens to obtain the right to generate ZK-Snarks. The amount of the pledge is proportional to the ZK-Snarks task assigned. After ZKSwap goes live on the mainnet, the layer-2 node plan will be released. The prover nodes will participate in PoZK mining to jointly maintain system security and scalability while obtaining ZKS as mining rewards.
To Sum Up
ZKS is the ZKSwap protocol token, which is a crucial link to incentivize participants to build the ZKSwap ecosystem jointly. 90% of the total token distribution will be completed within the first four years. Among them, more than 60% of ZKS Token will be distributed to ZKSwap infrastructure providers, including liquidity providers, Gas fee providers, zero-knowledge proof service providers, and everyday users.
Users who hold ZKS can participate in ZKSwap governance, to vote or pledge to list tokens, and pledge ZKS to be a layer-2 PoZK node.
Thanks again to the global ZKSwap community for your support of ZKSwap. The ZKSwap team also hopes to work with users to create a real-time, gas-free, and secure layer-2 swap protocol, which will become an important part of the future layer-2 infrastructure.
And You can find us here🥰:
ZKSwap Official Website: https://zks.org/en
ZKSwap APP: https://zkswap.app
ZKSwap Twitter: https://twitter.com/ZKSwapOfficial
ZKSwap Official Telegram group: https://t.me/zkswapofficial
ZKSwap Discord: https://discord.gg/ZRxS8fYTDv
ZKSwap Medium: https://zkswapofficial.medium.com/
ZKSwap Github page: https://github.com/l2labs