Unlocking the Potential of DEX with Zeta Markets

Forward the Original Title‘社区奖励和空投预期并行，基于Solana的Perp DEX Zeta Markets为何值得关注’

With the return of the crypto bull market, the decentralized derivatives track, which is widely optimistic by the market, has also ushered in a recovery. According to DefiLlama data, on March 25, the TVL (total locked volume) of on-chain derivatives was US$3.28 billion, exceeding the high of US$3 billion in December 2021 and reaching a record high. Compared with February 25, 2.324 billion US dollars, a monthly increase of 41%. As of March 25, the 24-hour trading volume of derivatives TVL was $37.31 million.

Behind the boom in decentralized derivatives trading activities in the market, there are not only the merits of infrastructure advancements over the past two years, but also the results of the continuous innovation and iteration of DeFi derivatives protocols.

Zeta Markets is one of many rapidly growing decentralized derivatives protocols. Recently, the Solana ecosystem has adopted a perpetual contract DEX with complete on-chain central limit order book (Clob) technology, which has attracted the attention of many users. Zeta Markets performed outstandingly in the last bull market and won the Solana Global Hackathon Award in 2021, standing out from 13,000 teams. In the same year, Zeta Markets announced the completion of an $8.5 million strategic round of financing participated by well-known institutions such as Jump Crypto and Solana Ventures.

As of March 2024, Zeta Markets has exceeded $3.4 billion in trading volume and serves over 71,600 on-chain monthly active users, and these numbers continue to grow. At present, Zeta Markets has launched a number of reward programs, including the Z-Score points system and the market maker reward program. The $Z token will also be launched and airdropped to users soon.

On-chain CLOB (Central Limit Order Book) to unlock the potential of DEX

A major feature of DEX (decentralized exchange) is that most of them do not require KYC, no need to register and log in, and they provide trading and exchange services right away. Zeta operates as a non-custodial platform, ensuring that users always have full control over their assets when interacting with the platform. Its fully on-chain order book promotes transparency, making every transaction visible and permanently recorded on Solana. Zeta Markets’ initial focus was options, which are relatively complex and mature financial products in the traditional financial market, but have not yet been deeply developed in the crypto market. A little over a year ago, Zeta shifted gears to focus on products like perpetual futures.

Perpetual contracts (Perp) are the most popular derivatives (with the highest product-market fit (PMF)) in the cryptocurrency market. And like other chains, Solana has many Perp protocols. Among them, Jupiter uses a peer-to-pool model, leading to relatively low capital utilization and limited tradable assets. Mango uses a decentralized order book, but it has been negatively affected since the hacking incident in 2022. Drift uses a vAMM and RFQ mechanism, which is relatively inefficient, and liquidity providers (LP) in AMM might face the risk of loss. Also, due to RFQ auctions, the execution speed of trades is slower, and due to the high AMM slippage, its pricing is relatively worse compared to the order book. Zeta Markets, on the other hand, uses a fully on-chain Central Limit Order Book (Clob).

Fully on-chain Clob is a relatively new concept. In fully on-chain Clob, the order book is decentralized and maintained on the blockchain. There is no central party to match orders or settle trades. Instead, participants interact directly with the blockchain and submit their orders to a decentralized order book. Transactions are executed via smart contracts based on predefined rules. All matching engine logic runs on-chain and is executed by a network of validators. In this regard, among products in the same category, only dYdX V4 currently uses similar technology. Most of the other perpetual contract DEXs on the market currently use centralized order books.

In addition to using fully on-chain Clob technology, Zeta also has a fast, low-latency, event-driven architecture. Its backend transmits order book prices to the frontend within milliseconds after reaching the network, providing a user experience as fast as a CEX. Zeta’s margin risk engine allows for excellent capital efficiency. Users can leverage up to 20x across all perpetual markets using the same shared collateral.

In terms of security, Zeta has also maintained a good record. Zeta has advanced exchange security mechanisms such as insurance funds, global holdings and withdrawal rate limits to prevent malicious attacks. In the three years of operation, Zeta has not had a smart contract vulnerability incident.

Striving to be Solana’s First DeFi Layer 2

Zeta Markets was founded by professionals familiar with the world of trading and software development. CEO Tristan Frizza is a former machine learning (ML) scientist and mechatronics engineer with a background in computer science. Other main technical team members come from traditional financial high-frequency trading hedge funds and have extensive experience in the field of financial product trading.

Historically, during DeFi Summer, DeFi applications on Ethereum were limited in their development because they were often slow, clumsy, and expensive to use. However, based on the Solana chain, Zeta will not let users feel that they need to compromise when enjoying the security and transparency of DeFi. With Solana’s low gas fee and dynamic gas fee selection algorithm, Zeta ensures that users’ orders are executed at extremely low fees.

Zeta recently unveiled a project roadmap, announcing the launch of Zeta L2, the first DeFi Layer 2 on Solana, in the third quarter of this year. This development aims to alleviate the current congestion issue in some Solana block spaces. Zeta L2 is designed to enhance DEXs, enabling them to compete directly with CEXs in terms of product experience. A DEX based on Zeta L2 is projected to handle 100,000 orders per second, with an order placement latency of less than 100 milliseconds. Furthermore, market makers can provide liquidity without incurring any gas fees. Relying on Solana for security and data availability, Zeta L2 expects to achieve faster bridge times and lower data availability costs than existing Ethereum rollups.

With the arrival of the crypto bull market, Zeta’s trading volume has seen significant growth. Since the launch of Z-Score at the end of last year, the number of monthly active users has increased 24 times. As of now, Zeta has 71,600 monthly active users on-chain. As of March, Zeta’s total trading volume reached $3.4 billion, with a cumulative transaction volume of 3.4 million. The highest daily trading volume in history has surpassed $72 million, and open interest (OI) has reached $24 million.

Reward Program in Progress and $Z Airdrop is about to unfold

Currently, the Zeta project has launched a number of community-focused reward programs and is preparing for an airdrop of $Z tokens. The invitation system has also been launched recently. These plans mainly include the following parts:

Z-Score (Zeta’s points system)

Z-Score is Zeta’s points system, designed to reward loyal Zeta users and serve as a qualification certificate for future project governance token $Z airdrops. Users can earn points by trading on Zeta. In addition, participating in activities to obtain additional rewards or activating Zeta NFT cards will help increase your points. Users who participate in Z-Score Seasons 1 and 2 (currently ongoing) will be eligible to receive $Z token airdrops in recognition of their important contributions to the Zeta protocol. Even after the $Z token is launched, Z-Score will become a permanent feature for users, and traders can earn periodic platform rewards through trading participation after the token is launched.

$Z Tokens

$Z is Zeta Markets’ governance token. The upcoming launch and airdrop of the $Z token will mark Zeta’s transformation into a community-driven decentralized protocol that shares value directly with users and all active participants in the Zeta ecosystem. The airdrop of $Z will take place in two phases. The first phase will reward users for past participation in the Zeta protocol and the broader Solana ecosystem; the second phase is specifically for $Z stakers.

The Maker Incentive Program

Zeta allows its smart contracts to be connected to programs through SDK/CPI programs, suitable for market makers and other integrations. The “Maker Incentive Program” is designed to reward professional market makers who provide deep, tight and reliable liquidity on Zeta. Commencing March 4th, 2024, the program will allocate 3% of the upcoming $Z tokens to incentivize whitelisted market makers. Strategic distributions will unfold in epochs, guided by formulas considering a combination of requirements, including spread, depth, uptime, and volume per market. By allocating revenue share through a strategic allocation of fee rebates, this customized approach kicks off a powerful flywheel for liquidity, drives volume growth, and enhances the sustainable trading experience for market makers and takers, as well as stimulates healthy competition.

In addition to the above incentive mechanisms, starting from March 20, Zeta users can earn additional rewards by inviting friends to trade on the platform. Users can receive 10% of the transaction fees generated by their invitee and 10% of the invitee’s Z-Score. Additionally, the invitee will receive a permanent 10% boost to their Z-Score. Zeta Markets V2 has already been launched. Looking forward, Zeta plans to introduce V3, which will feature Zeta-Lend (a lending market), yield products, and support for multiple types of collateral, such as SOL and xSOL.

Following the DeFi Summer and the FTX collapse, DEX derivatives experienced rapid development. However, due to the convenience and liquidity of centralized exchanges (CEX), they still dominate derivatives trading. Data from The Block in February shows that the ratio of DEX to CEX futures trading volume was only 0.92%. This suggests a significant growth opportunity for decentralized derivative platforms like Zeta. Consequently, Zeta’s token launch and future plans are worth anticipating.

Disclaimer：

1. This article is reprinted from [Weilin]. Forward the Original Title‘社区奖励和空投预期并行，基于Solana的Perp DEX Zeta Markets为何值得关注’. All copyrights belong to the original author [Weilin]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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