What’s ZigZag?

On June 24, 2022, ZigZag, a Layer-2 order book DEX based on ZK-Rollup, initiated the token IDO via its own platform. The token only supports USDC payment. Of the total supply of 100 million tokens, 2 million were released in batches then. It was then the first round of IDO for the zkSync ecosystem.

Dissimilar to other previous token airdrops, ZigZag allows the community to independently decide the airdrop distribution threshold. The project team will release the interaction data on the ZigZag governance forum. The community will have a discussion. Then, DAO members who hold ZigZag tokens vote on the airdrop conditions and decide on the final proposal. This method was frequently used by various project parties to conduct project airdrops in 2022, but it is relatively unique for DEXs like ZigZag.

In the meantime, benefiting from the application of ZK technology, ZigZag Exchange provided a solution to solve the congestion of Ethereum, which many people favored. In fact, the scalability method reduces the Gas cost.

After the first round of IDO was open to sale, a total of 250,000 ZZ tokens were sold within two days at a price of $3.

About ZigZag

It has been over a month since the last airdrop of ZigZag in 2023. As the native token of the ZigZag exchange, ZZ has seen a general rise. We will introduce ZigZag accordingly here.

As a peer-to-peer and non-custodial decentralized exchange, ZigZag uses ZK-Rollups to drive its order book. By utilizing this innovative protocol, users can conduct transactions with extremely low fees in a fast and secure way. Additionally, they will benefit from the same quotes as centralized exchanges, regardless of their order size.

Committed to creating a decentralized exchange, ZigZag replicates the user experience of existing centralized exchanges while retaining the advantages of optimal liquidity and non-custodialization.

The ZK-Rollups utilized by ZigZag are a type of scalability solution on Ethereum. It can bind transactions on Ethereum Layer 2, thus achieving faster transactions at lower fees.

Rollup is a scalable solution that executes transaction calculations outside of Ethereum but publishes transaction data on the Layer 1 network. Since data is stored on the Layer 1 network, it is protected by the Layer 1 network and also shares the security offered by the main chain. The Rollup used here also offers two different security models: Optimistic-Rollup and ZK-Rollup.

Compared with Optimistic-Rollup, ZK-Rollup is not as vulnerable to external attacks as Optimistic-Rollup, because the transaction status will be verified and sent to the Layer 1 network in real time.

The usual confirmation cycle is unnecessary for transaction orders. Therefore, the orders can be quickly withdrawn to the Layer-1 network, which means that ZK-Rollup is very suitable for exchanges and other applications that make simple payments essential.

Generally speaking, ZigZag provides a set of Ethereum Layer 2 solutions completely driven by ZK technology for its own trading platform. They are deployed on its related exchange platforms, finally creating a decentralized exchange with a better user experience.

Although from the perspective of user perception, it has become a norm that the perfect trading experience and the optimal liquidity are generally services provided by centralized exchanges. In the old days, it was impossible for DEXs to offer the same functions and experiences as centralized exchanges due to the long-term scalability development constraints and many other factors.

Today, however, it is possible to achieve further optimization of decentralized exchanges by integrating zero-knowledge proofs on the Ethereum network, which is becoming a reality through ZigZag’s dedication.

Unlike the DEXs many users have experienced, ZigZag uses a decentralized order book model rather than an AMM model like Uniswap.

Based on this, Zigzag Exchange allows for no registration and provides users with decentralized, fast-confirmed transactions, as well as an optimized experience with low slippage and low fees.

ZigZag Exchange first released the dApp on zkSync 1.0 in October 2021. The platform only supported three trading pairs (ETH/USDT, ETH/USDC, and USDC /USDT) at the very beginning because it was designed to solve the congestion of Ethereum.

Stance and Optimization of ZigZag

Since the birth of BTC, the secondary market of cryptocurrency began to expand, and then exchanges focusing on cryptocurrency trading and settlement also started to emerge. With their development up to now, the market has undergone vicissitudes, which can be called thirteen tumultuous years.

During this time, centralized exchanges have grown into the forms the most acceptable in the market and among users. However, various problems caused by centralization occurred. Most crypto users know of them, be it technical issues, security issues, or many unnecessary negative effects.

Over a long period, calls and enthusiasm for decentralized exchanges always exist. Both the market and users expect to solve the problems of centralized exchanges through technological innovation. Development teams and projects in this field often worked out a refreshing solution to decentralization.

This problem is a home truth. The concept of decentralized exchanges has been tested for many rounds since 2016, and EtherDelta was the earliest version that won the public’s attention.

However, several years have passed, and there are not many decentralized exchanges that can be seen as quite successful. Although many platforms are still in operation, their business scale is inferior compared to that of mainstream centralized exchanges. Insufficient liquidity, high transaction costs, low product usability, and poor features are still the main problems faced by decentralized exchanges.

Hence, from ZigZag’s point of view, AMM-based decentralized exchanges will suffer the same fate as EtherDelta. After all, years of market development have proved that the cryptocurrency ecosystem is being replaced rapidly. It is very likely that they will be eliminated if they fail to make innovations to solve the many problems that have plagued decentralized exchanges.

Compared to the conditions at the time when EtherDelta was released, people have made great progress in present crypto technology. Whereas, the increase in the user base has also exerted negative effects on blockchain in terms of its congestion and scalability.

Most users believe that the problem can be easily solved as long as alternative blockchains or existing Layer scaling solutions are applied. Nevertheless, the fact that users don’t want to manually approve each transaction through MetaMask and pay gas fees for each transaction hinders the application of high-frequency transactions to all blockchains.

Beyond that, Layer 2 and alternative blockchains are simply insufficient to meet users’ needs for optimal liquidity and the ability to trade at scale. The best way is to connect to the Ethereum mainnet to obtain more favorable prices if users want to conduct large transactions. Even after users pay lots of gas fees, it cannot ensure transactions are confirmed quickly.

As a result, this model leads to congestion of the blockchain itself, as well as the problems of insufficient liquidity and high transaction costs, which will in turn further hinder the business development of decentralized exchanges.

ZigZag solves the liquidity problem by attracting and incentivizing top market makers in the cryptocurrency field. It aims to become a decentralized exchange with the highest liquidity. It can channel the liquidity that users can obtain on centralized exchanges to its platform by introducing top market makers who create many orders on centralized exchanges.

In a nutshell, ZigZag’s solution achieves the expected goals through the following measures:

• Zero-Knowledge Rollups: Built on ZK-Rollups, a Layer 2 solution to the congestion problem of Ethereum’s mainnet, ZigZag can fully focus on zero-knowledge technology. By combining the L2’s bundled transactions with L1, it achieves faster transactions at lower fees and can free up space on the mainnet.
• Decentralized order book: In a highly liquid market, ZK-Rollups has solved the scalability problem. ZigZag makes its order book decentralized, allowing users to trade instantly without registration while maintaining control of their funds.
• Excellent liquidity: The core of ZigZag’s solution is to provide theoretically unlimited liquidity with the support of top market makers in the crypto space.
• Funding of ZigZag: ZigZag has received substantial funds from the G12. At the same time, its transaction volume has reached hundreds of millions of dollars, and it has accepted Starkware’s early financing, as well as zkSync’s deployment license and Argent’s endorsement since the platform went live in November 2021.

Overall, ZigZag advocates adopting the decentralized exchange operation modes of utilizing technological innovation to allow the platform to achieve the scalability of the Ethereum network and combine the advantages of market resources to obtain high liquidity.

As for zkSync, the scalable solution for Ethereum Layer 2, it will help the platform quickly establish a new ecosystem by connecting to different applications and trading platforms. ZigZag was launched on the StarkNet main network as the first decentralized exchange.

From the market perspective, though deploying applications on zkSync may not bring about too many milestone events, ZK-Rollups, from ZigZag’s proposition, is the optimal solution, which can solve the scalability defects of Ethereum.

ZigZag Tokenomics

ZZ is the ERC-20 governance token of ZigZag Exchange. In its external description, it states that token holders will dominate the platform’s decision-making through the community, that is, it is governed by DAO and it has its own DAO vault.

The governance token of ZigZag Exchange is released along with the first round of IDO, which has been introduced above. Before ZigZag decided to issue the first round of IDO in May 2022, ZigZag’s market-maker customers suffered losses of tens of millions of dollars caused by the impact of UST decoupling, which was more or less bad news to ZZ users.

For the subsequent IDOs, it plans to release 2% in batches each quarter, starting at $3, with a total of 2 million tokens. Although it achieved good results in the early stage, bearish views dominated the market at that time.

This opinion was proved by the subsequent price changes of ZZ, which began to show a diving plunge in December 2022 from the nearly doubled increase after the first round of IDO. Until today, the price has been $0.3.

（Source: blog.zigzag.exchange）

Although the price plunge of ZZ was caused by the bear market in the crypto market, factors such as the common shrinkage of market funds and the reduction of investment from market makers may all have hit it. But as far as its own model is concerned, one of the internal reasons why ZigZag Exchange is not widely accepted is that it has failed to provide better market solutions beyond technological innovation in an environment where centralized exchanges are now considered mainstream trading platforms, thus further expanding liquidity reserves for itself.

After IDO was launched, ZigZag Exchange could not respond successfully to Sybil attacks, and the platform also failed to make some innovations in terms of technical security.

After the currency price plunged, ZigZag Exchange launched activities to encourage transactions. It airdropped ZZ as a corresponding reward (accounting for 35% of the total supply) and relied on community governance methods, resulting in frequent Sybil attacks.

It was not until February 2023 that the official began to mark 12,000 Sybil addresses and return the airdrop shares to ordinary users.

However, ZigZag still gained some popularity and has recently shown a certain increase due to the effect produced by the fluctuations of zkSync ecology. In the long run, it is still of investment value, and its governance tokens are still released in a linear process.

ZigZag Future Expectations

Though the UST decoupling incident in mid-2022 affected ZigZag, the collapse of FTX conveyed a sense of crisis to market users, which was also an opportunity for ZigZag to strive to release alternatives to centralized exchanges to the public.

The temporary rise of ZZ price after the early IDO also confirmed this point. Users’ interest in ZigZag simply depends too much on the accumulation of market resources, namely, the support of large market makers, which also caused the subsequent plunge in the price of ZZ. In the overall market downturn, ZigZag Exchange has not greatly improved the user experience compared to other centralized exchanges.

The extremely low gas fee is friendly to large-scale transactions, but the overall transaction volume and liquidity are subject to the resources of market makers. Although the characteristics of decentralized exchanges can guarantee transaction security, they cannot offer large-scale transactions with sufficient and sustainable liquidity reserves, which is undoubtedly detrimental to the subsequent growth of ZigZag Exchange.

However, the future of ZigZag is still promising. With the advent of zkSync 2.0, there is surely a growing demand for transactions in the future crypto market in the long run, and most users have accepted the value of the decentralized exchange.

Presently, the ZK-Rollups provided by ZigZag are an ideal scalability solution to the congestion of Ethereum. As a result, along with the expansion of zkSync ecology, ZigZag, the decentralized exchange as an important part of the ecology, will not stray from its long-term target.

If you plan to invest in the governance token ZZ of the platform, you need to carefully evaluate the decision. Because the characteristics of decentralized exchanges and the way of relying on community governance make ZZ more likely to put investors in a more complicated and risky environment.

Conclusion

Currently, the infrastructure only allows ZigZag to provide spot trading on zkSync. It will support margin trading and perpetual contract features in the future. Its roadmap also includes derivative trading such as decentralized stocks, bonds, foreign exchange, and commodities.

However, ZigZag now supports the community and the forum, and a group of users won by the project in the early days still helped gain good popularity.

Overall, ZigZag conforms with the definition of a standard decentralized exchange and relies on community governance to benefit the platform. It puts its technical focus on Ethereum Layer 2 scaling and the decentralized order book, and its growth relies more on the support of market resources.

With this in mind, it is necessary for us to see the future of ZigZag beyond the project itself. Its growth is largely dependent on the market and its zkSync ecology.