11 July 2022
14 min read

Behind the Scenes at ZKX

Behind the Scenes at ZKX

We hosted an AMA with the people behind the ZKX machine, AKA the founders of ZKX; 0xEduard, Bitpactum, and Olitsar. The AMA was moderated by our friend and fellow StarkNet Influencer: Crypto_Gurkha.

During the AMA, we discussed varied topics: the founder's story, the idea behind ZKX, current market conditions, and a mix of product and technological insights.

An overview of the questions asked during the AMA -

Overview of AMA Questions

1. What's the story behind ZKX, and how did the founders meet?

0xEduard | It's an interesting story. Olitsar and I worked for venture capital funds in Asia and the United States. While working at SOSV, we discovered a massive opportunity in catering to users in emerging markets like Indonesia and India. We realized how many limitations they had in accessing financial opportunities. And this is how the idea of ZKX was born to help people in emerging markets gain access to opportunities that were previously unavailable to them. Eventually, we opted to work on ZK-Rollup technology because we thought that would be the most scalable way to target these emerging market users.

Olitsar | I've known 0xEduard for a few years, and we've worked together on several projects. I have experience in venture building and scaling startups, and when I met 0xEduard at SOSV, he introduced me to the world of crypto. In 2020, when DeFi was picking up steam, we saw a gap in the market — which triggered the idea of ZKX.

Bitpactum | I've been working in software engineering for almost 20 years. Like many other software engineers, I saw something unusual in the form of time, Bitcoin, and blockchain in 2010 and started tinkering with it. Around 2011-2012 probably started trading. In my career, I spent most of my time with enterprise-level software systems, complicated real-time software systems, nuclear energy, and telecom. In the last 10 years, I got more involved in startups and scale-ups. So yeah, this story is exciting because it's like every other engineer who was keen when it all started and never turned back.

2. How is the support from the StarkWare ecosystem for ZKX?

0xEduard | It's been a journey for us to figure out how to make something that is future-proof and scalable with the lowest fees possible. Most of us in the team have worked in emerging markets and understand the market's potential and how crucial it is to make the platform accessible to all. During our research, we spoke to several L1s and roll-up teams, and when we spoke to StarkWare, they were accommodating, technically skilled, and had a great track record with StarkEx solutions.

We decided to build on top of StarkNet because it provided us with an environment where we could do some things that weren't possible in other web3 environments — and it also provided us with a more curated community of developers within StarkWare's ecosystem. The StarkWare team offers grants to projects that contribute to the Cairo ecosystem and foster its growth. They welcome people who can provide value to a community and facilitate that growth.

3. What are the challenges and advantages of working on CAIRO?

Bitpactum | The biggest advantage, at the same time challenge, is how to attract and onboard developers because Cairo is a novelty in the ecosystem. There are not many developers that are available there. Having said that, what is the advantage here? The advantage here from this perspective is that it is exciting from a technological standpoint. It's relatively easy, and we found a way to attract the talent and onboard web2 and web3 developers to the StarkNet technical stack.

Regarding challenges, the language is new, and some concepts may be hard to grasp and explain. It does not have iterations, or other tools common to other programming languages. As a developing team, it can be difficult to debug at times and figure out where the problem lies — whether it's stuck in Cairo or the root is the library. But we're still developing, and it's all about the learning curve. It's also important to mention how StarkWare handles these issues, and the community is very supportive.

In addition, built-ins help in performing complicated calculations that are isolated from Cairo itself. It is a steep learning curve, but because of how supportive the StarkWare team is, it's a good place to be. We already have standard token implementations by OpenZeppelin and Argent. Nile and Hardhat are also great, and a special mention goes to Braavo's wallets.

In general, with Cairo and account abstraction, everybody wants it, and the Ethereum community wants it. There are many talks, workshops, and hackathons from projects like ZKX, Only Dust, and others. So I think the biggest and the greatest thing about StarkWare is how great the community is, how fast it develops and grows, and how cheap the transactions are.

4. Can you briefly explain the DLOB model?

Bitpactum | We have an interesting architecture where we have smart contracts as the single source of truth for everything. We are the only protocol that effectively operates the DLOB, which is the decentralized limit order book. The code design of ZKX is built around it and is similar to execution mechanisms and includes things like fund control, position placement, and matching. They all sit within the traditional finance, but they are fully decentralized. The full decentralized nature of the order book is permissionless, allowing users to skip the middle parts and middlemen and interact directly with the ZKX log and smart contracts that you can trace on an order book.

One of our main advantages over other decentralized exchanges is that we are built on a decentralized node network. As a result, you can work with the data directly, with the position or the price feeds and any data. Because the network operates on partial knowledge of state principles, it's an excellent way for us to scale.

“ The ZKX principal architecture is very simple.

1. We have layer one Ethereum smart contracts; that's solidity.

2. We have Layer2 StarkNet smart contracts; that's Cairo.

3. Layer 3, our ZKX node, forms the decentralized node network that includes two layers: the data availability and network prediction algorithms and then the consensus within the network.”

In one sentence, the decentralized limit order book enables the trader to work in a fast-paced environment. What’s more important for us, we run on the principle of Trustless and Permissionless. And our order book is completely decentralized and not controlled by anyone.

5. You spoke about the DPS model in Amsterdam. Can you talk more about it?

Bitpactum | The Data Provider Service (DPS) is our data provider service. Initially, we knocked on a few doors on some very big and famous data providers, but the answer from big boys in data providers was if the asset is not in our roadmap, we don't want to bring it, but even if it is, it will take 6 to 90 days to work on that asset.

Keep in mind that we work with principles of trustless and permissionless. We wanted to ensure that the community of traders and the DAO governing the ZKX protocol can work with any assets. So our answer to that was we have the DLOB that runs within quite a substantial load network. We discussed if we extend every node with the ability to go and take any data signal, bring it to the decentralized network, verify and validate and have a consensus that the price is right, and then bring it to the trading protocol.

So, in a nutshell, the DPS is the data providing the service that offers the abstraction layer between external data that can be consumed and the protocol itself. It essentially means that if the community wants to bring any trading signal or assets, it is possible because there was already an abstraction layer within the system. So we can think about this as the massive price engine that can magically take any data and bring it to the system. Maybe it will; perhaps it's all engineering, but it gives us the scalability to do what can be done within the system.

6. How can a simple user set up a node? Explain the process and why should someone set it up?

Bitpactum | From a more practical angle, everything we do is open source. So the moment when we are ready to give the community access to the protocol's source code, it will be done within our GitHub accounts.

It is open-source, part of it is go lang, and part is on TypeScript. Anyone can take the source code and run it. We aim to provide a set of Docker images you can run on any machine or hardware. There will be some thresholds, but it should be as easy as going to our GitHub, getting the Docker link, installing the Docker to the configuration, and giving your wallet. It starts working straight away without seeing additional hassle and population or anything.

And to answer your question on why? There are several benefits, the biggest one probably from a financial standpoint. Every calculation and every computation that the node is running is rewarded. So we believe it is massively profitable to run our node; the amount of compensation paid is massively high compared to the cost of hosting.

We have a high TPS with the network, and in effect, we see ourselves almost as an extension to layer two. And we have quite an amazing roadmap for what we want to do next: the Node network and how we want to extend it. This is part of the mission of decentralization and how we can empower other protocols in other projects.

7. What is the role of DAO in ZKX?

0xEduard | Currently, decentralized exchanges provide less than 5 percent of the overall derivatives market in crypto. They also offer very few assets. Comparatively, centralized exchanges like FTX and Binance offer more than 200 pairs of perpetual swaps. It allows them to release new assets faster, which means they can always capture the initial wave of attention from traders who want to hedge their positions for new tokens that usually experience large price fluctuations. At that point, we realized that we needed to lease assets faster, and that's been the barrier to growth for decentralized exchanges.

When it came down to deciding how to create these assets and govern your world, the obvious answer was to create a DAO. But we also knew moderation is necessary to limit malicious assets and manage the protocol. So, it made sense for us to have a DAO manage the listing of assets, but we didn't like how most DAO governance these days is centered around tokens. It's not the most accurate representation of a truly decentralized open-source protocol. The ideal scenario for us is the ability to represent all the stakeholders participating in a protocol. How can we guarantee that this happens? Well, with a token, we cannot do it because the reality is that even if you do an airdrop, it just provides a temporary snapshot of whoever receives the airdrop. The issue we're facing across the ecosystem is that the ownership of these governance tokens tends to be concentrated towards whales and institutions, and it does not necessarily represent the actual users or value providers of these ecosystems and DAOs.

We want to change this and build a governance model that represents everyone involved with a protocol and provides value to the protocol. Their governance share will reflect their overall stake and position within these open source systems.

“Our idea here is Liquid Governance, where we separate the token from actual governance and representation within the protocol. You can lock your token, represent yourself, vote, and participate in the DAO”.

The representation is not permanent and goes away once you leave the protocol. We are giving the final development touches to the smart contracts in Cairo and, later on, open it up for anyone in the community to implement.

8. Do you believe the UI-UX design plays a crucial role in exchanges and define the trading experience? What will the ZKX UI-UX look like?

0xEduard | In terms of UI and UX, we have been through a journey where we understood that the initial wave of users would probably be folks who are already trading perpetual swaps and are familiar with these trading terminals with the bells and whistles. So we want to offer the same tools they require for day-to-day trading with swaps. We will have different rewards and engagement mechanisms, which is an entirely new world. In addition, we're very focused on providing a very accessible user experience for these professional swap traders.

In the future, we will simplify this experience and make it more accessible for retail users. It will probably involve a mobile application so users can track their positions and freely trade in and out. Account abstraction will also help us onboard more users into ZKX. From our perspective, in the future, we'll facilitate the user experience and enable users to log in with their Gmail account, Discord account, or Twitch account.

Bitpactum | I believe that technology is important, but the product is even more important than technology, and UI and UX directly represent the product. We cater to two very different groups of traders; experienced people who know what they want and what they are after and traders that are coming from popular retail platforms where the number of tools and instruments is limited. So the challenge for us was how can we combine something super complicated and powerful with something that anyone can start to use most efficiently.

We're creating a permissionless protocol for derivatives. And initially, applying the same set of instruments wasn't easy. So together between the product, engineering, and quant team, we've managed to create trading tools that replicate this experience on chains within the derivatives. And hopefully, people will massively enjoy using these tools.

9. What are T-Swaps?

0xEduard | T-Swap is a new instrument created with our quant team. We wanted to create a product that enables users to trade simple perpetual swaps with different payoff structures. It's important that we're aware of the changing needs of traders. As people become more sophisticated, they want different ways to trade — not only long or short. For example, they may want to trade options that will protect against extreme movements in the price but will give them profits while the price remains within a range. Such instruments are available in the options market, but they're not necessarily available as simple instruments for everyone.

So we wanted to recreate the perpetual swap experience but allow these new payoff structures in the underlying instrument. So this will take a while to implement into the code. We do have some technical papers that are going to go out now in the summer, so everyone will be able to read them and will be able to understand better what we are talking about from a mathematical point of view.

10. What are the case measures to avoid recent hacks or exploits?

Bitpactum | I believe that any system can be hacked and there are always hacks to the weakest link. It could be a smart contract, a server, or social engineering — there are many angles of attack. The blockchain protocol is also a big complex system of super-scale, so vulnerabilities are unavoidable. The best we can do is manage the risk and limit the consequences.

But it's not all bad news. We understand how complex security is and we can design new protocols from scratch, like ZKX. And effectively, it comes down to how much you think about security and how you organize your engineering process to ensure these principles are applied. We apply these principles very religiously because we want to minimize the possibility of hacks or exploits.

0xEduard | We've had our code audited by Nethermind, a well-known auditor within the system. We're taking all the usual precautions to provide an additional layer of security.

Bitpactum | In addition, we believe every user should have a self-custodial account. Layer 2 accounts are created based on your layer one signature using an elliptic curve. This is fully deterministic; obviously, it's controlled by your layer one signature. One of the reasons we do this is because we believe that at some point, there will be value in having your account within Layer 2. We are working on some interesting developments to make this a reality. Imagine being able to do more with your L2 account or your trading position, even outside of ZKX. That's the future.

11. What are your thoughts about ZKX planning to tackle emerging markets?

Olitsar | Let me answer this by addressing why emerging markets? Emerging markets have three factors that drive the adoption of new technologies:

  1. The young median age across all these markets
  2. High internet penetration
  3. Disposable income.

These factors also drive web3 adoption specifically for decentralized finance (DeFi).

“We have identified the growth levers in emerging markets and want to offer an experience of a CEX with the security of a DEX. We believe that our experience working in emerging markets has given us insight that these markets lack inclusion, opportunity, and exposure to assets. Our aim is to solve these problems and offer the same instruments to traders as other markets, which is the true essence of DeFi.”

India, Turkey, and Pakistan are among the countries with the highest decentralized finance (DeFi) adoption and trading. DeFi helps these economies solve problems like payment remittances, providing transparency in the know your customer (KYC) processes, and pushing users to a rapid adoption journey.

12. What is a Partner Programme?

Olitsar | ZKX's Partner program is designed to attract a community of partners who can help ZKX become a global exchange. This includes market makers, prop traders, algo, hedge funds, node runners, liquidity providers, wallets, and off-ramp/on-ramp, partners. We're even in early-stage conversations with insurance providers and other partners. The goal is to build a sound ecosystem for the community in the long run.

13. Can you share the idea behind StarkCon and its vision?

0xEduard | StarkWare has a great presence across the United States and Europe. We felt there was potential for StarkNet to build a presence in Asia and among technical talent, and that's how the idea of StarkCon came into being.

“We wanted to create a nexus point for the StarkNet community so they can meet, participate, and network within the ecosystem.”

In the next few months, you'll see StarkCon mixers happening in Paris, Singapore, Bangalore, and potentially more markets across Asia. And it will culminate in a StarkCon conference in Bogota during Devcon, one of the main conferences for Ethereum. We want to ensure that the StarkCon brand lasts in the long run and take it forward into 2023.

14. How can one participate and contribute to ZKX?

0xEduard | On the ZKX front, we're launching a community incentives program during the summer. We want to make it clear to everyone how they can help us and different ways to contribute.

Regarding StarkCon, you can attend our events and even host a StarkNet event in your country. We can help set it up, you know, potentially under the banner of StarkCon, and you can also be listed on the StarkCon website. We want to have a website repository where everyone can see all the different StarkNet events that are happening.

15. What are your thoughts on the current market situation?

Olitsar | We're seeing a slowdown from the first quarter of the year. Traditionally, crypto and traditional markets have always been inversely correlated. One goes down, and the other goes up. But unfortunately, because of Luna's collapse, we're going through its after-effects combined with a general slowdown of the economy. The advice to everyone in the bear market is to build and prepare a runway for the long term and eventually grow during the bull market. On the other hand, the belief is that the market downturn cleans the ecosystem and survival of the fittest.

Bitpactum | When we face uncertainty, let's focus on the fundamentals. Great things are coming our way!

About ZKX

ZKX is a permissionless protocol for derivatives built on StarkNet, with a decentralized order book and a unique way to offer complex financial instruments as swaps. The protocol is powered by a DAO and will provide an elevated trading experience with gamified leaderboards and unique liquid governance. ZKX's mission is to democratize access to global yields through its offerings to anyone, anywhere.

Twitter | Discord | Telegram | Website