Proposal: Additional UST liquidity for ZigZag Exchange (update on #180)

Introduction

On the 3rd of February 2022, ZigZag Exchange received 15M UST for use in their market making wallets from Terra’s community pool after proposal #180 successfully passed.

This proposal is intended to be a follow-up on the results so far, and showcase the success of UST’s adoption on zkSync’s network.

If you have not read proposal #180 yet, I’d advise you to do so as it would provide a holistic picture:

Results of Proposal #180

zkSync and StarkNet are new networks and ZigZag will aim to be the primary DEX for both chains. Anyone that needs to swap their tokens will be able to do so with the lowest fees and best prices. Currently a big portion of our traders bridge over to zkSync from whichever chain they actively use, swap their tokens using ZigZag, and bridge back. This is because trading on ZigZag gives you better prices than using aggregators on mainnet Ethereum, as our price feeds are extracted from centralised exchanges and oracles.

Early February volume for ETH-UST and WBTC-UST was a significant portion of ZigZag’s total volume throughout the exchange, peaking at 10 February. ~$13m volume in 1 day for one pair was record-breaking for us, especially since we only have 15M UST liquidity that is shared for both pairs.

Mid February, we saw volume descend throughout the exchange. However this was not limited to solely ZigZag; all crypto exchanges suffered the same fate due to the decline of asset prices. Bear markets are not good for business.

On the 26th of February a shift happened, where Bitcoin started rallying and volume across exchanges started kicking up. On the 28th, we did $5m volume in ETH-UST whereas Binance only did $1.5m volume.

Looking at all the exchanges that have an ETH-UST pair listed (Binance, Kucoin, Uniswap, HitBTC), ZigZag does more volume than all of them combined on a daily basis. Where volume seems to originate from in those exchanges are UST pairs being traded with other stablecoins (such as USDT/UST), that help maintain a 1:1 peg.

With the current 15M UST liquidity that ZigZag is utilising, it is important to note that ZigZag generates 6% of all UST volume across every exchange and DeFi protocols. Out of 13.4B UST’s total supply, only 15M capturing such a portion of the total volume is highly impressive and highlights the success of UST’s adoption on zkSync.

What we have in ZigZag is the first exchange and subsequently first network (zkSync) that is actively using UST as their primary stablecoin. This is great news, and if we keep this going, UST will become the strongest stablecoin across zkSync and StarkNet in which we will be the only order-book DEX.

Gaining first mover’s advantage on both of the ZK chains is not something that should be understated; they are the most efficient scaling solution discovered to date for Ethereum. By planting UST’s footprint in these chains from an early position, it will result in UST maintaining its dominance as the most in-demand stablecoin.

ETH-USDC and WBTC-USDC pairs in comparison, do not seem to do much volume compared to UST pairs. With a peak of ~$2m on the 22nd of February, ETH-UST peaked at ~$13m on 10th of February.

It is clear that the traders of ZigZag have chosen to trade with UST over other stablecoins despite them being listed. This was the clear result of Proposal #180 since our ETH-UST and WBTC-UST pairs have the most thick order books, meaning that traders choose to trade on those pairs over any other.

We have made it easier for traders to withdraw their UST from zkSync instantly by creating a fast withdrawal bridge. 2M out of the 15M UST ZigZag received has been deposited there to facilitate UST withdrawals in ease, rather than waiting ~6 hours for zkSync regular withdrawals.

Furthermore, ZigZag listed 22 altcoins that are paired directly with UST. We want to continue listing newer tokens with UST pairs solely.

What’s next?

As other stablecoin pairs are not gaining traction in terms of volume, we are considering delisting them and only leaving WBTC/ETH-UST pairs up. The only other stablecoin pairs that will remain are Curve-like pairs such as USDC-UST, USDT-UST, DAI-UST.

Our market making wallets are in significant profit (~$700k) from capturing spreads as well as traders having sold their ETH and WBTC for UST at the lows (on the 24th February). As mentioned in the previous proposal #180, we will share this revenue with Terra’s treasury when we post the following proposal on whether to return the borrowed UST, or deposit it into our mammoth pool concept that will go live on StarkNet.

The mammoth pool allows anyone to deposit WBTC/ETH or UST (previously we planned on including USDC/USDT/DAI as well but we scrapped that). Several whitelisted market makers will get access to designated vaults to draw from this liquidity and use it on our platform to ensure our order books remain thick.

When this goes live, we can return the UST provided to us by Terra as our community and users can provide liquidity in a trustless manner and get rewarded for it by earning yield.

The 15M UST liquidity we were provided by Terra’s community pool has helped us out tremendously to create thicker order books and a better trading experience for our users. However, we have reached a point where the amount of volume we can capture is limited due to lack of liquidity.

If Terra has the aim to maintain this dominance over other stablecoins in the upcoming ecosystems of zkSync and StarkNet, our numbers show that ZigZag would require more UST to keep up with the increasing demand and volume.

We propose to request another 25M UST which will be used to:

  • Provide thicker order books on both WBTC/ETH-UST pairs and existing alt pairs
  • List new alts with UST pairs
  • Increase our fast withdrawal bridge’s capacity

The funds will be received in a multisig responsible by:

Taureau (ZigZag’s founder): https://twitter.com/zigzagdev99
0xMonke (proposer): https://twitter.com/Derivatives_Ape
Jeremy Ong (Delphi Digital): https://twitter.com/jeremyongws
Zon (Terra): https://twitter.com/ItsAlwaysZonny

At the address: terra1adm4n2fnjxnvz3snpk7aa7m259vzutr5hf279v

Let me know any thoughts you guys have down below, looking forward to reading your comments and answering some questions people might have.

We invite all LUNAtics to join our communities! Our links are down below:

@ZigZagExchange | Linktree

ZigZag - L2 Decentralized Exchange built on ZK-Rollups

7 Likes

Niceeee. I also love that you guys now include external folks in the multisig.

1 Like

@0xMonke first off, congrats on the passing of your first proposal and massive volume.

The numbers are impressive - but the speed at which you are requesting 1.66x the original amount is a bit fast - however, it is crypto.

$15mm in liquidity contributed to ZigZag however we can’t even get UST on the first page?

Seems strange UST isn’t on this list.

Would love to dive into this number in detail:

This is currently ~538 basis points of profit on $13mm in liquidity - at current rates, it would be more capital efficient staking this in LUNA or depositing into aUST instead.

With the additional $25mm, do you expect this profit margin to increase?

Lastly, would love to see user counts on ETH-UST pairs vs. ETH-USDC - volume can be skewed by a few large institutional traders. Is this data available anywhere?

5 Likes

Oh , looks great , Looking forward to hearing more about it .

Guys it would be an excellent idea to build a revenue share with UST treasury until you can return the liquidity.

A source of additional revenue for the treasury strengthens the Terra ecosystem and lays out a replicable scheme for additional protocols that wish to borrow liquidity from UST while building out L2 platforms. I believe this only encourages the growth of UST as the dominant source of decentralized stablecoin across L2 networks.

If our aim is to build a robust censorship resistant source of stable-coin liquidity, then strengthening UST treasury is a no brainer opportunity for a win-win scenario.

1 Like

nice,good idea.

Hi Fig,

Thank you for your questions. I will do my best to answer them.

UST is in fact listed on our front page (as well as LUNA). I think at the time of your screenshot, you had to scroll to the right to be able to see it.

Moving on:

$700k profit with $13m liquidity is quite substantial in our view, that’s a 5.38% return in only 1 month.

I hope you can agree. This is while the size of trades people can take was relatively limited, when we increase our liquidity, I predict that our revenue will increase as well.

We do have data on all unique users, this can be seen below:

It’s relatively consistent, around 1k new users every day. I’ll try to get user data on those specific pairs and will update when I have those figures.

1 Like

Thanks for the color here, glad to see a bit more details behind the ask.

I see now that the proposal is live for voting - mind providing a bit more clarity:

  1. Why not reinvest that market-making profit into the bridge development?

  2. What was the impetus for asking for more liquidity, before outlining your plans to return the borrowed UST or justifying a deposit into your own pools?

Assuming a similar demand, $2mm buffer for the fast withdrawal bridge - 5.38% profits (conservative, per your prediction) on $23,000,000 amounts to $1,237,400 on a monthly basis.

That’s ~$15,000,000 on an annual basis. Do you feel a need to bootstrap the mammoth pool beyond that?

4 Likes

This is looking like it will be the primary UST exchange, so we may as well throw more weight behind it and get UST to be on par with USDC.