‘How big can DeFi get?’ is a question that has been swirling in the air since the Cambrian explosion of decentralized finance that took the world by storm two years ago. That year, the sector boomed from a mere $700 million to over $20 billion. Today, the total value locked in DeFi surpasses over $265 billion in its various borrowing and lending, exchanging, and trading protocols, leading many to wonder if it will eventually surpass the hallowed $1 trillion mark.
Here Come the Institutions
Although the first wave of DeFi products were marketed as an antidote to decaying legacy institutions and their opaque practices, institutional players have started entering DeFi in their own right, motivated in part by high yield and increasing demand from their high-net-worth clients.
Whether it’s Wall Street banks, international trading desks, or major asset managers, the bellwethers of TradFi are increasingly keen on merging and even competing against the dominant crypto-native exchanges and lending protocols that have risen to prominence in recent years.
DeFi and TradFi tend to prioritize the same things. Cost. Security. Accessibility. The appeal of blockchain technology applied to protocol that offers services is that it can introduce improvements in each of these areas to ensure financial services operate fairly and efficiently. Crucially, the benefits can extend just as readily to those under-served by the legacy system (1.7 billion people are unbanked) as those near the top of the financial pyramid.
Earlier this month, an ambitious DeFi venture emerged from stealth mode and set out its plan to take the industry to the next level. zkLend is an innovative market-market protocol built on StarkNet, a layer 2 network over Ethereum leveraging deep-tech zero-knowledge proofs. The protocols offer dual products: Artemis for retail DeFi users and Apollo for institutions. The former will enable DeFi users to permissionless borrow against their assets in a cheap, efficient, and safe way. Meanwhile, Apollo offers KYC and AML-compliant money markets for institutional and corporate users. Cheekily, zkLend says that Artemis is for degens while Apollo is for suits.
zkLend is backed by an all-star cast of investors including Delphi Digital, Starkware, and Three Arrows Capital, and an all experienced team with extensive experience across finance, technology and crypto. Over the next 12 months, both mainnets will launch in earnest, with Artemis expected in Q3 and Apollo following in early 2023.
A Monumental Money Market
Money-market solutions that allow users to leverage liquidity markets to earn interest on supplying and borrowing assets are not new: a number of defi applications already exist and some of them (Compound, Aave, MakerDAO) have performed exceptionally well. So, what can upcoming underdog zkLend bring to the party?
According to an introductory post published on the platform’s Medium page, the first iteration of the product “will primarily address inefficiencies in existing projects while also targeting a new segment of users.” Those inefficiencies include protocol exploits, price manipulation and substandard UX, all of which are deep persistent pain-points for the DeFi industry.
One of the most oft-cited objections raised by institutions concerns a lack of scaling in DeFi, while there are dedicated layer 2 solutions such as Polygon, Polkadot, Optimism, these do not offer the level of security and decentralization needed to build the next generation of financial infrastructure and services. zkLend firmly believes that their offering, Artemis and Apollo, will make such concerns a thing of the past by building on zero-knowledge tech on Starkware. Starkware’s tech enables transaction fees to be as much as 100x lower.
By developing dedicated solutions for each party, zkLend aims to address both retail DeFi users and the emerging sector of institutional DeFi. zkLend’s Artemis is built for DeFi users who value anonymity, cost and scalability. zkLend’s Apollo offering is for compliance-focused institutions that require an extra layer of permissioned compliance and whitelisting processes.
Artemis will have features such as double-sided borrowing, asset tiering, and reactive interest rates. Interestingly, permissionless Artemis and permissioned Apollo will be able to leverage one another to maximize capital efficiency at scale. While the former will offer support for long-tailed assets (even including NFTs as long-tail collateral) and algorithmic interest rate curves, Apollo will make under collateralized loans available to institutions as part of the development roadmap. A testnet for Apollo is expected before the end of the year.
Will zkLend usher in the next era of finance, one with decentralization and financial sovereignty as core tenets? Certainly, the project’s vision of welcoming the next era of finance is an interesting premise, alongside an all-star cast of investors and an experienced team with experience across finance, technology and web3. Now it’s a matter of delivering the goods.
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