Zaros: Money Legos at its finest!

The adoption of a new technology does not happen overnight. However, those who see the potential early can highly benefit from it.

DeFi holds the promise of revolutionizing the financial system. It all started with DeFi 1.0, when people discovered how to use it, its benefits, and most importantly (for investors), the potential to generate ALPHA.

While bull markets and bear markets come and go, technological advancements improve at each cycle. In the last bull run, DeFi 1.0 gained traction with mercenary and highly inflationary incentives.

Then, the concept of real yield emerged as a solution to this issue. Currently, the landscape witnesses the development of DeFi Money Legos, representing a modular approach to financial applications. This composability, unique to DeFi, does NOT exist in traditional financial systems, offering early adopters the opportunity to witness a paradigm shift firsthand.

In this article, we’ll dive into the concept of "Money Legos" and explore how Zaros, a protocol deeply ingrained with this “ethos”, is shaping the perpetuals DEX industry.

Here are the topics we’ll be covering today:

  • DeFi 1.0: The Beginning

  • Composability Explained

  • DeFi Money Legos: A New Era

  • Zaros: Perps Money Legos

Let’s dive into it!

DeFi 1.0: The Beginning

Decentralized Finance (DeFi) emerged as an innovative technology. Decentralized applications (dApps) empowered users to engage with smart contracts on Ethereum, facilitating automated transactions such as swap trades within liquidity pools. Also, projects enabling lending and collateralized debt positions (CDPs) were introduced. This entire era witnessed the emergence of platforms like Uniswap, AAVE, Compound, and MakerDAO.

The evolution of DeFi 1.0 didn't stop there. Initially, protocols were marked by inefficiencies. Curve Finance innovated by building a significantly more efficient method for trading stable assets within stablepools, while Uniswap V2 and then V3 also brought novel features.

Subsequently, additional protocols such as Yearn Finance and Synthetix emerged, aiming to amplify yield returns and introduce on-chain derivatives.

All of these protocols drew in a lot of attention, leading to the emergence of numerous other projects. Many of these new projects were forks of Uniswap, AAVE, or Compound and heavily relied on the concept of "Yield Farming."

However, the yield generated during this period differed from what we now know as "real yield," which comes from revenue. Instead, it primarily stemmed from inflationary measures and high incentives aimed at offering massive unsustainable APYs to attract users from other protocols.

Certainly, this strategy proved effective for a while. As shown in the DeFiLlama chart below, the TVL of DeFi protocols surged from $500k to $190 BILLION between 2018 and the end of 2021. However, the subsequent bear market was tough.

Source: DeFiLlama as of 02/04/2024
Source: DeFiLlama as of 02/04/2024

We learned a lot from this era. Inflationary measures don’t work in the long run, we need real yield.

During the bear market, fresh new projects brought innovative solutions to the industry, and many of them explored something extremely valuable: Composability, which then gives birth to the concept of “DeFi Money Legos”.

Let’s explore more about it in the next section.

Composability Explained

The blockchain allowed the emergence of DeFi through smart contracts and the transparent nature of the network.

Thanks to this technology, the ecosystem is highly COMPOSABLE. But what does this even mean?

Here’s a definition:

"Composability refers to the ability for different components or elements to be combined in alternative ways to create new systems or structures."

In the context of DeFi, it involves combining various protocols and technologies to form a new dApp.

DeFi is composable, and this is something that TradFi is not.

DeFi Money Legos: A New Era

The concept of "DeFi Money Legos" came from the blockchain's composability.

To better understand this idea, imagine each DeFi protocol as a Lego block. Developers can freely stack different protocols and assets, much like assembling LEGO sets, to create a new application.

One of the major advantages of Money Legos is that developers don't have to invest time in building something entirely from scratch. Instead, they can leverage existing components to build innovative applications.

This benefits both developers and users: Developers can create superior applications in less time, freeing up resources for other tasks, while users gain access to innovative platforms that can generate ALPHA for them.

A prime example of Money Legos is the liquid staking sector. Lido Finance enables users to stake their assets and receive a liquid token in return, with a portion of the staking fees allocated to validators and the protocol.

Given the immense importance of liquidity, users quickly embraced liquid staking protocols. Recognizing the opportunity, other projects entered the sector. For instance, AAVE began incorporating LSTs into its operations, Prisma Finance utilized LSTs to back a stablecoin, and Zaros is leveraging LSTs (alongside LRTs) to bootstrap perpetual futures markets! Composability at its finest!

Source: DeFiLlama as of 02/04/2024
Source: DeFiLlama as of 02/04/2024

Here’s an overview of the importance of money legos in today’s DeFi protocols!

  • Pendle Finance: Enables yield trading with DeFi assets such as LSTs, LRTs, and others.

  • EtherFi: Introduces a Liquid Token for Restaking activities (LRTs).

  • Prisma Finance: Leverages LSTs and LRTs as collateral to back a stablecoin.

  • Zaros: Enables the boosting of LSTs/LRTs’ yield to users who provide liquidity to the protocol.

Such innovative protocols only exist because of composability.

DeFi Money Legos also foster a more robust ecosystem. When users engage with platforms like Pendle for trading LSTs or LRTs’ yield, both Lido and EtherFi benefit from it, contributing to the overall health of the ecosystem by attracting more interest and liquidity to the blockchain.

Zaros: Perps Money Legos

We already talked a little bit about Zaros here, but let’s dive further now.

Composability is FUNDAMENTAL to Zaros. The protocol is built in complete alignment with DeFi’s values.

On Zaros, liquidity providers can deposit LSTs/LRTs into ZLP Vaults (and potentially other tokens in the future) to bootstrap decentralized perpetual futures markets. Through liquidity provision, LPs receive 70% of the protocol's trading fees, thereby boosting their (Re)Staking yield significantly!

This model not only benefits LPs by boosting their earnings but also offers traders access to a leverage trading DEX with substantial liquidity. Liquid (Re)Staking is the biggest sector in DeFi, it’s where the liquidity of the market is. Zaros is tapping right into it!

To understand more about the narrative behind Zaros, feel free to read our recently posted article: A Match Made in Heaven: How can Derivatives and LSTs/LRTs Boost Each Other?

A practical example of how YOU can benefit from DeFi’s Money Legos could be:

1. You buy ETH.

2. Use the ETH as collateral on AAVE to borrow stETH.

3. Restake your stETH via EtherFi and get eETH.

4. Provide liquidity on Zaros using eETH, thereby earning boosted rewards!

In this process, you're effectively taking a long position on ETH through AAVE, leveraging liquid staking yield, enhancing rewards through restaking, and finally contributing your eETH to provide liquidity in a perpetual futures market, thereby earning boosted yield from trading fees.

Explain this to a TradFi guy…

Final Message

The goal of this article was to illustrate the progression of DeFi and underscore the significance of composability.

Money Legos are the beauty of DeFi. It is what sets us apart from TradFi and allows the emergence of innovative protocols in the industry.

Composability lies at the core of Zaros. We're revolutionizing the perpetuals DEX sector by tapping into the deep liquidity of LSTs, LRTs, and eventually, any other asset! Do not fade.

About Zaros

Zaros is the first Perpetuals DEX powered by Boosted (Re)Staking Vaults that supercharge your LSTs & LRTs yield on Arbitrum.

Notable early angel investors include Fernando Martinelli, founder of Balancer; Kieran Warwick, founder of Illuvium; Danny Wilson, CFO of Illuvium; Antony Sassano, founder of TheDailyGwei; Andy Chen, CTO at Scalene and former Lead Architect at Synthetix, and Kevin Lu, CEO at Scalene and former Growth Lead at Band Protocol.

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