What Is ZKSwap?
ZKSwap is a decentralized cryptocurrency exchange (DEX) with an automated market maker (AMM) model. This allows for users to trade digital assets without a centralized authority/exchange (CEX) automatically by using liquidity pools. Liquidity pools are a group of funds that are pooled together by lenders so others may borrow from the pool.
The name ZKSwap stems from Zero Knowledge Rollup technology – the full set of swapping functions are realized in layer-2 while providing “unlimited scalability and privacy.” The transactions on this network do not require any gas fees.
By using its own ZK-Rollups protocol, ZKSwap can allow bundles of hundreds of swaps and transactions across different blockchains seamlessly.
Other benefits of ZKSwap when compared with other DEXs:
- Complete Decentralization
Users on ZKSwap have complete control of their crypto and transactions don’t require authorization from any central power. This provides a higher grade of privacy and liquidity.
- Very High Throughput
ZKSwap is based on ZK-Rollup technology, meaning the transactions per second (TPS) can be increased by multiple orders of magnitude.
- No Gas Fees
Liquidity providers and users do not need to pay high gas fees as with blockchains like Ethereum, which greatly reduces the threshold for use.
ZKSwap was founded in August 2020 by the developers at L2 Labs. The testnet was launched in November 2020 and on Feb. 15, 2021, the mainnet on Ethereum was started. In February 2021, the crypto exchange carried out an airdrop, distributing 80 million $ZKS. Its roadmap includes a variety of upgrades that will help the network become a widely used DEX and AMM.
How Does ZKSwap Work?
ZKSwap works like other DEXs by matching those who would trade or swap cryptos in a P2P manner. However, the ZKSwap platform leverages the layer-2 solutions that ZK-Rollups provide, allowing “infinitely scalable” token swaps on the second layer of Ethereum. In other words, it bundles transactions with ZK-Rollups to move them off-chain for faster processing.
When the transactions are moved off-chain, the rollup will create a cryptographic proof known as SNARKs that acts as verification and authentication with layer-1 without disclosing the specific information within.
ZKSwap enables users to put their layer-1 digital assets (like ETH and other ERC-20 tokens) into ZKSwap smart contracts that then function on layer-2, thereby increasing speed and throughput. This greatly improves the efficiency of cryptocurrency exchanges (centralized or decentralized).
The ZKSwap architecture consists of a front-end user interface (UI), on-chain smart contracts and an off-chain ZKSwap server (memory pool, block proposer, state keeper and prover server).
The technological component is two main developments – layer-2 server and Plonk zero-knowledge proof system.
Thanks to WebSocket, the ZKSwap server interacts with the platform users and the interface has a transaction tracking function. All approved requests go to the ZKSwap memory pool and are processed by the swap engine. ZKSwap's zero-knowledge proof system relies on a distribution architecture and side-by-side developments to create evidence, namely the zero-knowledge proof algorithm – Plonk. ZKSwap status tree keeps a record of all account balances in the system.
What Makes ZKSwap Unique?
ZKSwap has all the benefits that we have found in DEXs – privacy, P2P dealing, low fees and more. Additionally, it adds layer-2 functionality that eliminates any bottlenecks in transactions on the main network. It allows everything to flow more smoothly by using ZK-Rollup technology to execute token swaps.
The main business use for ZKSwap will be to replace slower and less efficient DEX models. This will ensure the highest level of liquidity is being reached at all times on the network – one of ZKSwap’s main goals.
The ZKSwap network is secured using a variety of different consensus mechanisms. In addition to a proof-of-stake (PoS) mechanism, they also use the somewhat unique proof-of-TransFee (PoT), proof-of-ZK-Snarks (PoZK), proof-of-gas (PoG) and proof-of-liquidity-mining (PoL). Users who wish to learn more about these can visit their whitepaper, but below is a rough breakdown of their use:
- PoS – ZKSwap will enable smart contract staking to reward those who lock their funds on the network.
- PoT – having a proof of transaction fee system allows ZKSwap to incentivize and reward users in the ZKS token proportional to the amount of fees they have paid.
- PoZK – proof-of-ZK Snarks allows the ZKSwap network to generate mineable zero-knowledge proofs that allow communication with layer-1 Ethereum.
- PoG – ZKSwap’s proof-of-gas allows for a third party to pay for user gas fees in return for getting reimbursed with ZKS tokens.
- PoL – proof-of-liquidity-mining enables users to be rewarded when they provide liquidity for certain trading pairs similar to Uniswap and other DEXs.
What Is the ZKS Token?
ZKS is the native protocol ERC-20 token that drives the ZKSwap network. It has a maximum supply of 1,000,000,000 tokens. It is used to incentivize all actions on the network by compensating users for tasks like mining. ZKS is also used to govern the network and take part in transaction verifications, token listings and buy-back. The distribution of ZKS is broken down into the following categories:
- 60% allocated to community mining efforts
- 15% reserved for the ZKSwap team
- 8% held for ecosystem developers and growth
- 6.7% goes to angel investors
- 5.3% is allocated to potential A-round investors
- 4% held for the initial liquidity
- 1% held for advisors to ZKS
ZKS is a major component of the ZKSwap system and can be used in the following scenarios:
- Governance – ZKS holders can initiate proposals for updating and improving the protocol. All token holders have the right to vote, so proposals that receive the majority of votes are accepted and the development team takes responsibility for implementation.
- Voting/pledge for listing – holders of ZKS take part in the voting, and furthermore, they have the opportunity to initiate a listing proposal. By gaining a majority of votes, holders can place a coin. Finally, users with a significant amount of ZKS can pledge their tokens for listing.
How Does ZKSwap Stack Up to Other DEXs?
The number of decentralized crypto exchanges seems to be constantly growing. How do you know which to choose for your token swapping needs, and what does ZKSwap provide that others do not?
ZKSwap creates an environment that compensates users for their actions with the ZKS token and strives to create a marketplace that will overcome the problems that plague other exchanges. It solves many of these problems by eliminating high gas fees, slow transaction times and low transaction capacities.
ZKSwap has many contenders that have already built a large following of developers and users. These include Uniswap, PancakeSwap, 1inch, SushiSwap, Binance DEX and many others. Only time will tell if ZKSwap will win the battle for the most prominent DEX, but it will have a long road ahead of it in a space with so much competition.