Solana-based project plans a Rust-powered 'zkVM' to scale onchain derivatives

On Thursday, decentralized derivatives protocol Zeta Markets released the litepaper for Zeta X (ZX) — a Layer 2 solution on the Solana blockchain that will utilize zero-knowledge proofs.

ZX aims to enhance decentralized trading by providing CEX-like performance while maintaining on-chain operations, the project stated. It will employ a rollup framework using zero-knowledge proofs for secure on-chain settlement — claiming the capacity to handle up to 10,000 transactions per second.

The litepaper details that consensus and settlement processes will occur on the native Solana Layer 1, ensuring blocks are accessible for verification and dispute resolution by all nodes. The execution layer, however, will be managed by an off-chain matching engine that will be compatible with a 'zkVM' environment written in Rust, aiming to streamline transaction processing.

The zero-knowledge solution will offload a large portion of computational work. Here, ZK proofs ensure that computations are compressed and verified quickly without the verifier needing to perform the computations themselves.

The project acknowledges some limitations of building derivatives exchanges directly on Layer 1, such as latency and liquidity barriers, despite Solana’s advantageous block times and lower gas fees. The team is developing ZX to overcome these challenges, leveraging Solana’s fast block times to expedite the finalization of rollup blocks — thereby offering a faster trading venue for users.

"ZX will set the new standards for on-chain trading, charting a course for the future scalability and excellence of dapps that are only possible on Solana," the project noted.

How will it work?

The litepaper provides insights into the essential components of the ZX platform, covering its depositing, trading, data management and settlement mechanisms.

Fundamentally, ZX will have a trustless bridge component with Solana for user deposits. It begins with users depositing collateral, such as stablecoins like USDC, into a Solana smart contract designed to securely manage these funds. This activity is monitored by full nodes that interpret Solana block headers to generate a proof of deposit. This proof will be forwarded to the sequencer, which is tasked with crediting the user’s balance on the ZX rollup.

Next, users of its platform will be able to execute trades by signing transactions with their wallets to generate a session key for streamlined, one-click trading. These transactions are sent to the sequencer, where they are organized and processed through a state transition function, commonly referred to as the matching engine, which updates user states based on their trading activities.

The ZX sequencer will organize and produce blocks, posting them onto Solana to ensure broad data availability, according to the litepaper.

Following data availability, full nodes initiate the settlement process by executing transactions to compute the most recent state root, using Solana as the foundational settlement layer. The platform employs a rollup approach with fraud proofs to ensure the security of transactions.

Further expanding its scope, Zeta X will utilize its native token $Z not only for governance and incentives but also as a gas token within the ZX ecosystem. This token will also reward stakeholders like sequencers who play essential roles in the operation of ZX.

ZX is primarily focused on perpetuals trading but is designed to support a variety of DeFi functionalities, including borrowing, lending and spot trading. Zeta Markets has outlined a roadmap for ZX, with a testnet release targeted for the third quarter of 2023 and the official mainnet launch expected in the first quarter of 2025 after the completion of extensive security audits.

Zeta Markets’ recent v2 was built to be a fully on-chain CLOB and has already handled over $7 billion in trading volume, the project says. Recently, Zeta Markets raised $5 million in a new funding round led by Electric Capital.