ZeroLiquid’s Potential

3 min readMar 6, 2023

Introduction

In the last article, we talked about ZeroLiquid’s use cases. In this article, we will talk about the potential market size of ZeroLiquid.

The Growth of Liquid Staking Tokens

The concept of Liquid Staking Derivatives (LSD) or Liquid Staking Tokens (LST) is gaining traction in the DeFi space. The growth of this market has been immense, with over $11bn of ETH staked at the time of writing.

As explained in prior articles, ZeroLiquid is designed to work on top of existing Liquid Staking protocols, providing users with an additional flow of capital that is otherwise not accessible.

To ensure successful execution, we had to:

Assess the feasibility of the ZeroLiquid protocol.
Identify potential growth opportunities and guarantee the long-term viability of the protocol.
Take into consideration both business and user perspectives.

We conducted various simulations to achieve these objectives, which we will discuss here.

Projections for Ethereum Staking

Our objective is to penetrate the market by capturing a percentage of the overall LSD Market.

The initial target is to attain an 8% market share, which would result in protocol fee generation of ~$0.8m per month or ~$10m per year.

We have taken the average price of Ethereum for this, which is $2,400. At its all-time high price, the protocol will be generating ~$2m monthly or ~$24m annually in fees.

However, there are a certain set of assumptions behind these figures. Since ZeroLiquid offers multiple ways to manage the loan, it is assumed that:

50% of users will liquidate or repay their loan with stETH/ETH.
50% will payback with zlETH. (with a 0.5% repayment fee).
The LSD market available to ZeroLiquid is fixed at 8%.
The ZeroLiquid protocol fee is fixed at 10%.

Projections for Ethereum Loans

Since ZeroLiquid allows anyone to use LSD/ETH as collateral, it opens up a whole new market.

Consider Aave, which has ~$150m in ETH ready to be borrowed. If you want to borrow on Aave you have to:

Pay ~4% annual interest
Risk having your collateral liquidated
Pay a 5% liquidation penalty if it gets liquidated.

Compare this to ZeroLiquid:

Instead of you paying interest, the protocol repays your loan.
You can never be liquidated.
Since you can’t be liquidated you never have to pay any penalty.

How does the protocol facilitate this?

ZeroLiquid will offer one-click migration from all the top protocols that offer loans in ETH. We might even offer to pay for the gas fee to make it easier for the user to migrate. This is going to facilitate a huge number of users switching to ZeroLiquid for taking loans.

Projections for Ethereum staking + Loans protocol

To gain an understanding of what the numbers would look like if we were to attract users from Compound, AAVE and Liquity, we made some projections. All of the parameters are kept the same as before.
This would result in a monthly fee generation of ~$1.6m and a yearly fee generation of ~$20m.

Conclusion

After a comprehensive analysis of the projections, it is evident that the vision driving ZeroLiquid transcends that of a typical DeFi project.
The protocol’s present functionality aligns with the evolving market dynamics, and financial simulations suggest that it is poised to achieve substantial growth while ensuring long-term sustainability.

All the projections were made for Ethereum LSD’s, however we will quickly move towards integrating LSD for other chains such as Polygon, Solana, Polkadot etc.
This will allow the fees generation to grow even further.
Intrested in the data for projections?