Nov 14, 2024
6thTrade
ZKsync has recently approved the "Ignite" program, a $325 million initiative designed to enhance liquidity within its Elastic Chain ecosystem and reduce slippage for DeFi traders. The governance vote on November 14 granted approval for Ignite, which will channel 325 million ZK tokens (approximately $48.5 million) from the ZKsync treasury to establish a robust DeFi liquidity hub on the ZKsync Era network.
Program Goals and Structure
The Ignite program seeks to grow the total value locked (TVL) in ZKsync’s DeFi sector and improve liquidity across chains in the Elastic Chain ecosystem. By minimizing slippage for ecosystem trades, the initiative also aims to increase revenue for liquidity providers.
"The Ignite Program is intended to build a unified liquidity source on ZKsync Era, benefiting builders and users across the Elastic Chain through native interoperability,” states the proposal.
Token Allocation and Distribution
The funds will be distributed over nine months, with 300 million ZK tokens ($44.8 million) allocated to native DeFi protocols and 25 million ZK tokens ($3.72 million) reserved for administrative and unexpected costs.
Projects can apply for assets through Ignite, with token distributions assessed every two weeks by OpenBlock Labs, the program's analytics partner. Selected projects can claim funds weekly, while OpenBlock Labs will publish quarterly reports and make recommendations for program adjustments.
Oversight and Governance
The DeFi Steering Committee (DSC), a five-member advisory group, will review applications approved by OpenBlock Labs. Although its administrative powers are limited, the DSC can veto critical decisions, including eligibility, allocation sizes, and marketing efforts. The program's continuity is subject to oversight from both the DSC and ZKsync’s Token Assembly, which has the authority to dissolve the DSC's administrative powers if needed.
Objectives and Impact
For each dollar allocated, Ignite targets a $5-$10 increase in native DeFi liquidity and aims to generate $3 in fees for liquidity providers. Post-program, ZKsync hopes to retain $0.60 in liquidity for each dollar distributed. Additionally, Ignite seeks to cap slippage on stablecoin-to-stablecoin trades at 5 basis points for transactions up to $1 million and to limit slippage on ETH/USDC pairings to 35 basis points for trades up to $100,000 and 120 basis points for trades up to $1 million.
Addressing ZKsync’s Declining Metrics
The program launches amid a decline in ZKsync Era’s market share following a major airdrop in June. Daily transactions reached a high of 1.75 million in February but have since dropped by 89.6% to 182,790. Active users fell from a January peak of nearly 465,000 to 41,160, and TVL has receded from a June high of $1.54 billion to $983 million, with DeFi TVL dropping by over 50% to $79.4 million.
The Ignite program aims to address these trends, encouraging sustained growth and engagement in ZKsync’s DeFi ecosystem.
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