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How Solana Enables Crypto's Onchain Future | Tristan Frizza

By Lightspeed

Published on 2024-06-27

Discover how Zeta Markets is revolutionizing DeFi with their Solana-based L2 solution, offering lightning-fast trades and improved UX for crypto derivatives.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Evolution of Zeta Markets

Zeta Markets has come a long way since its inception in early 2021. Founded by Tristan Frizza and his team, Zeta Markets set out to build high-performance, low-latency DeFi solutions on the Solana blockchain. The journey began when Solana was still in its infancy, with only a handful of projects like Serum and Raydium populating the ecosystem. Frizza, coming from an embedded systems background, was drawn to Solana's focus on hardware optimization and the opportunity to work with Rust, a programming language well-suited for systems-level development.

Initially, Zeta Markets aimed to create an options exchange, recognizing the gap in the crypto derivatives market. However, after two years of development, the team pivoted to focus on perpetual futures (perps) due to market demand and the complexities involved in building decentralized options platforms. This shift allowed Zeta to align more closely with user needs and capitalize on the growing popularity of cryptocurrency derivatives trading.

Building on Solana: A Strategic Choice

The decision to build on Solana was not made lightly. Frizza and his team evaluated various blockchain platforms, including Ethereum and its layer 2 solutions, as well as newer high-throughput chains like Aptos and Sui. Ultimately, Solana's unique combination of speed, cost-effectiveness, and battle-tested infrastructure made it the ideal choice for Zeta Markets.

Frizza explained the rationale behind sticking with Solana: "Nothing really blew my mind that was like 10x better than Solana. So we basically made the decision like, I don't think it makes sense to switch. And thank God we did stay on Solana. It's been working really well, and I like that it's as battle-hardened as well."

The team's experience with Solana since 2021 has proven invaluable. They've weathered various network challenges, including high-traffic events like Raydium IDOs and NFT mints that temporarily brought down the chain. These experiences have contributed to Solana's robustness and Zeta's ability to build resilient DeFi applications.

Zeta's Core Product: High-Performance Perpetual Futures

Zeta Markets' flagship product is a fully on-chain order book for perpetual futures trading. This system leverages Solana's high-speed infrastructure to provide near-instant order execution and real-time order book updates. Frizza proudly states, "We stream basically the order book around the world at the speed of light. You're basically grabbing information and slots from the validator before they're kind of even generally available."

The platform utilizes advanced techniques like the Kaiser protocol to fetch data within 400 milliseconds, allowing for intra-block updates. This results in a globally synchronized state machine that offers one of the fastest decentralized order books in the crypto space. The achievement is particularly noteworthy given the challenges of building such a system on a decentralized network.

The Move to Layer 2: Introducing Zeta X

Despite the success of their current platform, Zeta Markets is not resting on its laurels. The team recently announced Zeta X, a Layer 2 solution built on top of Solana. This move is aimed at pushing the boundaries of performance and user experience even further.

Frizza elaborated on the motivations behind developing an L2: "We're kind of running up against the state of the art or close to, and we're kind of looking ahead and how do we scale, how do we make things even better, especially through a UX and performance lens."

The L2 solution will allow Zeta to have more control over the infrastructure layout, addressing some of the limitations they've encountered on the Solana mainnet. These include constraints on cross-margin systems due to account limits in the Solana runtime and challenges with order placement speed during network congestion.

Zeta X: Combining Centralized Exchange Performance with Decentralized Security

Zeta X aims to offer the best of both worlds: the performance of a centralized exchange with the security and transparency of a decentralized system. The L2 will feature a zkVM (zero-knowledge Virtual Machine) matching engine that runs off-chain, with every computation generating a zero-knowledge proof that can be verified on-chain.

This architecture allows for extremely fast performance and "sequencer soft commitments," meaning users will know the status of their trades within milliseconds. Frizza explains the vision: "We're trying to build something that is like a centralized exchange competitor, get the best of both worlds – the security of a really well-known, well battle-tested, trusted chain like Solana, but then have basically centralized exchange performance."

By leveraging Solana as the data availability (DA) layer, Zeta X can benefit from Solana's robust security model without the need to bootstrap its own validator set. This approach also opens up possibilities for improved interoperability with other Solana-based applications and potential L2 solutions in the future.

Addressing the UX Challenge in DeFi

One of the primary goals of Zeta X is to significantly improve the user experience for DeFi traders. Frizza acknowledges that the current onboarding process for decentralized exchanges can be cumbersome and off-putting for new users. He shared an anecdote about a friend trying to use their platform:

"It just really clicked for me how painful it was because he goes on the exchange website, and he's like, 'How do I get started?' I'm like, 'Okay, you need a Phantom wallet. You know, go download this thing from the Google Play Store, also the Chrome extension store.' Downloads it, and he's like, 'What do I do?' I have to do all the seed phrase stuff, set it up, yada yada. And then he gets it set up, and he's like, 'Okay, what do I do? Can I connect now?' I'm like, 'No, you need gas fees. You need Solana.'"

To address these pain points, Zeta is working on a comprehensive solution that includes:

  1. A built-in wallet that comes with the app
  2. Decentralized on-ramps for easy fund bridging
  3. Simplified transaction signing
  4. Gas fee abstraction

By implementing these features, Zeta aims to create a seamless experience that rivals that of centralized exchanges while maintaining the benefits of decentralization.

Token Launch and Airdrop Strategy

Zeta Markets recently conducted its token generation event, allocating 8% of the total supply to an airdrop for early users and supporters. The team took a thoughtful approach to token distribution, aiming to reward genuine users while minimizing the impact of Sybil attacks (where individuals create multiple accounts to gain unfair advantages).

Frizza emphasized the importance of rewarding active participation: "We very much modeled the airdrop making sure that that was kind of the cost function, and then when the numbers came out, I think based on at least like pre-market prices, most people are getting at least 5x back on their airdrop in terms of their fees."

The airdrop criteria included:

  1. A minimum trading volume of $500
  2. Linear distribution based on activity
  3. Active Sybil analysis to identify and exclude suspicious accounts

This approach aimed to ensure that long-term, engaged users received substantial rewards while discouraging short-term farming behavior.

The Future of Zeta Markets

Looking ahead, Zeta Markets has an ambitious roadmap for expanding its product offerings and improving its existing services. Some key areas of focus include:

  1. Multi-collateral support: Allowing users to use various assets like SOL, USDT, and mSOL as collateral for trading.
  2. Integration with lending markets: This will enable native yield generation on the platform, incentivizing users to keep funds within the Zeta ecosystem.
  3. Basis trading: Enabling users to short perpetual futures while remaining long on the spot market, facilitating funding rate arbitrage.
  4. Potential spot market integration: While there are challenges due to the lack of atomic composability with JUP on the L2, the team is exploring creative solutions.

Frizza emphasizes the importance of focus and iterative improvement: "One of the big learnings I've had is just focus is so important. I think what we made the mistake of in the early days was trying to do too much."

Solana's Role in Zeta's Success

Throughout the discussion, it's clear that Solana has played a crucial role in enabling Zeta Markets to achieve its goals. The blockchain's high throughput, low latency, and cost-effectiveness have allowed Zeta to build a sophisticated, on-chain trading platform that can compete with centralized alternatives.

Frizza expressed optimism about Solana's ongoing development, particularly in the realm of zero-knowledge proofs: "All the ZK stuff that's happening on Solana is also very exciting. It's like a ZK juggernaut. There's things coming out, there's like state compression and kind of just a general amount of syscalls and other things that are being implemented on the ZK side that we'll be able to leverage out of the box."

This synergy between Solana's core development and projects like Zeta Markets demonstrates the ecosystem's potential for continued innovation and growth in the DeFi space.

Advice for Aspiring Crypto Founders

When asked about advice for upcoming crypto founders looking to break into the DeFi space, Frizza emphasized the importance of hands-on experience and commitment:

"The thing that you have to just do is get stuck in. I think that's what I see a lot of new founders kind of struggling with is they're like one foot in, one foot out. You know, a lot of people who are probably like listening to the podcast, and they're still kind of working their job... You can kind of read all the blogs, all the tweets that you want, but it's only once you start actually maybe writing the code or if you're kind of non-technical, just like going and actually building stuff and getting it out there and acquiring users."

He also highlighted the relatively young nature of the crypto industry, noting that even the most experienced players have only been in the space for about a decade. This creates opportunities for newcomers to make significant contributions and build cutting-edge platforms in a relatively short time.

Conclusion: Zeta Markets and the Future of On-Chain Finance

Zeta Markets represents a new wave of DeFi projects that are pushing the boundaries of what's possible in on-chain finance. By leveraging Solana's high-performance blockchain and developing innovative L2 solutions, Zeta is working to bridge the gap between the speed and efficiency of centralized exchanges and the transparency and security of decentralized systems.

As the crypto industry continues to evolve, projects like Zeta Markets will play a crucial role in driving adoption and improving the user experience for traders and investors. With its focus on performance, user experience, and strategic use of emerging technologies like zero-knowledge proofs, Zeta is well-positioned to contribute to the growth and maturation of the DeFi ecosystem on Solana and beyond.

The journey of Zeta Markets serves as an inspiring example for aspiring crypto founders, demonstrating the potential for innovation and success in this rapidly evolving industry. As Frizza and his team continue to develop and refine their platform, they are not just building a trading application but contributing to the broader vision of a more accessible, efficient, and decentralized financial system.

Facts + Figures

  • Zeta Markets was founded in early 2021, when Solana had very few projects beyond Serum and Raydium.
  • The team initially aimed to build an options exchange but pivoted to perpetual futures after about two years.
  • Zeta Markets has processed over $10 billion in trading volume on their on-chain platform.
  • The platform can update order books within 400 milliseconds, leveraging Solana's high-speed infrastructure.
  • Zeta X, the upcoming Layer 2 solution, aims to provide centralized exchange-level performance with decentralized security.
  • The Zeta token airdrop allocated 8% of the total supply to early users and supporters.
  • The minimum trading volume required to qualify for the airdrop was $500.
  • Most airdrop recipients are estimated to receive at least 5x the value of their trading fees in tokens.
  • Zeta Markets operates with a team of about 15 people.
  • The crypto industry's "grandfathers" have only been building in the space for about 10 years, highlighting the youth of the industry.
  • Zeta Markets is currently among the top 10 perpetual futures platforms globally.
  • The team is working on multi-collateral support, including assets like SOL, USDT, and mSOL.
  • Future plans include integration with lending markets to enable native yield generation on the platform.
  • Zeta is collaborating with the Sovereign SDK team for their Layer 2 development.
  • The platform aims to abstract gas fees and simplify the onboarding process for new users.

Questions Answered

What is Zeta Markets?

Zeta Markets is a decentralized finance (DeFi) platform built on the Solana blockchain that offers high-performance perpetual futures trading. The platform features a fully on-chain order book that leverages Solana's high-speed infrastructure to provide near-instant order execution and real-time order book updates. Zeta Markets aims to combine the speed and efficiency of centralized exchanges with the transparency and security of decentralized systems.

Why did Zeta Markets choose to build on Solana?

Zeta Markets chose to build on Solana due to its unique combination of speed, cost-effectiveness, and battle-tested infrastructure. The team evaluated various blockchain platforms, including Ethereum and newer high-throughput chains, but found that Solana offered the best performance for their needs. Additionally, Solana's focus on hardware optimization and the ability to work with Rust programming language aligned well with the team's technical background and goals for building high-performance DeFi applications.

What is Zeta X?

Zeta X is an upcoming Layer 2 (L2) solution being developed by Zeta Markets on top of the Solana blockchain. It aims to push the boundaries of performance and user experience even further than what's currently possible on Solana's mainnet. Zeta X will feature a zkVM (zero-knowledge Virtual Machine) matching engine that runs off-chain, with every computation generating a zero-knowledge proof that can be verified on-chain. This architecture is designed to offer the performance of a centralized exchange while maintaining the security and transparency of a decentralized system.

How does Zeta Markets plan to improve user experience in DeFi?

Zeta Markets is addressing user experience challenges in DeFi through several initiatives:

  1. Developing a built-in wallet that comes with the app
  2. Implementing decentralized on-ramps for easy fund bridging
  3. Simplifying transaction signing processes
  4. Abstracting gas fees to reduce complexity for users

These features aim to create a seamless experience that rivals centralized exchanges while maintaining the benefits of decentralization. The goal is to significantly reduce the barriers to entry for new users and streamline the trading process for experienced traders.

What was the strategy behind Zeta Markets' token airdrop?

Zeta Markets took a thoughtful approach to their token airdrop, aiming to reward genuine users while minimizing the impact of Sybil attacks. The airdrop allocated 8% of the total token supply to early users and supporters. Key aspects of the strategy included:

  1. Setting a minimum trading volume requirement of $500
  2. Implementing a linear distribution based on user activity
  3. Conducting active Sybil analysis to identify and exclude suspicious accounts

This approach was designed to ensure that long-term, engaged users received substantial rewards while discouraging short-term farming behavior. The team estimates that most airdrop recipients will receive at least 5x the value of their trading fees in tokens.

What are Zeta Markets' plans for future development?

Zeta Markets has an ambitious roadmap for expanding its product offerings and improving existing services. Key areas of focus include:

  1. Implementing multi-collateral support for assets like SOL, USDT, and mSOL
  2. Integrating with lending markets to enable native yield generation on the platform
  3. Developing basis trading functionality for funding rate arbitrage
  4. Exploring potential spot market integration

The team is also continuously working on optimizing their platform for speed and efficiency, with a focus on providing a user experience that can compete with centralized exchanges.

How does Zeta Markets leverage Solana's infrastructure for its operations?

Zeta Markets leverages Solana's high-speed infrastructure to provide near-instant order execution and real-time order book updates. The platform uses advanced techniques like the Kaiser protocol to fetch data within 400 milliseconds, allowing for intra-block updates. This results in a globally synchronized state machine that offers one of the fastest decentralized order books in the crypto space. Additionally, Zeta's upcoming L2 solution, Zeta X, will use Solana as its data availability layer, benefiting from Solana's security model while pushing performance even further.

What advice does Tristan Frizza offer to aspiring crypto founders?

Tristan Frizza emphasizes the importance of hands-on experience and full commitment for aspiring crypto founders. He advises:

  1. Getting fully involved in building and shipping products, rather than just reading about the industry
  2. For technical founders, start writing code and building prototypes
  3. For non-technical founders, focus on acquiring users and getting products to market
  4. Recognize that the crypto industry is still relatively young, offering opportunities for significant contributions
  5. Stay focused on core products and avoid trying to do too much at once
  6. Be prepared to pivot and adapt based on market feedback and product-market fit

Frizza also highlights the rapid pace of innovation in the crypto space, noting that even newcomers can make significant impacts within a few years of dedicated work.

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