ZKsync Token Assembly Passes 325M ZK Liquidity Program

ZKsync will soon stream hundreds of millions of ZK tokens to DeFi protocols to promote liquidity within its ecosystem.

On Nov. 14, ZKsync’s first governance passed, greenlighting the Ignite program. Ignite will allocate 325 million ZK tokens ($48.5 million) from the project’s treasury to establish a “DeFi liquidity hub” on the ZKsync Era network.

Ignite aims to both increase the total value locked (TVL) of ZKsync Era’s DeFi sector and improve liquidity across all interoperable chains within its Elastic Chain ecosystem. The program also seeks to minimize the slippage associated with trades executed within the ecosystem, in turn bolstering the fees earned by liquidity providers.

“The goal of the Ignite Program is to establish a robust, unified source of liquidity on ZKsync Era in service of builders and users across the Elastic Chain who can access this liquidity via native interoperability,” the proposal said.

Token allocations

The tokens will be distributed over nine months, with 300 million ZK ($44.8 million) earmarked for native DeFi protocols and an additional 25 million ZK ($3.72 million) set aside to cover administrative and unforeseen costs.

Projects can apply to receive assets through Ignite. Token distributions will be determined fortnightly, with OpenBlock Labs, the program’s analytics provider, reviewing applications. Recipients can claim the allocated funds on a weekly basis.

OpenBlock Labs will also review the program each fortnight and publish reports every three months, including any recommended changes to Ignite.

An independent advisory group called the DeFi Steering Committee (DSC) will review the applicants selected by OpenBlock Labs. The DSC consists of five members with limited administrative powers, mostly comprising the ability to veto key program decisions including project eligibility, the size of ZK allocations, and proposed marketing initiatives.

The program will be overseen and can be canceled at any time by the DSC or Token Assembly, which comprises ZKsync governance delegates. The Token Assembly can also revoke the DSC’s admin authority.

Program objectives

For every $1 worth of incentives allocated, Ignite aims to increase native DeFi liquidity by between $5 and $10 and generate $3 worth of liquidity provider fees. After the program expires, ZKsync hopes to retain $0.60 worth of liquidity for every $1 distributed.

Ignite also strives to limit slippage to 5 basis points on stablecoin-to-stablecoin trades worth up to $1 million. For trades involving key pairings between stablecoins and volatile assets, such as ETH/USDC, ZKsync hopes to limit slippage to 35 basis points for trades up to $100,000 and 120 basis points for trades worth up to $1M trades.

ZKsync’s decline

The program comes after ZKsync Era’s market share has receded since its highly-anticipated airdrop in June.

Data from GrowThePie shows that daily transactions on ZKsync Era posted a year-to-date peak of 1.75 million in late February, but have since pulled back 89.6% to 182,790. Active users peaked near 465,000 in January and rebounded to roughly 400,000 in June, but have since dropped 91% to 41,160.

The ZK airdrop increased ZKsync Era’s network TVL to $1.54B in June, but the metric has since slumped to $983 million, according to L2beat. DeFi TVL retested all-time highs near $190 million in May but has since slumped by more than half to $79.4, according to DeFiLlama.

The price of ZK is up 5% over the past seven days, according to The Defiant's crypto price feeds.