From V1 to V2: The Iterative Upgrade Journey of ZEROBASE Staking

1 Introduction

ZEROBASE is a real-time zero-knowledge proof network designed for fast proof generation, decentralization, and compliance. The network efficiently produces zero-knowledge proofs within just hundreds of milliseconds across ZEROBASE ecosystem products including zkLogin, zkDarkPool, zkVote, zkCEX, and others, thereby supporting large-scale commercial applications. ZEROBASE also extends its influence to traditional industries, developing privacy-centered credit systems that support underwriting investigations for low-income groups in the United States and cross-border medical users.

Leveraging cryptographic technologies such as Zero-Knowledge Proof (ZK) and Trusted Execution Environment (TEE) and their powerful capabilities, ZEROBASE has given birth to a new business model — ZEROBASE Staking, a stable yield staking product based on real-time zero-knowledge proof networks and risk-neutral funds. This product aims to redefine Staking based on zero-knowledge proof technology, doubling trust and returns.

Since its inception, the ZEROBASE Staking product has carried the mission of revolutionizing the industry. Given the lack of similar products in the market for reference, we deeply understand that only through hands-on practice can we know where the product has advantages, where it has disadvantages, and where users experience pain points. After the launch of ZEROBASE Staking V1, we received numerous user feedbacks. Among these, the following two points are most important:

1. Users need to address liquidity needs in emergency situations.

In traditional staking products, when users stake their funds, these funds actually enter into a contract. If users wish to withdraw these funds from the contract, we must arrange for position liquidation or capital withdrawal, which is not a simple matter and requires a significant amount of time.

When stable coins such as USDT or USDC are deposited into ZEROBASE's Vault contract, ZEROBASE mints LP Tokens for users. These LP Tokens represent the user's equity shares in ZEROBASE and can simultaneously serve as collateral in lending contracts to borrow actual USDT or USDC, perfectly addressing the major pain point of users' liquidity needs.

At the same time, we believe that ZEROBASE's LP Token flash withdrawal model will provide the CeFi ecosystem with a scalable liquidity enhancement mechanism.

2. Using ZK to solve the verifiability of CeFi funding strategies.

Users injecting liquidity into the ZEROBASE Staking product can enhance the security of the ZEROBASE proof network while earning stable and considerable returns. ZEROBASE Staking's returns primarily come from the following two core channels:

• Risk-neutral arbitrage: ZEROBASE collaborates deeply with liquidity funds, using Ceffu's MirrorX functionality to mirror assets to Binance exchange for funding rate arbitrage.

• Real-world ZK fees: The ZEROBASE proof network provides ZK proof acceleration services, generating efficient and trustworthy ZK proofs for various business scenarios, and charging fees for this service, thereby injecting more value into the Staking ecosystem.

As industry innovators, many users naturally cannot fully trust ZEROBASE's funding strategy, especially the risk-neutral approach. Therefore, we use zero-knowledge proof technology to demonstrate to users that our funding strategy is safe and compliant. True gold fears no fire, so our zero-knowledge proofs will be made publicly available to all users. Anyone can obtain real-time zero-knowledge proof reports on our official website to verify whether ZEROBASE's funding strategy is safe and compliant.

Based on the above issues, ZEROBASE Staking V2 brings enhanced functionality and upgraded staking experience, setting a new standard for ZEROBASE Staking:

• LP Token: Users will receive LP Tokens upon deposit, representing their equity in the ZEROBASE Staking product.

• Lending functionality: Users will be able to stake LP Tokens and borrow USDT/USDC against their holdings.

• Risk-neutral ZK functionality for trading strategies: New ZK functionality for risk-neutral verification of trading strategies will be launched along with the open-source release of circuit code.

• Withdrawal automation: Contracts now support automatic fast withdrawals with unchanged applicable fees. Regular withdrawals (no fee) require 14 days.

• Proof browser: Introduction of a proof browser enabling users to transparently verify zero-knowledge proof results.

2 Core Competitiveness

Liquidity has always been a core topic in the Web3 domain, especially in the competition among various DeFi platforms, where liquidity mining has become a key weapon. Users provide liquidity to DeFi platforms, receive liquidity certificates, and earn platform token rewards by staking these certificates. These rewards not only compensate users for the risks they bear in the process of providing liquidity but also incentivize the ecosystem development of the platform.

Consistent with DeFi protocols, ZEROBASE staking will also issue its own platform tokens to users who provide liquidity.

However, the issuance of platform tokens brings about the problem of selling pressure: when the supply of platform tokens is excessive, selling pressure increases, token prices fall, which in turn affects users' annual yield rates and reduces user participation enthusiasm. Without sufficient incentive measures, users often choose to exchange platform tokens for stablecoins or other mainstream assets, thereby negatively impacting the platform's long-term development.

To solve this problem, we propose a breakthrough solution: through risk-neutral liquidity arbitrage and flexible liquidity appreciation, we ensure the platform's long-term stable development, attract more liquidity, and ensure users gain continuous value growth while holding platform tokens long-term, thereby safeguarding users' long-term interests.

• In the liquidity arbitrage mechanism, users obtain LP Tokens, liquidity certificates, by staking USDC/USDT to the ZEROBASE Staking platform, and participate in the platform's liquidity appreciation services. ZEROBASE Staking allocates users' liquidity funds to hedge fund investment strategies verified by zero-knowledge proofs, generating high-yield and risk-neutral returns for users.

• In the liquidity appreciation mechanism, users obtain USDC/USDT by staking their LP Tokens to the ZEROBASE Staking platform, and participate in liquidity arbitrage operations that meet their needs, thereby satisfying their liquidity requirements.

2.1 Risk-Neutral Liquidity Arbitrage

What is liquidity arbitrage?

On the ZEROBASE Staking platform, users can stake USDC/USDT tokens, and the platform provides high-yield, risk-neutral, and verifiable hedge fund investment services based on this liquidity. Through this service, users' staked funds will be transferred by the fund to Binance via MirrorX to achieve optimized investment strategies and risk management.

This differs from liquidity mining on DeFi platforms, which rewards through platform tokens and transaction fees. In ZEROBASE staking, users' main returns come from funding rate arbitrage on Binance exchange, rather than relying on platform token price fluctuations and transaction volumes in liquidity pools.

Hedge funds typically offer higher risk-neutral returns but are limited by investment strategy opacity and user trust issues. ZEROBASE, while providing high returns, employs zero-knowledge proof technology to achieve a risk-neutral and verifiable investment mechanism, ensuring users can obtain safe and predictable returns during participation.

2.2 Flexible Liquidity Appreciation

What is liquidity appreciation?

When users provide liquidity such as USDC/USDT to the ZEROBASE platform, they receive LP Tokens, which are ZEROBASE's platform tokens. These platform tokens can flexibly participate in lending, leverage, arbitrage, and other operations within the ecosystem based on user intentions, meeting users' liquidity needs and further exploring earning potential.

To avoid the selling pressure problem of platform tokens, ZEROBASE has designed an innovative liquidity appreciation service. Users can use the platform tokens they receive as collateral for borrowing in ZEROBASE staking, without needing to directly sell platform tokens. This mechanism effectively avoids selling behavior, helps maintain token price stability, and ensures users' annual returns are not affected.

Through flexible liquidity appreciation services, ZEROBASE provides users with comprehensive liquidity support, enabling users to allocate assets at any time during the investment process, while reducing the risks of liquidity and yield decline in fund turnover, creating a more stable investment environment.

2.3 Other Advantages

In addition to the core competitiveness above, ZEROBASE staking will also continuously improve user experience in the following aspects:

• Stable returns: Targeting the stablecoin track, naturally having the advantage of lower stablecoin risk.

• Technology-empowered utility: ZEROBASE is driven by zero-knowledge proof technology innovation, focusing on building a real-time, decentralized, and compliant zero-knowledge proof generation network, closely aligned with actual business scenarios. On this foundation, ZEROBASE staking is rooted in ZK, a disruptive application project, completely shedding the speculative attribute of mere "coin trading," and instead dedicating itself to creating sustainable value for users and providing stable investment returns.

• Efficient execution mechanism: Adopting standardized and efficient code design to minimize Gas consumption while ensuring code readability. Reducing Gas consumption can directly lower users' transaction costs, speed up transaction execution, shorten waiting times, and enhance user experience. Additionally, Gas optimization helps alleviate network congestion and improves the overall efficiency and sustainability of the blockchain ecosystem.

• Comprehensive query mechanism: Users can view reward calculation methods, current staking amounts, and available withdrawal times at any moment, ensuring information transparency. By querying staking amounts and reward information, users can flexibly adjust staking amounts or terms according to their goals, thereby optimizing yield rates; the withdrawal available time query function helps users clearly understand when they can withdraw funds, avoiding failures or additional waiting due to improper operation timing, improving operational efficiency.

• Pausable and ownership control: Implementing pause functionality and ownership management to enhance security.

• Flexible configuration: Supporting pluggable configuration schemes, allowing customization of interest rates, supporting multiple tokens, and setting waiting times between user withdrawal requests and successful withdrawals.

3 Staking System

3.1 System Architecture

• Staking Layer: The core logic of the staking layer is implemented by the Vault Contract, providing secure, convenient, and fast deposit and withdrawal functions. When users wish to redeem funds from the staking layer, they need to go through a 14-day redemption waiting period. During this period, the Vault Contract will intelligently arrange position liquidation or capital withdrawal operations to ensure orderly fund reflux.

• Yield Layer: Liquidity injected by users into the Vault Contract is used to generate returns. The methods for generating returns come from two aspects: Ceffu and hedge fund investments.

• Security Layer: The security layer serves both the staking layer and the yield layer. ZEROBASE partners with Ceffu (Binance Custody), which focuses on building enterprise-level custody and liquidity solutions for institutions, to safely integrate CeFi yields. ZEROBASE uses zero-knowledge proof technology to ensure the risk neutrality, security, and compliance of hedge fund investment strategies.

• Staking Appreciation Layer: Given the current situation where users need to wait for 14 days to withdraw funds from the staking layer, the staking appreciation layer was born to alleviate users' urgent withdrawal needs. Users stake stablecoins such as USDC/USDT in the staking layer and receive corresponding staking certificates, LP Tokens. These certificates can participate in lending, leverage, arbitrage, and other operations within the ecosystem, further exploring earning potential.

3.2 Staking Process

Staking networks available to users include: Ethereum, BNB Chain, Arbitrum, Polygon, Avalanche, Optimism, Base Chain. More networks will be supported in the future based on user needs.

The overall process from user staking to successful withdrawal is as follows:

1. Token Staking

The user staking system supports tokens such as USDT and USDC stablecoins, with future expansions based on market demands. Users can repeat staking operations multiple times.

Users deposit stablecoins like USDT/USDC for staking and receive LP Tokens. The LP Tokens held by users represent their equity shares in the ZEROBASE ecosystem. These equity tokens can be used for collateralization, lending, or redemption operations within the ZEROBASE ecosystem, expanding users' fund utilization rate.

2. Reward Distribution

In the logic of the Vault Contract, the system will reallocate assets within fixed time intervals according to configured strategies. For example, at twelve o'clock noon every day, liquidity injected by users into the Vault contract will be transferred to Ceffu for trading arbitrage to obtain potential appreciation services, and these additional returns can fully cover the rewards due to users.

Ceffu will map the liquidity to Binance exchange through the MirrorX function, ensuring asset security. Additionally, zero-knowledge proof and Trusted Execution Environment (TEE) technologies will support the entire process, ensuring the risk neutrality, security, and trustworthiness of arbitrage operations.

Rewards are calculated and distributed regularly based on staking amounts and time.

3. Withdrawal

At some future point, users submit withdrawal requests to the Vault Contract. They then need to wait for a 14-day buffer period to ensure liquidity funds have sufficient time to reduce liquidity. The portion not withdrawn will continue to generate rewards.

Robots monitor users' withdrawal requests and reallocate assets within 14 days. By default, robots obtain funds from Ceffu, but theoretically, any source is allowed. After the 14-day waiting period ends, users can withdraw their funds from the withdrawal contract.

ZEROBASE Staking provides a "Flash Withdraw" function, allowing users to instantly withdraw funds from the deposit contract with a transaction fee of 0.5%. Note: Withdrawals are only possible when there are sufficient funds in the deposit contract. Please check the contract balance before operating.

3.3 Liquidity Arbitrage

Risk-neutral and verifiable fund investment strategy

ZEROBASE provides risk-neutral and verifiable staking investment services, aiming to conduct hedge fund investments with guaranteed risk for users' staked funds through precise quantitative assessments.

ZEROBASE will conduct hedge fund investments with guaranteed risk for users' staked funds. In ZEROBASE's hedge fund investment plan, investment weights and risks are assessed through precise quantification, and user assets are distributed across multiple investment strategies based on quantification results, thereby achieving effective risk diversification. While optimizing return potential, it provides users with comprehensive risk protection.

Although hedge fund investment strategies have a certain degree of confidentiality, ZEROBASE can reliably verify quantitative data such as investment weights and risks of investment strategies through zero-knowledge interval proof technology. "Reliable verification" refers to whether the fund manager's investment strategy, asset weights, and risk control comply with predefined rules, achieving verifiability for investors and the platform, ensuring all operations are executed within agreed ranges, enhancing investor trust. It is precisely because risks are transparent and verifiable that reliable risk protection can be provided to users.

Specifically, we deeply focus on and value the two major indicators that users care about most: risk-neutral indicators and leverage multiple indicators. To enhance user trust and transparency, ZEROBASE specially designs to intuitively display this key information on the frontend page. Users can easily and securely verify the authenticity and compliance of these indicators by obtaining corresponding zero-knowledge proofs.

• Risk-Neutral Check

Risk-neutral strategies typically refer to achieving risk balance by maintaining similar nominal values of long and short positions to achieve long-short hedging, and ensuring that the total Delta (i.e., the impact of asset price movements on account equity) is close to zero.

In an investment portfolio, ZEROBASE calculates the investment weight and risk factor of each asset, as well as the correlation between various investment risks, and estimates the overall risk level of the portfolio based on these investment weights and risk factors. To enhance transparency and credibility, ZEROBASE employs zero-knowledge interval proof technology to verify these risk data, ensuring investment risks comply with preset limits without revealing specific risk values. Through these measures, investors can obtain reliable protection regarding the risk level of the investment portfolio while pursuing high returns.

• Leverage Multiple

Check Checking leverage multiples is an important consideration for investors in risk management, capital efficiency, compliance requirements, and investment strategy optimization. Excessive leverage multiples amplify investment risks. After in-depth market research and comprehensive consideration, ZEROBASE has decided to set the leverage multiple within a range less than or equal to three.

ZEROBASE, based on zero-knowledge interval proof technology, effectively verifies whether the leverage multiple strictly complies with our set safety range without revealing the specific value of the leverage multiple.

What can users see?

On the ZEROBASE Staking page, users can see whether the hedge fund strategy's risk is neutral. Proofs are generated by the ZEROBASE Prover network and verified through zkVerify and Nebra. When the strategy is risk-neutral, the progress bar is displayed in blue; if risk neutrality is broken, the progress bar turns red.

In the proof browser, users can view the number of proofs and network income for the past month, as well as the latest, specific proofs.

By clicking on any proof, users can view the verification result; if the result is ✔, it indicates successful verification, confirming the risk neutrality of the funding strategy.

3.4 Liquidity Appreciation

Users pledge LP Tokens as collateral to borrow a certain amount of USDT/USDC.

$Collateralization Ratio = Market Value of Pledged Assets / Borrowed Amount$

Based on the collateralization ratio, users pledging LP Tokens can borrow up to 95% of the value in USDT/USDC. Borrowed funds can be used immediately to meet payment, lending, leverage, arbitrage, or other liquidity needs, avoiding the restrictions of redemption waiting periods.

Liquidation Mechanism

The borrower's Health Factor will be used to measure the health status of the borrower's collateral assets.

$Health Factor = Total Value of Collateral / (Borrowed Amount + Accumulated Interest)$

When a borrower's Health Factor drops to 1 or lower, it means the value of the borrower's collateral assets is insufficient to cover the debt, and the liquidation process will be automatically triggered, aimed at protecting the protocol's liquidity and the financial security of other users.

1. Liquidation Triggering

If market fluctuations cause a sharp drop in the price of LP Tokens pledged by the borrower, the borrower's Health Factor rapidly declines, triggering liquidation. There is also a less likely scenario where the price of borrowed assets, USDT or USDC, rises. Since USDT and USDC are stablecoins, any price increase or decrease is minimal.

2. Liquidation Execution

Liquidators actively monitor borrowers' Health Factors and seek loans with Health Factors below a 1.

Liquidators repay part or all of the borrower's debt to restore the Health Factor to a safe range.

When liquidators repay debt, the system implements a dynamic close factor, meaning liquidators only repay the portion of debt needed to exceed the borrower's Health Factor. This ensures the borrower's collateral is not over-liquidated, avoiding their Health Factor being restored too quickly or over-repaid.

3. Liquidation Rewards

Liquidators who repay loans will receive a certain percentage of liquidation rewards. The reward is calculated from the additional portion of the repaid collateral, serving as an incentive for liquidators.

The advantages of this liquidity appreciation scheme include:

• Enhanced Liquidity: Users can quickly obtain real USDT/USDC by pledging LP Tokens, meeting short-term funding needs. There's no need to wait for the redemption period, optimizing fund utilization rates and providing users with great flexibility and convenience.

• Ecosystem Cycle Support: The lending functionality of LP Tokens further expands their use cases within the ecosystem, promoting efficient fund circulation.

• Liquidation Mechanism Security: The set liquidation trigger conditions and discount auction mechanisms effectively ensure the stable operation of lending contracts, reducing financial risks. Position closing and capital withdrawal processes proceed in an orderly manner, ensuring the safety of user redemptions and avoiding market volatility risks.

Case Analysis: Leverage Trading

Suppose Alice stakes 1000 USDT in ZEROBASE staking and receives 1000 LP Tokens. Then, Alice uses 1000 LP Tokens as collateral, borrowing 95% of their value, which is 950 USDT, based on ZEROBASE's liquidity appreciation service, and uses these funds for leverage trading.

Scenario One:

Alice profits and repays the loan Suppose Alice uses the borrowed 950 USDT for leverage trading and successfully profits. After leverage trading, her assets grow from 950 USDT to 1,900 USDT. Therefore, Alice can repay the loan with these profits. She repays the borrowed 950 USDT, and the remaining 950 USDT is her profit.

Scenario Two:

Alice experiences asset liquidation Suppose the market experiences severe fluctuations, and the value of the collateral LP Tokens shrinks. Alice's Health Factor drops to 0.63, triggering liquidation.

$Health Factor = Collateral Value / (Borrowed Amount + Accumulated Interest) = 600 USDT / 950 USDT = 0.63$

To protect the financial security of the ZEROBASE ecosystem, part of Alice's collateral is liquidated, repaying the debt and ensuring the protocol's liquidity and health.

3.5 User Guide

Staking user guide

4 Conclusion

ZEROBASE Staking innovatively provides liquidity arbitrage and liquidity appreciation functions, offering users (stakers) multiple advantages: risk-neutral stable annual yield rates, fund security custody services provided by Binance, and risk-neutral and verifiable fund investment strategies based on zero-knowledge interval proof technology. Additionally, stakers also have the opportunity to receive future token or airdrop rewards (in the form of ZB points), as well as flexible operation experiences with deposits and withdrawals at any time, making investments more convenient and flexible.

ZEROBASE's Long-term Value and Actual Return Guarantee

We are planning a series of product upgrades based on multi-liquidity pool tiered yield mechanisms to ensure that through yield-supported mechanisms, we prevent ZB prices from deviating from fundamentals, thereby reducing excessive speculative behavior and providing investors with more stable and reliable choices.

ZEROBASE is committed to creating an unprecedented ZK application ecosystem by integrating technological innovation with sustainable business models, not only creating greater value for users and ecosystem participants but also aiming to redefine the future of decentralized finance, driving ZKFi to become a new growth engine in the Web3 era, pioneering new paths for the industry.