A New Chapter in Capital Efficiency under the Blast Ecosystem: Analyzing the Zest Stablecoin Protocol

As a certain blockchain network announced the launch of its testnet and allocated 50% of the tokens to developers, the ecosystem inevitably faces the challenge of optimizing capital liquidity. In the existing stablecoin model, a typical 150% collateralization ratio means that users need $150 worth of collateral to obtain $100 worth of stablecoin, resulting in inefficient utilization of $50 in funds. This model clearly has serious efficiency issues.

How to effectively utilize the current liquidity of over one billion US dollars on this chain has become a core issue that all ambitious development teams in the cryptocurrency field must consider. Against this backdrop, Zest has proposed their innovative solution.

Zest: Redefining Capital Efficiency

Unlike other blockchains, the ample liquidity of this network presents developers with a new proposition - "how to maximize capital efficiency". In short, it's about how to help users utilize leverage more effectively.

In response to this challenge, Zest has proposed an innovative solution that separates yield from volatility, aiming to achieve a stablecoin system with 100% capital utilization efficiency.

Core Mechanism Analysis

A major innovation of this blockchain network is that its native ETH has built-in yields. Based on this feature, Zest has designed a unique protocol mechanism.

After users stake $150 worth of native ETH in Zest, they can receive $100 in zUSD stablecoin and $50 in leveraged ETH. The yield of the native ETH is inherited by the zUSD, while the volatility is borne by the leveraged ETH. This process can be described by the following formula:

1 * native ETH = k * zUSD + 1 * leveraged ETH_k

In this formula, 1 native ETH can mint k zUSD and 1 leveraged ETH_k. When the price of ETH drops to k dollars, leveraged ETH_k will face liquidation risk. To meet the different risk preferences of users, the protocol plans to introduce a diversified selection of k values after the launch.

Meet the diverse needs of users

By cleverly decomposing volatility and returns, the Zest protocol can simultaneously meet the needs of two types of users:

1. Risk-averse users pursuing farming returns

As all price fluctuations of native ETH are absorbed by leveraged ETH, zUSD can provide risk-free leveraged returns. For example, if k=1000, and the price of ETH rises from $1800 to $3000, the annualized yield of native ETH is 4.5%, then the annualized yield of zUSD staking can reach 27%, which is 6 times the native yield.

2. Users pursuing high leverage

For example, with k=1000, if the price of ETH rises from 1300 dollars to 3000 dollars, the value of leveraged ETH will increase from 300 dollars to 2000 dollars, achieving nearly 7 times the profit.

Looking to the Future

Zest has not yet announced the specific design of its token economic model, and this part will be further discussed later.

Conclusion

Thanks to the ample liquidity of the blockchain network, protocols like Zest can focus more on optimizing product mechanisms and economic models to achieve higher leverage and capital utilization efficiency. This showcases the infinite possibilities of decentralized financial innovation and lays the foundation for the emergence of more outstanding designs in the future.