Zcoin/Firo and the Defi Ecosystem

I can hear the cheers OR groans already! Zcoin jumping on the DeFi bandwagon?

This is an often asked question and not easily explained in a chat format so I hope to elaborate my personal thoughts on the topic and how it is shaping our thoughts in the defi space.

What is Defi?

Many purists would argue that being a cryptocurrency is already ‘decentralized finance’. But in the common use of the word in the space, DeFi encompasses things like algorithmic or CDP stablecoins, decentralized exchanges, open lending platforms, prediction markets and many others. It is basically, finance products that are ported over to the blockchain and ideally removes intermediaries in doing so.

Blockonomi makes an excellent article on this.

What’s the hype with DeFi?

The idea of creating an alternate financial system on the blockchain is a powerful narrative. It takes advantage of the fact that cryptocurrencies can be programmable money. The ability to take loans without banks, to trade without KYC on exchanges that doesn’t require market makers or even building synthetics assets.

It also enables all sorts of new things for example “flash loans”, where people without collateral can take loans as long as they are repaid back within the same instruction allowing anyone with the know how to take advantage of arbitrage opportunities without needing access to your own capital.

Also, with the rise of yield farming that allows users to earn tokens for contributing capital to liquidity or ‘staking’ it, has lead to a huge surge in interest in the space. This has been controversial as many yield farms are basically complex money games though some are used to incentivize interest and use in the platform. DeFi yield farming has sometimes been likened to be the new ICO mania where everyone is FOMOing over anything that is DeFi related, and like in any bull market, there is truth in it.

The ability to also have instant listings and liquidity on DEXes like Uniswap have also made it a heaven for anyone to create their own token leading to also many ‘rug pulls’.

Zcoin and DeFi

There are three options we can take when dealing with DeFi:

  • Build DeFi functionality directly into Zcoin
  • Have nothing to do with DeFi
  • Integrate into DeFi

The first option may seem to be appealing especially when coupled with privacy but it faces numerous challenges. To make DeFi work natively on Zcoin, many require smart contract capability which is a whole endeavor on itself. Although the route to fork Qtum is open, it introduces another codebase that we have to maintain and another large attack surface. Diversify too much and you’ll pay for it later. Our focus shouldn’t deviate from making Zcoin the best private cryptocurrency to use which is already a huge task.

The second option is to dismiss DeFi as a fad, and just stay out of it. This is a popular take especially among larger cap projects or those where integration is not trivial (due to non Bitcoin base for e.g.). If DeFi proves itself and they’re large enough, the integrations will come. However, Zcoin isn’t in that position where people will build integrations for us independently. This is a reality as there are so many other larger cap projects with larger user bases that makes sense to be prioritized. This also means that if DeFi takes off, Zcoin will be relegated into its own little siloed ecosystem and having to play catch up.

The third option is to integrate into DeFi which is to build bridges into the DeFi ecosystem so that we can participate in it, but without having to maintain smart contract capability and build all the apps ourselves. There are tradeoffs to this approach in that many of these models mean that there is loss of privacy or involves some sort of federated or centralized trust. However the gains can be great. Improved liquidity even on Znodes, greater utility of XZC, the ability to participate in DEXes where all the users are or to use Zcoin as collateral for decentralized loans. Once they’re done, The important thing is that users are given the choice to choose what they are comfortable with and the set of trade offs that matches their needs.

Zcoin’s Strategy

Zcoin’s strategy falls into the third category.

Over the next month or two, we will be unveiling our initiatives in bridging Zcoin into DeFi. As you already know, we’re part of the Ren Alliance and are working towards integration into RenVM. What this means is that an ERC-20 token version of XZC can work on the Ethereum network and be listed on Uniswap, Balancer and other DEXes. Having a Bitcoin core codebase allows us to do this with relative ease and is one of the strengths of our project.

What’s even more interesting are ways to fractionalize Znodes that would make them liquid while continuing to earn yield. One of the criticisms of Znodes is that they lock liquidity and that they exclude people who can’t afford to hold 1000 XZC. Work is well underway on this and we hope to unveil this soon.

We are also exploring other integrations into other promising smart contract networks, some of which we have already opened conversations with.

But what about Privacy?

Privacy is still the very core of our project. With the upcoming Lelantus launch we are preparing to launch our testnet and also focused on making it easily accessible. Audits are completing and we’re doing the final fixes and tweaks. These DeFi initiatives do not detract from this.

While, these representations of XZC on Ethereum won’t have inbuilt privacy, they can easily be converted trustlessly without KYC back into native XZC which will then enjoy all the privacy features. We see DeFi as a separate ecosystem that you can plug in, do what you need to do with all the utility of an Ethereum token, and then bridge out again into private XZC.

Zcoin’s integration into DeFi is about giving greater utility and visibility to the coin while retaining our core values on our native chain.

The Future

We have done research on several possible ways to use Znodes as a way to bridge tokens from other smart contract platforms into a Zcoin tokenization layer. This is not a trivial task as these would require much more complicated setups if we are to achieve a high degree of trustlessness since in this case, other tokens would be wanting to use Zcoin’s privacy features so the threshold for trust is higher. We continue to evaluate various schemes to do this.

We welcome feedback and comments!

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Really a great post @reuben and i totally agree on this approach. I think this is the only possible solution without risking to much. Getting into DeFi is crucial to stay relevant at this time.
And just as you point out we are not big enough so that others build for us so unless the team takes action (as you have clearly done, like working with REN) nothing will happen.
I truly think the work you mention will be a game changer and bring more liquidity and more visibility for the project.
Bravo! Keep up the great work guys.

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Nice efforts of Zcoin team on keep working continuously with valid reason, Defi getting lots of attention, so good to keep going with Defi.
“With the upcoming Lelantus launch we are preparing to launch our testnet and also focused on making it easily accessible. Audits are completing and we’re doing the final fixes and tweaks. These DeFi initiatives do not detract from this.” Do we have any dates for Lelantus Launch and Lelantus Testnet?

I heard a lot about rebranding in telegram community group to other name, as many thought zcoin is clone of zcash, is it true?

We don’t have any recent tweet about reward halving, so it may be good to post about halving as marketing point of view.

Thanks again for being transparent. Best wishes for next month. Hope we will hear more exciting news soon.

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We’ll announce the testnet soon :smiley: I don’t want to unnecessarily rush the developers but the Lelantus PR is now being reviewed internally which would make it ready for testnet!

We’ll probably have a month of testing and if all is okay, launch!

Rebranding is something that we are considering seriously and we are working on the branding guidelines, website, name and logo. We’re still deciding on a few things!

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Please call it MINT, if you are going to rebrand.
In the English language it has good connotations.

I can only see two words from this post, “moon” and “pump”

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Looking forward to reading more about the Zcoin DeFi initiatives.

The third option mentioned in Reuben’s initial post is the right choice. Focus on the privacy core and make Zcoin interoperable with other chains.

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Another well argued course of action from Reuben. The 3rd option seems to mitigate the risks of introducing more code, and therefore less focus, to the project and at the same time gains the project exposure in the buoyant market of Defi. It could be seen as a cynical marketing attempt by those who believe that Defi is a fad, however there will certainly be others who applaud any attempt to capture some of the lime light. Whether zcoin’s great strengths are brought to the public’s attention through the reflected glow of an ephemeral scene or by the glowing reviews of its new Lelantus code the resulting attention will always be welcome. Zcoin is all too little known and far too understated. At this re-branding juncture it really needs all the oxygen of publicity it can get. By sticking to what zcoin does best - privacy, whilst at the same time gaining a foothold in the Defi space, the founding principle of - Your money, your business - will be best promoted.

If Znodes are to be further put to work with a bridging functionality, the focus here has to be on privacy. It is again really important that the project is recognised for doing one thing really well and that it does not get a name for being a jack-of-all-trades . . . master-of-none.

As always, the open leadership of this project and the sincere and transparent attempts at decentralisation and disruption of the status quo are a real breath of fresh air.

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Why there is no announcement or marketing about halving?? Zcoin is halving or its fake?

Great news overall.

Which other networks have there been discussions with?

I really think it’s important to Zcoin to also have a strong presence on new blockchain projects aside from Ethereum. While it has the most adoption, it remains slow, and expensive.

Being integrated into upcoming alternatives for Defi including Cardano, Polkadot, Avax, etc would be great for the ecosystem as the communities would learn about, and potentially use Zcoin from the beginning.

Sure we are exploring Polkadot at the moment. I’m not quite sure the readiness of Cardano but who knows, worth exploring.

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What’s even more interesting are ways to fractionalize Znodes that would make them liquid while continuing to earn yield. One of the criticisms of Znodes is that they lock liquidity and that they exclude people who can’t afford to hold 1000 XZC. Work is well underway on this and we hope to unveil this soon
Blockquote

Does that mean all Zcoin holders would potentially be able to run a fractional Znode?
Would there be a minimum amount we would need to hold?

Basically you can hold a token that represents a portion of a Znode and earn on it. There will be an announcement soon on this. The only minimum are the decimal points on the Eth token so no effective minimum.

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This is the first integration in our pipeline! https://zcoin.io/bridging-zcoin-znodes-into-defi-with-stakehound-partnership/

We need to give credit to the Zcoin team (especially Reuben) for staying current and looking at keeping Zcoin current.

Just a few comments/ideas on Zcoin and DeFi:

  • ignoring DeFi would be a mistake - Zcoin (or …new name here) needs to acknowledge it and be ready to embrace it if it ends up not being a fad.
  • while option 1 ‘build DeFi functionality directly into Zcoin’ has it’s risks - it needs to be looked at as well (explanation in a minute).
  • ‘integrating into DeFi’, while it likely has the least risk and least work - the risks need to be looked at and addressed, or accepted …

My concern has always been that Zcoin needs to be usable ‘in the real world’ - and I don’t know how many of you have actually been using (or at least watching what’s happening with people who are using) BTC or ETH ‘in the real world’.

With the recent surge of DeFi transactions on the ETH network, and general out-of-control costs on the BTC network - I’ve seen transactions hung for days waiting to be processed (even specifying fairly high transaction fees), and transactions for say $5 that cost almost $5 in transaction fees to get them sent in a reasonable amount of time … This is NOT a usable ‘real world’.

The risk of using existing DeFi networks is that Zcoin will not have any control over these transaction costs - that could get even further out-of-control.

The risk of building DeFi into Zcoin is that too much of a good thing could flood the Zcoin network even more than the other networks (and cause problems - in part because we will still be dealing with MTP blockchain bloat for a while to come).

These are just some points I thought I should make - and I’m not saying one way forward is any better than another for the Zcoin project - just some things people should be thinking about while planning what to do next.

Another thought … in the ‘real world’ those who have a competitive edge usually win out - in this case - a process that is secure and cost effective in theory should win out over unsecured more costly processes … in theory … but then there’s also blind faith in existing processes (BTC, ETH, etc.) and also marketing that come into play as well.

Thanks for being positive and replying. But I can’t find single tweet of reward halving in last 30 days.
Can we have single post with all upcoming events with dates or any expected timelines i.e. Reward Halving, Lelantus Testnet/ Mainnet, Defi bridging, Rebranding, StakedXZC etc.

When we can expect press release and updates of Aura, mobile wallet etc?

Thanks again for being kind and listening to us.
:crossed_fingers: :crossed_fingers: :crossed_fingers:

I actually wanted to make a post on the halving but wasn’t sure after the crash it was a good time :slight_smile: but will do so soon.

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Thanks. Please improve marketing on twitter too. Use hashtags like #HALVING #DEFI etc.
New posters with details of upcoming events.

We are also trying to promote but good to have some quality tweets.
Thanks again

LLMNQ functionality has been added to the code now. so it is relatively small changes than need incorporating to handle the Zcoin chain side of a decentralized implementation.
Getting it all to play nice together in a secure manner will be harder but it is still be doable :wink:

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Together with Stakehound we are excited to announce that stakedXZC will go live on Ethereum on the 30th of October.

Earn rewards by onboarding your Zcoin onto the StakeHound platform and becoming one of the first owners of stakedXZC.

medium.com/@stakehound/join-the-first-stakehound-hunt-with-stakedxzc-84e9733d612a