[TEMP CHECK] Aave V3 Deployment on zkSync Era Mainnet

Title: [TEMP CHECK] Aave V3 deployment on zkSync Era Mainnet

Author: @fig - Flipside Crypto

Date: 2023-03-26


Simple Summary

This Temperature Check seeks community input for the opportunity to deploy Aave V3 on the zkSync Era Mainnet, expanding Aave’s presence and tapping into the growing zkEVM ecosystem.

Background

zkSync is a zk rollup, a trustless protocol that uses cryptographic validity proofs to provide scalable and low-cost transactions on Ethereum. zkSync Era is made to look and feel like Ethereum, but with lower fees. Era empowers users with more security and embeds into the familiar infrastructure and ecosystem of EVM.

zkSync Era has launched with a diverse array of DeFi offerings, listed in its ecosystem documents – and others on the way. Deploying Aave V3 on zkSync Era could provide opportunities for growth and collaboration between the Aave and zkSync communities.

Era provides key EVM features, such as smart contract composability - leading to easier deployment of Aave V3 and requiring minimal development work.

Motivation

The Aave community has previously voted to deploy the Aave V3 codebase on zkSync’s v2 Testnet, approved by this off-chain vote. With the release of Era Mainnet, it is possible to re-invest the work of developers, empowering Aave as a hub for mainnet activity and liquidity.

zkSync has the potential to benefit the Aave ecosystem by introducing new users into DeFi, and cementing Aave as the premier borrowing platform within this growing zk ecosystem. zkSync would benefit from having a flagship DeFi project like Aave on its platform, further diversifying and growing the DeFi options available to its users.

Contributing teams like the ACI have described this benefit well before: “EVM-equivalence allows deployment with little development work needed to adapt Aave to [a] new network.”

Additionally, ecosystem developers note “zkSync will further Aave’s expansion cross-chain, reinforcing Aave’s place as the top liquidity market.”

Specification

This TEMP CHECK presents the Aave governance with the opportunity to deploy Aave V3 on the zkSync Era Mainnet with a limited deployment of initial assets: USDC and ETH.

Suggested risk parameters for these assets are provided in the table below.

Flipside Crypto invites risk service providers ( such as @Pauljlei & @ChaosLabs) to provide feedback on these assets - as teams wait to confirm native or non-native versions of their token.

We hope this list grows as the network matures with more users and integrations:

Risk Parameter WETH USDC
Isolation Mode NO NO
Enable Borrow NO YES
Enable Collateral YES YES
Stable borrowing N/A NO
Emode Category N/A N/A
Loan To Value 80% 82.5%
Liquidation Threshold 82.5% 85%
Liquidation Bonus 5% 5%
Reserve Factor 10% 10%
Liquidation Protocol Fee 10% 10%
Borrow Cap N/A 10,000,000
Supply Cap 25,000 25,000,000
Debt Ceiling N/A N/A
Base 0% 0%
Slope1 7% 4%
Uoptimal 45% 90%

Disclaimer

Flipside Crypto is not compensated in any form by zkSync or Matter Labs for creating this Temperature Check proposal. This TEMP CHECK has been prepared solely to facilitate community discussion.

Next Steps

Temperature Check: Gather community feedback and assess sentiment towards the proposal of deploying Aave V3 on zkSync Era Mainnet.

ARFC: If the Temperature Check Snapshot indicates positive sentiment, proceed to the ARFC stage for further discussion, risk parameter evaluation network analysis, and finalization of the proposal.

AIP: If the ARFC stage Snapshot is successful, submit the proposal as an AIP for voting and on-chain governance approval.

Copyright

Copyright and related rights waived via CC0.

19 Likes

The ACI is supportive of L2 Aave V3 expansion to new frontiers. The “MVP” approach of a strictly limited set of collaterals and assets is in line with our vision of “be there first, but in a conservative way”.

In short, this TEMP CHECK has full ACI support.

4 Likes

Matter Labs is grateful to Flipside Crypto for independently taking the initiative to temp check the Aave v3 deployment on zkSync Era mainnet.

7 Likes

This proposal has been moved to Snapshot, set to go live for voting tomorrow.

We appreciate any and all particiaption!

1 Like

We’re in support of this deployment as zkSync Era is growing, Aave V3 will be an essential protocol for their ecosystem.

1 Like

This would be great! One other thing to consider would be which oracles can be used. From what I understand, AAVE relies on chainlink oracles which are not yet deployed to zkSync Era however I could be wrong and it may be possible to use another oracle source.

Currently, the available oracles on zkSync are Pyth and Redstone but I don’t believe these are compatible with aave.

Would be interesting to look more into the technicals of a zkSync Era deployment and see what requirements there are.

2 Likes

Hey!

API3 will be deploying on zksync as soon as the zksync team releases the required repositories to run RPC clients, which is a prerequisite for us deploying on mainnets.
We already went over API3 in the thread for zkEVM, so to keep this short i’ll refer to that one for information. We’re fully compatible with AAVE in the sense that you can swap a Chainlink price feed with an API3 one very easily (single liner) without requiring much change for AAVE and/or it’s user experience.

Testnet feeds can be checked out here.


btw, as bgd pointed out it might be wise to seek out an experimentation for the usage of another oracle provider before deploying on a new chain with it.

2 Likes

Thanks for your question!

zkSync Era indeed currently has Pyth & Redstone available, with API3 on the way.

Regarding Chainlink, once the External Node is ready (very near future) Chainlink will be able to deploy.

2 Likes

Hey, Marcin from RedStone Oracles here, @fig great to see such a positive outcome of the Snapshot vote!

@omurovec we offer a Chainlink-like interface with our RedStone Classic model details described under zkEVM ARFC. Aave could implement RedStone as a backup Oracle on existing chains or as a first-line Oracle on chains where Chainlink isn’t present.

Thanks, @SA_Matterlabs for mentioning RedStone, we’re dedicated to supporting a timely and secure deployment of Aave on zkSync Era :handshake:

1 Like

This proposal has passed the temp check stage and is ready to be migrated to the ARFC stage.

We will migrate this discussion shortly - allowing time for Chainlink support and more mainnet maturation before full deployment. Please expect an update on the forum soon.

Thanks for your patience and for the voters’ support - garnering 99% approval!

2 Likes

Gauntlet Risk Recommendations

Simple Summary

zkSync Era is a Layer-2 scaling solution for Ethereum using Zero-Knowledge tech to dramatically scale Ethereum, allowing cheaper transactions and storage. Its full alpha launch was on March 24th, and its TVL has increased to $261M in the month since then. Should market conditions change meaningfully, it would be prudent to revisit these figures.

From a market risk perspective, we recommend launching Aave on zkSync Era with conservative supply and borrow caps in line with its current TVL and liquidity.

Recommended initial parameters

Risk Parameter WETH USDC
Isolation Mode NO NO
Enable Borrow NO YES
Borrowable in Isolation NO YES (for future isolated assets)
Enable Collateral YES YES
Loan To Value 80% 80%
Liquidation Threshold 82.5% 85%
Liquidation Bonus 5% 5%
Reserve Factor 15% 10%
Liquidation Protocol Fee 10% 10%
Borrow Cap N/A 10,000,000
Supply Cap 5,700 10,000,000
Debt Ceiling N/A N/A
Base 1% 0%
Slope1 3.8% 4%
Uoptimal 80% 90%
Slope2 80% 60%

For supply and borrow caps, we follow Gauntlet’s supply and borrow cap methodology. For all other parameters, we match the values on Optimism, as it has the most conservative parameters of the other L2s.

Liquidity comparison with other L2s

The following table shows the 25% depth in tokens on each chain, using 1inch to swap to the other token.

Asset zkSync Era Optimism Arbitrum Polygon
WETH 5,700 18,500 44,000 15,500
USDC 10,000,000 30,000,000 45,000,000 25,000,000

zkSync Era Chain Summary Statistics

The below graphs demonstrate the shape of growth on zkSync Era:

TVL: ~$261M

Transactions: 10.7M

Users: 463K

zkSync Era Ecosystem dApps

If Aave v3 is deployed on zkEVM, it can interact with other DeFi protocols for lending, borrowing, and liquidity provision. According to DefiLlama, most of the TVL on zkSync is concentrated in DEX, with $46.8M in the largest DEX, SyncSwap.

The largest lending protocol on zkSync Era is ReactorFusion, a Compound fork with $7M TVL.

Asset Overview

Following is a breakdown of the top 3 assets on zkSync Era:

Symbol Address TVL # Txns
ETH 0x0000000000000000000000000000000000000000 $152M 588,547
USDC 0x3355df6D4c9C3035724Fd0e3914dE96A5a83aaf4 $100M 1,489,160
MUTE 0x0e97C7a0F8B2C9885C8ac9fC6136e829CbC21d42 $9M 66,576

There are several smaller assets with much lower TVL. Notably, many large tokens (including USDT and WBTC) have not yet been bridged to zkSync Era.

2 Likes

Thanks Paul! We appreciate the team’s speedy work here.

1 Like

We generally support the suggested risk parameter recommendations provided above.
Considering the current on-chain liquidity, we would recommend more conservative caps for the initial launch but will hold off on making final recommendations until the final AIP to factor in the relevant market and liquidity conditions.

Many thanks for the speedy work.

zkSync Era is looking forward to working closely with Gauntlet on risk parameters.

With regards to your comment on wBTC & USDT: these assets will be available on Era in the near future. We have been actively discussing adding these assets with teams representing both assets (BitGo & Bitfinex/Tether).

Generally speaking, there is an incredibly strong pipeline of DeFi projects set to launch on Era over the course of the next 6-10 weeks. As such, we can expect further growth in overall TVL and in major assets such as ETH, stables, LSDs.

2 Likes

This would be great! ZkSync ERA has a very good traction

Are there any updates on this? Particularly regarding the timeline for Chainlink price feed deployment.