Delphi Digital Leads $5M Seed Round for Money Market Protocol ZkLend

Three Arrows Capital and Starkware also invested in the round, which will go toward additional hiring and the launch of zkLend’s core products.

Mar 29, 2022 at 12:29 p.m. UTC

Brandy covers crypto-related venture capital deals for CoinDesk.

ZkLend, a layer 2 money market protocol built on zero-knowledge rollup product StarkNet, has raised $5 million in a seed funding round led by crypto research firm Delphi Digital and with participation from Three Arrows Capital and StarkWare. The capital will go toward the launch of the company’s core products, as well as to expanding the technology, marketing and business development teams.

“Money markets are a core component of the [decentralized finance] financial stack with strong existing product market fit. Couple a money market with the technical prowess of StarkNet’s decentralized ZK rollup, which is live and proven, and you have zkLend,” said Delphi Ventures co-founder and partner Tom Shaughnessy in a statement.

StarkNet is a layer 2 product that addresses Ethereum’s key scalability issues of slow throughput and high transaction fees. ZK rollups bundle hundreds of mathematically validated transactions into one, then write that transaction to the Ethereum blockchain, cutting down on traffic and fees.

StarkWare, the parent company of StarkNet, raised $50 million in funding at a $2 billion valuation last November.

How it works

ZkLend has two key products. Artemis, a permissionless lending offering open to anyone with an internet connection, will launch in the third quarter of 2022. With Artemis, users can deposit assets to earn yield and can borrow using those assets as collateral. Deposits from multiple investors are collected in pools to facilitate the loans, which have real-time, liquidity-variable interest rates.

The Apollo product, launching early next year, is for institutional and corporate users needing know-your-customer (KYC) and anti-money laundering (AML) compliance. Institutional investors include financial institutions, prop shops (a type of trading firm that invests its own money) or even corporate treasuries, zkLend co-founder Jane Ma said in an interview with CoinDesk.

“As [decentralized finance] becomes more mainstream and institutions start looking into adoption, we understand that there’s going to be a lot of compliance barriers that come into play. Apollo can serve as a gateway for these institutions,” said Ma, noting that institutions have to be verified and approved before entering the protocol.

ZkLend’s investment deck further outlines the importance of institutional investments in crypto: “The next chapter of DeFi is institutional. Institutional CeDeFi is the next finance paradigm as institutional capital and legacy infrastructure enter the arena.”

Incentives

ZkLend is backed by the native ZEND token. Users who borrow or lend assets within Artemis can earn tokens in what zkLend calls an “ouroboros” model, named after the mythical snake that eats its own tail. Users who stake ZEND will be eligible for governance rights and claims to the interest income earned by the deposit pools.

“We want to reward borrowers because they’re the ones paying interest on their loans,” explained Ma. “If you’re borrowing in some of the pools with higher interest rates, we really want you to participate and we might offer a more attractive reward.”

Why StarkWare?

ZkLend plans to use the new capital to build out the team, including a chief compliance officer and institutional sales people for Apollo. Ma said the protocol will hire two to three developers since StarkWare doesn’t natively support Ethereum Virtual Machine, which means the rollups have to be done through Cairo, a relatively new programming language

StarkWare isn’t the only layer 2 ZK rollup platform. Competitors include zkSync from Matter Labs, as well as Polygon Hermez. Last summer, layer 2 Ethereum platform Polygon merged with decentralized ZK rollup platform Hermez in a $250 million deal in a major sign of support for ZK technology.

So what led zkLend to choose StarkWare?

“We decided to go with StarkWare because we thought they were the farthest in terms of development progress and we felt the team was extremely experienced,” said Ma. “That’s not to say in the future we won’t look at other ZK layer 2s.”

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Brandy covers crypto-related venture capital deals for CoinDesk.

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Brandy covers crypto-related venture capital deals for CoinDesk.

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