Zircon’s 2022 Review & Plans for 2023
Here's what we've lived through so far, and how we plan to bounce back.
This extremely difficult year is coming to a close, finally. It may be cliché but we’d like to review the year together and go deeper into all the struggles (and some successes) of this year
We’re super excited about 2023 though. Maybe it won’t be the year where the market fully recovers, but for us there is a lot of stuff cooking! That’s what we’ll cover at the end.
Anyway, let’s trace back what happened for Zircon in 2022.
Preparing to launch
We’ve gone out of stealth on January 28 with our first tweet & announcement post.
At this point we were well on the way to develop a basic MVP of the platform, which would eventually become our testnet. The market was on a high, things were looking supercycley, although you could already notice a bit of a slowdown.
Moonbeam had recently launched and we hoped to soon take advantage of the new ecosystem. We received a relatively small development grant from the foundation, giving us that initial push to form our team. In the meantime we worked to attract a community and actively developed the platform.
On February 28 we launched our testnet, which included the base of the Pylon mechanism. It was missing a few key features, such as the fee accumulation and compensation system. The feedback from the community was very positive — in hindsight, too positive.
Navigating the first leg of the bear market
By February, it was clear that the market was slowing down. You could chalk it up to the war in Ukraine, the Fed raising rates, Alameda running out of customer money etc.
In parallel we were looking to raise a round from some VCs, a very very popular thing to do at the time.
But the cards were stacked against us: the market was slowing down, the competition was fierce (basically every VC had invested in some kind of DEX), and we didn’t have the obvious credentials of a “successful looking” team. Furthermore our product seemed to be promising something impossible, as many teams tried and failed to deal with impermanent loss.
Around May-June and the Luna crash, everyone capitulated. We were close to getting an investment deal, but with the collapse most VCs stopped investing for a while — especially in DeFi.
We had already adapted our strategy to go without them by going through Moonriver first. The platform was almost done by this point, but we needed an audit and had barely any money left at all. Still, some last minute support allowed us to pull through, get an audit and get ready to launch by the end of summer.
It was a very busy time of mad development, even if from our social media it looked like we might be dead. We were very close to it, ngl.
But we pulled through. We set a launch date, rushed to it and launched our contracts on September 15th.
Rough start, but we made it
The original launch was an “unplanned” soft launch, because nothing worked at this point.
The web app was buggy and crashed very often, and we had a pesky issue with accounting for pool tokens, which resulted in a hyperinflation bug. Our brave initial users had to sit for a couple of weeks being unable to withdraw their tokens since the system was paused (though they were also able to farm uninterrupted).
As we gradually fixed these issues, we went for a public launch on October 3rd.
In the span of a few weeks we grew from basically zero to a high of $2 million TVL, which we felt was impressive given the situation in the market and considering how small Moonriver had become by that point.
The black swan
As we planned to execute the rest of our plan and become a proper exchange that would list other projects in the ecosystem, the FTX scandal came to light and spooked the markets. This was particularly bad for us because of how single-sided withdrawals worked in these situations.
If you remove Stable liquidity in large amounts with a single token, you will suffer slippage because the system is taking a 50/50 share, and selling half of it for the token you’re withdrawing. Normally this is avoided through an ample reserve system or by using Swap & Burn, but the market was in panic. A few very large withdrawals dumped the price of ZRG in a few large chunks, giving a lot of money to arbitrage traders. This stopped the plan as ZRG was important to bootstrap liquidity incentives to new pools.
We’d also found a few other design flaws that prevented the system from rebalancing as it should. As a result, we had to partially go back to the drawing board. And that’s where we are right now: finalizing a Pylon update that takes all of these lessons into account. We know from testing that it fixes everything that made our systems fail to deliver our promise. All that’s left is polishing the Solidity implementation.
Why we’re excited for 2023
Surviving this year wasn’t easy, but we’ve made it.
And despite the mistakes and failures, we’ve succeeded where it matters the most:
We’ve proven that when operating correctly, the Pylon works to reduce impermanent loss. It’s a new approach that you can replicate yourself today, we just automated it.
We’ve proven that the Pylon not only reduces impermanent loss, but also provides a very convenient way to swap without any slippage (we haven’t “dumped” a single ZRG — all of our cash was obtained with no-slippage Swap & Burn).
We’ve seen that single-sided liquidity reduces friction to join the pools. 80% of all ZRG in circulation was staked in our farms.
We’ve also been affected by several negative events that showed us the actions to take and improve our systems:
Our pre-launch testing was insufficient to account for all possible situations. While we focused on potential flash loan exploits and code bugs, other issues slipped through (Pro-tip: never prototype directly in Solidity)
The withdrawal mechanisms in the Pylon relied on an assumption that there was enough external liquidity to rebalance prices in case of a large single-sided withdrawal. With tokens like ZRG, this led to unnecessary bank runs.
Not enough people used the no-slippage swaps methods such as Add & Swap and Burn & Swap. We realized we need to make them more obvious and user friendly.
The experience gained is invaluable and helps us improve the system for the next bull run. It’s better to learn about this now than at the next bear market.
Our advantage is flexibility and innovativeness: other incumbents are either unwilling to cut their bloated salaries to survive, or have stopped innovating at the DeFi layer. Despite the challenges, we believe this will be key to growth next year.
What to expect from Zircon in 2023
In the first couple of weeks of January we expect to release a Pylon update that would fix all issues uncovered so far.
Shortly after we will implement a Smart Swap feature: using the Pylon to execute low-slippage swaps. The choice will be automatic, with normal swaps being used for small amounts and Smart Swap for large trades (if there’s liquidity for it). This feature will also help with overall stability and reduce the impact of “Omega” distress reduction for Stable.
Once we’re confident in the new system, we will begin to deploy Zircon Gamma cross-chain to provide the product to the wider crypto ecosystem.
As for Zircon Pro, the main phase of the development will kick off once we’ve completed the bulk of the work for Gamma. We aim to introduce several simple but key features such as Limit and Stop Loss orders, and the NFT Profile and referral systems. The architecture will remain the same, with the same liquidity pools and Pylon.
Towards the later part of the year we aim to develop the next stage of the Zircon protocol: the Perpetual Move, an option based on impermanent loss. This will be a completely new product that will be integrated with the Pylon to dramatically increase liquidity provider income.
And after that, more awesome features will come. But it’s still a bit too early to talk about them ;)
Happy New Year from the Zircon crew!
This is a very interesting article. And your work was amazing.I wish you victory in the next 2023. Happy New Year!