How to Invest in ZeroLend on Notum

Lending appeared in the crypto world relatively recently but has already gained popularity among users and investors. The main purpose of DeFi lending is to provide loans on various decentralized platforms, and its concept is in many ways similar to traditional borrowing from banks. While some users may get cryptocurrency for their needs, investors who provide the assets earn rewards from it.

The main difference between DeFi lending and the existing banking system is that dApps and platforms provide users with an open-source and permissionless environment with the proper level of security and transparency. Thus, some users independently lock their cryptocurrency on the DeFi platforms, while others choose a loan without the need to resort to intermediary services.

Instead of third parties, DeFi lending uses lending pools, where investors contribute assets, which are then distributed among borrowers using smart contracts. No need for third parties means greater profits for the investor and lower interest rates for the borrower, which means everyone wins.

Notum will walk you through the popular lending protocol ZeroLend, which invites users to invest their crypto assets, receive fairly large rewards, and contribute to the development of the DeFi ecosystem. We will pay attention to its main features, risks, and also study several investment strategies for generating income in 2024.

ZeroLend: the Essentials

• TVL: $118,22M
• Risk Level: Low-Medium
• Average APY: 13.44%
• Blockchains: ZkSync Era, Linea, ETH Mainnet, Blast, Manta
• Foundation Date: 2023

ZeroLend is a decentralized, non-custodial lending protocol built on zkSync, Linea, Manta Network, ETH Mainnet, and Blast networks. ZeroLend's main product is the non-custodial liquidity lending market. This liquidity platform is powered by LayerZero and allows users to lend and borrow crypto assets across multiple chains. It is also important to note that ZeroLend is a fork of AAVE V3, which has modified incentive mechanisms similar to Radiant Capital.

Interesting fact: ZeroLend is among the top 25 most popular lending protocols in the DeFi space, and is also the number one lending protocol on ZkSync Era with the TVL of over $23.04M. This puts the protocol five times ahead of its closest rival on zkSync, Reactor Fusion, with a TVL of $4.5M.

As known, traditional lending in banks differs from DeFi platforms in strict eligibility criteria, credit score assessment, need for collateral, and low availability. Moreover, banks act as intermediaries and make money from the higher interest rates offered to borrowers. ZeroLend, on the other hand, offers users permissionless lending, which means anyone, regardless of financial and geographic location, can receive an undercollateralized loan.

«Instead of idly holding $ETH in your wallet, you can deposit your ETH as collateral on ZeroLend and borrow $USDT to buy other tokens you're bullish on» - Docs ZeroLend.

Thus, the principles of ZeroLend operation are quite clear. Investors borrow their crypto assets and receive interest for it, while other users borrow these tokens and pay borrowing interest. In case of liquidation, the user must pay a 5% penalty fee.

Important! Before lending or borrowing on ZeroLend, you need to check that your collateral tokens are in your wallet on the zkSync. You can either bridge your crypto to zkSync, or exchange fiat money for cryptoassets. More information about it can be found here.

ZeroLend: Important Features

The protocol has some parameters that are important to take into account during lending. The main ones include:

• Max Loan to Value (LTV). This parameter is the maximum ratio of the loan amount to the collateral. Thus, with a maximum LTV of 70%, the user can borrow up to 70% of the collateral value.
• Liquidation Penalty. When falling below the liquidation threshold, the user's loan is liquidated and the penalty is added to their original debt. As said, ZeroLend charges a 5% liquidation fee, which means in case of liquidation, the user will have to pay an additional 5% of the loan amount.
• Health Factor. This parameter shows how secure the user's credit is relative to their collateral. If the health factor is bigger than one, the user is not subject to immediate risk of liquidation. However, if it is below one, this indicates an undercollateralized loan.
• Utilization Rate. The percentage of borrowed funds compared to the total amount of funds available for borrowing is called the utilization rate. This parameter shows demand compared to supply, which means the higher the rate, the higher the interest.
• Liquidation Threshold. The last parameter indicates the value at which your loan becomes undercollateralized, and thus at risk of liquidation.

ZERO Token

The ZeroLend platform has its own cryptocurrency $ZERO, which serves as a utility and governance token within the ecosystem. The Total Supply of $ZERO is going to be 100B.

Pay attention to the official website of the platform which says that “the $ZERO token is not yet alive and will be made available during the TGE.”

The main use cases of $ZERO token are:

• Staking. $ZERO coin holders will be able to stake their tokens on the protocol and earn rewards in the form of additional tokens to encourage their participation.
• Incentive Programs. To actively interact with ZeroLend, the protocol is going to conduct incentive programs offering token rewards and other benefits.
• Validator rewards and fees. Token holders will be able to accumulate transaction fees and earn fees from validators.
• Integrations. ZeroLend plans to make the token integrate with other DeFi platforms, allowing users to use it in a broader sense, such as for yield farming.

Why Invest in Liquidity Pools with ZeroLend?

Pros

Multiple chains support

While many lending protocols only support one or two blockchains, ZeroLend allows lending and borrowing across ZkSync Era, Linea, ETH Mainnet, Blast, and Manta chains.

Native yield stablecoin

The protocol has its own stablecoin, $ONEZ, which is created to generate yield from ZeroLend. $ONEZ has the self-loan repaying capability and the possibility of minting to participate in the DeFi ecosystem.

Account Abstraction

This unique feature allows users to make gas-less transactions, social logins, delegated transactions, and much more.

Transaction privacy

Using zkStack proofs, users can borrow and lend crypto assets and keep their activities private.

High-efficiency mode

E-Mode allows users to maximize borrowing capacity by using correlated assets of the same category (such as stablecoins) as collateral.

Isolation Mode

This risk management tool limits the risk of new assets used as collateral. Thus, if the protocol determines a crypto asset as risky, it activates Isolation Mode.

Credit Delegation

This feature allows an investor to contribute funds to the protocol to generate rewards, while at the same time delegating borrowing credit to other users.

ZeroLend: Investment Strategies

WETH on Linea 
Total APY - 18.58%, TVL - $2,71m

This strategy allows users to deposit assets into the WETH on Line network pool to receive fairly high rewards with a total APY of 17.05%. Having a TVL of over $1.5 million, this strategy shows a good level of trust and security.

RSETH on Ethereum
Total APY - 1.82%, TVL - $1,32m

Another strategy on ZeroLend allows users to deposit assets into RSETH on Ethereum and earn about 1.82% of total APY. This pool also has a fairly large total value locked of $1.3 million and is a relatively safe investment option.

Besides that, Notum also offers users plenty of lending options on the platform. It cooperates with many leading protocols such as AAVE, Venus, Compound, and makes the lending process simple and convenient. In addition, users can use the «Swap» tab to exchange their cryptocurrency for the required tokens in one place.

ZeroLend: Risks and Disadvantages

Although ZeroLend offers users a large number of innovative features such as credit delegation, isolation mode, and much more, it also has some disadvantages.

Cons

Risk of smart contracts

Even though the protocol inherits the audited smart contract codebase from Aave V3, which is quite secure, it still cannot provide a 100% guarantee. Thus, vulnerabilities and bugs in smart contracts can lead to loss of funds.Even though the protocol inherits the audited smart contract codebase from Aave V3, which is quite secure, it still cannot provide a 100% guarantee. Thus, vulnerabilities and bugs in smart contracts can lead to loss of funds.

Difficult to use

Since ZeroLend operates on five blockchains and offers users a large number of functions, it can be quite difficult to understand the project's ecosystem.

Liquidation risk

If a borrower's health factor falls below 1 because its collateral value does not cover its lending position, liquidation occurs, which puts all lending protocols risk, including ZeroLend.

Market risks

The cryptocurrency market is quite volatile, which means the value of assets and the rewards they generate can change. Thus, when investing in lending platforms, there is always a risk of losing part of your assets.

Notum’s Verdict

ZeroLend is a fairly popular DeFi lending protocol that offers users the opportunity to lend and borrow their crypto assets on five different networks. It has a moderate level of risk thanks to numerous audits and borrowed smart contracts from Aave V3. In addition, users receive numerous benefits such as native yield stablecoin, account abstraction, high-efficiency mode, transaction privacy, credit delegation, and much more.

The protocol also has its own cryptocurrency $ZERO, which will be available during the TGE. The token will be a utility and governance token and perform such functions in the ecosystem as validator rewards and fees, staking, incentives, and so on. Moreover, ZeroLend even has its stablecoin, $ONEZ, created to generate yields on the platform.

Undoubtedly, ZeroLend is also associated with several disadvantages, such as liquidation risk, market volatility, smart contract vulnerabilities, etc. However, it still remains among the top most popular landing protocols in the DeFi space in 2024.

Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.