Blast Ecosystem Innovation: Zest Protocol Achieves 100% Capital Efficiency for Stablecoin

With the launch of a new emerging public chain testnet and the allocation of 50% of its tokens to developers, the ecosystem inevitably faces the challenge of optimizing capital liquidity. The traditional stablecoin model has significant capital efficiency issues, often requiring 150% over-collateralization, resulting in a large amount of funds not being fully utilized. Effectively utilizing the enormous liquidity on-chain has become the top priority for development teams in the cryptocurrency space.

In this context, the Zest protocol has emerged, proposing an innovative solution. Unlike other public chains, this ecosystem presents developers with a brand new proposition: "How to maximize capital efficiency," or more plainly, how to help users better achieve leverage.

The core concept of Zest is to separate yield from volatility, achieving 100% capital utilization efficiency. One of the major innovations of this public chain is that its native coin has built-in yield, which provides a foundation for various operations at the protocol level, such as Liquidity Staking Derivatives Finance (LSDFi).

Specifically, when a user stakes $150 worth of native coins in Zest, they can receive $100 in zUSD (a stablecoin) and $50 in leveraged native coins. This design allows the yields of the native coins to be inherited by zUSD, while the volatility is borne by the leveraged coins.

This mechanism can be expressed using the following formula:

1 * native token = k * zUSD + 1 * leveraged token_k

Here, k represents a variable parameter that determines the price threshold at which leveraged tokens face liquidation. To accommodate the risk preferences of different users, the protocol plans to introduce a diversified set of k values.

The design of the Zest protocol aims to meet the needs of two types of users:

1. Risk-averse users seeking stable returns: Since all price fluctuations are absorbed by leveraged tokens, zUSD can provide risk-free leveraged returns. In some cases, the annualized yield of zUSD may reach several times the yield of the native coin.

2. Users seeking high leverage: Leveraged tokens can achieve significant amplified returns when the price of the native coin rises. For example, under certain conditions, the value of leveraged tokens may experience nearly 7 times growth.

It is worth noting that the token economic model of the Zest protocol has not been fully disclosed, and this part is still subject to further discussion.

Overall, the Zest protocol takes full advantage of the abundant liquidity in the ecosystem, focusing on innovative designs of product mechanisms and economic models to achieve higher leverage and capital utilization efficiency. This approach showcases new possibilities in the field of decentralized finance (DeFi) and provides valuable references for future protocol design.