Be cautious about the security of related DeFi applications

On July 30, a relatively well-known derivatives exchange on Starknet, ZKX (zkx.fi), published an announcement on its official Twitter.

In the announcement, the project team stated that due to various reasons, the project would have to shut down and reminded all users to withdraw their assets from the exchange as soon as possible.

The project team made this difficult decision mainly due to the following factors:

• Low user participation;

• Sharp decline in trading volume;

• Revenue unable to support operations.

In addition, the project team candidly admitted that the token issuance process did not meet expectations, as the main token holders had been cashing out, leading to a continuous decline in token prices.

According to the project team's account, the project started in 2021 and has been running for three years. During this time, the team has been trying hard to create its own unique features and has received funding and ecosystem support. On the project's official website, we can see the names of a large number of well-known venture capital firms (including HashKey, Amber, etc.) and institutions (Starkware).

Despite this, the project could not continue to sustain itself.

I have always heard about this project, but since I do not engage in derivatives trading, I have not interacted with the project and cannot share my experience.

However, from the public information, I guess the project has been persevering through difficulties to reach this point.

In my impression, this may be the first relatively well-known DeFi project to publicly announce its closure since the beginning of this bear market.

Unlike other half-dead projects waiting for death or quietly disappearing, this project chose to publicly expose itself, merely tearing away the veil that shrouds the current predicament of the DeFi ecosystem.

Since the DeFi explosion in 2020, this ecosystem has gone through four years. However, in my view, most of the innovative applications in the ecosystem are still stuck in 2020 and 2021.

Most of the new DeFi applications that have emerged over the years are basically just simple code copies, from Ethereum to other blockchains, from mainnet to layer two expansions.

Do users really need so many DeFi applications?

Do users really need so many DeFi tokens?

The closure of ZKX is regrettable but not surprising. I believe more DeFi projects are irreversibly heading towards death, being eliminated by the market, and ultimately only a few giants will remain.

ZKX at least publicly reminded users, giving them time to withdraw their assets, which is quite conscientious compared to some projects that suddenly run away.

For us ordinary users, this should be a warning. From now on, we should quickly withdraw our assets from those unknown small applications and try to only engage with well-known top applications.

If we think further, could it be that only applications will have problems? Could some layer two expansions also face similar situations?

Just yesterday, I wrote that compared to USDT and USDC on Ethereum, the security of assets issued on layer two expansions is not as high. Because if a layer two expansion encounters issues, all assets on that expansion could be at risk.

Considering that ZKX is deployed on Starknet, and with ZKX having problems, I happened to be thinking about the security issues of layer two expansions, so I went to https://defillama.com/chains to check the current TVL of various layer two expansions.

The situation of Starknet is indeed concerning.

Ranked fifth, ARB has a TVL of $3.15 billion, second only to the four major public chains (Ethereum, Tron, Solana, BSC), while Starknet's TVL is only $289 million, less than one-tenth of ARB, ranking 25th.

In addition, I also took a look at another already issued token, zkSync, which is equally dismal, with a TVL of only $96 million, even worse than the Merlin chain in the Bitcoin ecosystem.

If these two layer two expansions do not step up their efforts, the only result awaiting them may be a slow demise.

I am currently withdrawing all key assets from the Starknet and zkSync ecosystems to put them on Ethereum, leaving only some native layer two assets there to observe the situation.