Introduction
Today is a new chapter for Diffuse development. We are thrilled to announce that our zkTLS tech is one of the elements to bring Collateral Abstraction vision live on Symbiotic. It will allow user to generate yield on top of LPs, Governance tokens, etc. and also bring restaking protocol to various L1/L2 chains.
Recently, Symbiotic has introduced the concept of Collateral Abstraction, which aims to bring restaking to the next level by utilizing the wide variety of collateral types for securing networks. It can significantly improve capital efficiency by creating a new DeFi primitive.
Unleashing DeFi assets potential
Over $3.5B in assets are locked in Uniswap V3 liquidity pools alone, with $81B+ of monthly flow. But these assets can have an additional productivity on top of routine liquidity provision to AMMs and lending protocols.
It can be done by utilizing them in restaking and shared security protocols. These solutions generate additional yield, originating from crypto economic security fees, while maintaining nearly the same level of risk. However, today all known restaking protocols are limited to a single chain due to interoperability challenges, trust concerns, and connectivity bottlenecks.
Diffuse solves this issue and expands restaking to various L1/L2s, using a zkServerless approach to implement a collateral abstraction primitive.
Protocol design overview
To implement Collateral Abstraction with zkServerless effectively, we must design a protocol that addresses key components of the system, including risk management, price feeds, verifiable cross-chain deposit, withdrawal, and slashing events. The protocol architecture enhanced with zkServerless includes the following key components:
Data Feeds by Diffuse (price oracle): an oracle powered by ZK and TEE provides prices directly from Centralized Exchanges API. Learn more in our blog post: https://www.diffuse.fi/post/zktls
Risk parameters management: calculation of risk factors for assets used as collateral, ensuring that volatile tokens and complex liquidity assets are managed securely. Data of this Smart Contract is updated from the trusted and professional parties with the same zkTLS oracles in a verifiable manner.
Diffuse Network: to observe and notify the protocol about cross-chain events, like deposit, withdrawal, and slashing.
Diffuse Core: protocol responsible for censorship-resistant proof creation.
How it works
On the L1/L2 side, the user chooses networks and deposits LP tokens for an Uniswap USDT/USDC liquidity pool to a Collateral Smart Contract (CSC) for $1000
If LP tokens whitelisted CSC get risk factor for both tokens USDT and USDC from the Risk Parameters Smart Contract - 0.9, 0.9
CSC gets both token's prices and with risk factors calculates collateral liquidation price - $900
CSC mints its token (CT) with a health factor of 20% from the liquidation price for the value of $720
CSC locks LP tokens and deposits CT to the Vault Smart Contract on L1/L2
Diffuse Network catching deposit event and collect and forward data for proof creation to Diffuse Core Protocol
Diffuse Core Protocol creates a proof and submits deposit parameters (with the help of Diffuse Network) to the Ethereum Symbiotic Vault over the verification smart contract.
Symbiotic Vault accepts CT tokens for $720 value only if the proof is valid
Rewards and slashing mechanisms work similarly but in another direction. Events happening on the Ethereum side will be caught and submitted to L1/L2 with the help of Diffuse Network and proofs.
Diffuse's contribution
Transparency and verifiability: the zkServerless approach provides essential ZK and TEE-based cryptographic guarantees that everything executing outside the chain executes correctly and according to the protocol
Unmatched scalability: the ability to scale without limits is crucial for the mass adoption of the Collateral Abstraction protocol. It is achieved by combining the best parts of ZK, TEE and networks together.
Robust core features: zkServerless architecture ensures that all operations are conducted with minimum intermediate actors involved, thus leading to higher security and reliability.
Summary
Collateral Abstraction brings new opportunities to DeFi ecosystems by reusing already locked assets across multiple L1/L2. This is an actual win-for-everyone solution, since:
Users can lock in restaking already locked assets for extra rewards
L1/L2s will hold liquidity and pull interest rates for their users from the Ethereum side
Symbiotic network will gain access to a wide range of unique and high rate quality assets secured by a revolutionary protocol.
With zkServerless, Diffuse Network, and zkTLS-powered oracles, we can implement this quickly, ensuring scalability, security, and trustlessness.
Let’s build it together.
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