The ZKX Protocol backed by Starknet is facing shutdown due to financial constraints. This layer 2 protocol, built on the Ethereum blockchain network, will result in grave consequences for the Ethereum network if it is closed down now.
The huge number of operational challenges have marred the smooth functioning of the ZKX protocol, and the financial constraints and decreasing user engagement have escalated the issue.
The founder of the ZKX protocol, Eduard Jubany Tur, believes that the unsustainability of the economic model followed by the protocol is one of the main reasons for its failure.
The financial model has served as a huge deterrent to bringing users to the platform and sustaining their engagement with the protocol. He posted in an X update that user engagement was minimal in activities such as mining the native STRK tokens and completing the activities aimed at earning rewards on the protocol.
The daily trading volumes of the protocol saw a huge dip, with the protocol struggling to meet its daily maintenance expenses.
Besides these issues, the ZKX protocol also lost a huge amount of money in security breaches such as hacking attempts and scams.
These incidents have also caused a loss of confidence on the part of the investors in matters concerning investments in this layer 2 protocol of Ethereum.
Shutdown Procedures for ZKX Tokens
As part of the closing down of the ZKX protocol, the native token was delisted from trading on all major crypto exchanges. The users who owned STRK tokens were reimbursed for the loss they faced.
The users have been given until September 1 to transfer their refunded money to their self-custodial wallets, after which the protocol will stop functioning.
Impact of ZKX Shutdown on the Crypto Industry
The premature shutdown of Starknet’s ZKX protocol, which is a layer 2 protocol based on the Ethereum blockchain protocol, will have long-standing implications for Ethereum.
ZKX was seminal in facilitating increased scalability of transactions on the Ethereum blockchain. It also contributed fairly well to the staking of ETH tokens. It used to serve as a means of bringing real-time market insights to the Ethereum users.
This seamlessness of data transfer and getting real-world updates about the market for Ethereum-based tokens will be largely affected due to the shutdown of the ZKX platform.
ZKX was an innovative protocol in many aspects such as governance. The governance rights were not based on the amount of tokens held by a user. This liquid governance system prevented large whale investors from deciding the future of the platform.
The innovative governance system and the benefits it offered to the positive engagers of the platform in the long term will become history with the shutdown of the ZKX protocol.
More importantly, the closing down of the ZKX protocol will undermine the reliability of the decentralized finance system (DeFi) as a whole and will add fire to the argument that DeFi is subject to fallibility.
This event will result in more people distrusting crypto platforms and withdrawing or selling their digital assets. As a result, there can be imminent failure of various other cryptocurrency networks, similar to what happened to the ZKX protocol.
The Bottom Line
The event is a reminder of the need to beef up the security measures of every platform on time. Security threats or hacking attempts aimed at protocols such as ZKX will move inventors away from them, resulting in their eventual downfall.
User engagement on the platform and their acceptance of the various applications innovated are important for the growth and survival of any decentralized financial ecosystem.
Therefore, blockchain protocols, whether layer 1 or layer 2, should be provided with ample security measures, and financial constraints should be resolved from time to time to prevent their premature shutdown due to investor’s disinterest.
