ZK Proof-of-Reserve

Ion Protocol uses zero-knowledge proofs to track the balance of validators (and slashing events) directly from Ethereum's consensus layer to determine loan health.

ZK State Proof Architecture

Ion Protocol uses ZK state proofs (proofs that trustlessly communicate information within blockchain state) to query information directly from Ethereum's consensus layer. This information is used to enable the below features:

  • Price Agnostic Liquidations

  • Smarter LTV Tracking

  • ZKML-Supported Risk Underwriting

Smarter LTV Tracking

On Ion, loan positions and their respective health are determined by information derived from the consensus layer. Ion uses ZK-proofs to track the balance of the validators within each different liquid staking provider or re-staking platform that is supported within the market. These balances determine the "value" that is secured within each asset deposited into the protocol.

This enables users to be assured that:

  • Their LTVs won't shift as a byproduct of the secondary market price of their staked/re-staked asset.

  • Their LTVs will be more representative of the value (in ETH) that their staked/re-staked asset represents.

  • We can enable higher LTVs in the markets without exposing them to market manipulation attack vectors.

Price Agnostic Liquidations

Liquidations on Ion Protocol are caused by changes in the underlying balances of the validators backing a collateral vault rather than by volatile price action.

  1. Ion's Proof-of-Reserve system will monitor the relevant validators that belong to a given provider of the collateral asset that is supplied.

  2. The liquidation engine is attached to feeds of beacon chain state data that update regularly, providing verifiable proofs of changes in the consensus layer state.

  3. These updates generate a proof-of-reserve for each of the collateral types in our system, which dictate the health of loans in the protocol.

  4. A loan position can only be considerable at risk of liquidation when the consensus layer balance of the validators underlying the collateral decreases (i.e. from slashing).

  5. When a loan position is liquidated, a dutch auction is initiated that scales the liquidation bonus over time, enabling a more MEV-resistant liquidation market.

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