Challengers of DYDX: Track Scanning of Decentralized Perpetual Contract Trading Platform

特邀专栏作者

2021-09-23 12:00

This article is about 14341 words, reading the full article takes about 21 minutes

The decentralized perpetual contract trading platform has a vast track space and an undecided pattern, and there are still opportunities for tens of billions of projects.

AI Summary

Expand

The decentralized perpetual contract trading platform has a vast track space and an undecided pattern, and there are still opportunities for tens of billions of projects.

Research Institution: Mint Ventures

Researcher: Li Yuxuan

Research Institution: Mint Ventures

This research report belongs to Mint Ventures' #跑运运进 series. Compared with the #进入研究报告 series that conduct comprehensive analysis of individual projects, the focus of the #光车解决series articles is to focus on the development trend of the track , and to find out from it. Representative projects are compared horizontally to grasp the dynamics and potential projects of each track in the encryption business.

This is also our new attempt, welcome to leave your feedback in the message area.

first level title

first quarter

——

first level title

Pay attention to the track of the decentralized perpetual contract trading platform

1. Track value

Perpetual contracts are a type of derivatives. According to the TokenInsight report (see the reference at the end of the article for details), the trading volume of derivatives (Derivatives) has surpassed spot (Spot) as a whole since Q4 2020, and has maintained a faster rate in 21Q2 growth of.

In derivatives, perpetual contracts (Perpetuals or Perpetual Futures) have an absolute advantage. From the monthly and sub-item charts of derivatives transactions in the figure below, we can see that the trading volume of perpetual contracts has exceeded that of spot transactions, and the proportion is still growing (in June, the trading volume of perpetual contracts was more than 1.5 times the spot trading volume!), in April-June 21, the total trading volume of perpetual contracts exceeded $18,857.2 billion, equivalent to a daily transaction volume of more than $200 billion.

Of course, these volumes are mainly located on centralized exchanges (CEX).

Decentralized spot exchanges have begun to flourish in the summer of DeFi in 2020. At present, project tokens such as UNI, CAKE, and SUSHI have entered the top 60 cryptocurrency circulation market capitalization, and UNI has even entered the top ten. At present, the decentralized perpetual contract trading platform project tokens have not yet entered the top 100 cryptocurrency market capitalization. And we can see that at the regulatory level, the supervision of derivatives exchanges is stronger than that of spot exchanges. In this context, the significance of decentralization is more prominent.

Therefore, whether it is compared with centralized exchanges or decentralized spot exchanges, the track space for decentralized perpetual contract trading platforms is very broad.

2. Market overview

In 2021, the track of the decentralized perpetual contract trading platform is progressing rapidly. With the rise of high-speed and low-cost side chains, Perpetual Protocol became a decentralized perpetual contract trading platform with a single-day transaction volume exceeding 100 million in February. With the progress of ETH Layer 2, at the end of August, the average daily transaction volume of DYDX successfully exceeded 1 billion.

New projects are also emerging in an endless stream. At present, the projects that have issued tokens and whose products include decentralized perpetual contracts are as follows:

In addition, there are quite a few projects that have not issued tokens, such as Synfutures, dTrade, etc., which are not included in our research for the time being.

In this paper, we select projects for evaluation according to the following two principles:

● 1. Tokens have been issued

● 2. The circulation market value of the token exceeds 50 million US dollars or there are actual trading products online (at least the test network) and the average daily transaction volume exceeds 100,000 US dollars

The final selected protocols include: DYDX, Perpetual Protocol, GMX, MCDEX, Cap Finance, Deri Finance.

Reasons why some protocols are not selected in the above figure:

● Injective Protocol, Mango markets, LeverJ and DYDX all adopt the order book model, and the trading volume is far from that of DYDX. The order book model has little difference in the core mechanism of the product. DYDX already has such a first-mover advantage. Under the current situation, other products that adopt the order book model may have less chance of breaking through;

● Bonfida’s leveraged trading products adopt a vAMM model similar to Perpetual Protocol V1;
● Although DerivaDEX has started a small-scale test in Kovan, their trading products have not publicly disclosed documents about their mechanism;

● Vega Protocol trading products are not yet online;

first level title

DYDX

——

second quarter

first level title

1. Product introduction

Provide services in Layer 2 starkware of Ethereum, use the order book model for transactions, and use the funding rate mechanism to balance the naked position (referring to the net position held by the exchange as a whole, if it is too high, it will increase the systemic risk, which will be discussed below There are detailed introductions), its core mechanism is almost exactly the same as the perpetual contract of CEX, and because of the StarkEx engine, users only need to send transactions on the Ethereum main network when transferring funds into and out of margin accounts, and there is no need for transactions at all. Wallet confirmation (data is not uploaded to the chain), so the transaction experience is almost exactly the same as CEX.

The functions of DYDX are also very complete, including limit orders, depth charts, and funding rate trends, which are comparable to CEX.

2. Business data

Data source: https://metabase.DYDX.exchange/public/dashboard/

DYDX's trading volume layer will create an average daily trading volume of 1 billion US dollars in the week from the end of August to the beginning of September, which is the highest among all decentralized perpetual contract trading platforms and far higher than other competitors .

Of course, this has a lot to do with the platform’s well-designed combined incentives of transaction mining-market-making mining-staking mining, as well as the price of DYDX (before August, the experience of DYDX was completely consistent with the current one, but the week The average transaction volume is around $200 million). And in terms of financing, DYDX has included professional market makers in both round B and C rounds of financing, so that the interests of professional market makers are also bound to DYDX. Professional market makers make markets in DYDX, in addition to daily market making In addition to income, you can also get token incentives from the DYDX platform. On the other hand, the improvement of transaction depth and transaction data is also conducive to the valuation of DYDX itself, thereby potentially increasing the investment income of market makers.

50%（500,000,3. Token Model

● 25%（250,000,The total amount of DYDX Token issued is 1 billion, and will be distributed to all dYdX ecological participants within five years, including community users, investors and the dYdX team. After five years, the community can vote to determine the inflation rate of DYDX tokens for additional issuance; the current maximum inflation rate is 2% per year

● 7.5%（75,000,000 DYDX) to the community, as follows:

● 7.5%（75,000,000 DYDX) distributed to users of transaction mining

● 5%（50,000,000 DYDX) distributed to retrospective mining users

● 2.5%（25,000,000 DYDX) distributed to market makers and mining market makers

● 2.5%（25,000,000 DYDX) allocated to community reserve funds

000 DYDX) distributed to users participating in the liquidity staking pool

● 27.73%（277,295,000 DYDX) are allocated to participating DYDX pledge users (insurance pool)

● 15.27%（152,704,The other 50% (500,000,000 DYDX) will be allocated as follows:

● 7.00%（70,000,070 DYDX) distributed to past investors

000 DYDX) to future members of dYdX Trading or the dYdX Foundation

4. Summary

At present, in addition to the governance function, DYDX can obtain the deduction of transaction fees. It is worth pointing out that holding DYDX will not get the transaction fee of the platform, and the transaction fee is currently obtained by the DYDX project party (but there is a possibility of modifying the distribution of the transaction fee through governance).

The transaction data of DYDX is not on the chain, which means that the core transaction data is not immutable. From this perspective, it seems that the degree of decentralization is indeed questionable. But if we recognize that DYDX is a "decentralized perpetual contract trading platform", then DYDX is currently the undisputed king in this track: no matter in terms of trading volume, full circulation market value, or market From the point of view of the whole track.

third quarter

Perpetual Protocol

——

first level title

1. Product introduction

The V1 version is currently running, and V1 transactions are executed on the xDai network.

Users can trade after depositing USDC as a margin. The virtual AMM mechanism is used to price the transaction. The virtual AMM refers to the x * y = k model of the AMM. Let's take the ETH perpetual contract as an example: where x represents the ETH in the virtual pool , y represents the amount of USDC in the virtual pool. On the premise that the agreement sets a value of k, if a user opens a long position, the value of y becomes higher (the USDC corresponding to the position of the user is charged into the virtual AMM pool), and the value of x becomes lower accordingly, so that the price of ETH in the virtual pool (both y/x) also becomes higher accordingly, thus realizing the simulation of price changes.

The advantage of virtual AMM is that it can realize single-currency liquidity, so it can avoid the trouble of impermanent loss, and the transaction process does not need to rely on the oracle machine. However, the disadvantage is that the value of k is difficult to determine. If it is too small, it will cause a large transaction slippage. If it is too large, the price change in Perpetual's virtual AMM will be too slow, resulting in obvious arbitrage space. In V1 of Perpetual Protocol, the k value is manually maintained by the project party based on the liquidity of the corresponding Uniswap pool. It has also been attacked because of the k value setting problem. In fact, Perpetual Protocol also gave up the virtual AMM in V2 The mechanism is changed to use the real AMM of Uniswap v3, which explains the problems existing in the virtual AMM mechanism.

In terms of naked position management, referring to the perpetual futures funding rate of CEX, Perp also uses a funding rate mechanism to balance long and short positions. machine acquisition) to calculate the funding rate. This will encourage arbitrage users to hedge one-way excessive positions for the sake of funding rates, thus making the system more stable.

In terms of the liquidation mechanism, 20% of the user’s liquidated margin is obtained by the liquidator, and the rest enters the risk margin account. It is a negative-sum game (due to the existence of transaction fees and liquidators), the trader's profit risk margin account will lose money; the trader's loss risk margin account will make a profit.

The product UI is simple and easy to operate, but under the virtual AMM mechanism, Perpetual Protocol does not support limit orders and stop loss orders.

2. Business data

Data source tokenterminal

Perpetual Protocol is the perpetual contract agreement with the largest trading volume before DYDX. It once set a record of a single-day trading volume of 550 million US dollars on May 19, when the market fluctuated violently.

● 7,500,3. Token Model

● 31,500,Perpetual Protocol's native token PERP was officially released at the end of August 2020 with a total token supply of 150,000,000. in:

● 6,250,000 PERP tokens (5%) are used for Balancer LBP (Liquidity Bootstrapping Pool). LBP will be completed from September 9th to September 12th, 2020. The transaction price is between 1.05USDC and 2.3USDC.

● 22,500,000 PERP tokens (21%) will be allocated to the team and advisors, which will be released 6 months after the mainnet launch (June 15, 2021), and will be released quarterly for the next 30 months. 2.1% of the total release amount.

000 PERP tokens (4.17%) will be allocated to the seed round investor - Binance Labs. 1/5 of these tokens will be released after the mainnet launch (December 15, 2020), and 1/5 will be released every subsequent quarter , 4/5 of which have been released so far, and will be released in December 2021.

000 PERP tokens (15%) will be allocated to strategic round investors. 1/5 of these tokens will be released after the mainnet launch (December 15, 2020), and 1/5 of each subsequent quarter will be released. 4 /5, will be released in December 2021

● The remaining 82,250,000 PERP tokens (54.83%) are allocated to the ecosystem and rewards, including liquidity mining, etc.

The token release rules excluding ecosystem rewards are shown in the figure below:

Data source https://docs.perp.fi/getting-started/perp-tokens

In the V1 version, in addition to the governance function, PERP tokens can also obtain transaction fee income. In order to obtain service fee income, users need to pledge PERP tokens, and the pledged PERP will serve as a supplementary treasury for risk margins for redemption in extreme cases.

Provide services on Ethereum's Layer 2 Arbitrum. Different from the long-short trader game in V1, LP was introduced in V2, forming a three-party game between LP and the long and short parties. Its virtual AMM mechanism is also combined with uniswap v3, but it has become a real AMM in essence, which means that users need to face the risk of impermanent losses. In addition, Perpetual Protocol also plans to implement functions such as market creation without censorship and cross margin. In terms of token economy, the system will assign more fees to PERP. The specific implementation situation will not be known until the V2 version is launched.

GMX

——

fourth quarter

first level title

1. Product introduction

gmx provides services on Arbitrum, and the product has been officially launched on September 1st. gmx also provides services on BSC. The previous project name was Gambit and the token was GMT. This article mainly discusses the services provided by GMX on arbitrum. Its core mechanism is as follows:

Different from DYDX and Perpetual Protocol, the transaction process of GMX is a three-party game of multi-party, short-party, and LP (liquidity provider, called GLP in the GMX system).

Trading users can start trading after depositing USDC, ETH (WETH) or WBTC as a margin. Currently, BTC and ETH are supported for up to 30 times leveraged trading. The transaction is executed in real time according to the price of the oracle machine, and the income can be withdrawn in real time.

The counterparty of all transactions is the GLP pool. The GLP token is a special token composed of BTC, ETH, and USDC in proportion. Users deposit the GLP token into the GLP pool to start trading. Market, because it is a single currency liquidity, so there is no trouble of impermanent loss. Since the counterparty of all transactions is LP, there is also a zero-sum game between LP and the trader: the margin of the trader's loss will be directly allocated to GLP (reflected by the price increase of GLP), and the profit earned by the trader is also directly from GLP Acquisition (reflected in a decrease in the price of GLP).

In addition to being able to get the incentives of the platform token GMX, GLP holders can also get 50% of the transaction fee.

GMX currently has no mechanism for handling naked positions, and GLP holders need to hedge risks by themselves.

The front-end page of GMX is relatively simple, and currently does not support functions such as limit orders and stop loss orders.

2. Business data

Since the launch of Arbitrum on September 1, the data of GMX is as follows:

Data source https://gmx.financial/dashboard

The total trading volume has approached 400 million US dollars in just 20 days, and the average daily trading volume is close to 20 million US dollars. Data is excellent.

3. Token Model

The total amount of GMX is 13.25 million, and 6,490,428 have been in circulation so far. Token distribution is as follows:

● 6 million pieces (most of which are currently in circulation) migrated from XVIX and Gambit (the project before GMX)

● 1 million GMX and ETH form LP in Uniswap v3 as initial liquidity

● 1 million GMX to provide additional liquidity after GMX price exceeds $20.00

● 1 million GMX for GLP market making rewards

● 1 million GMX for staking rewards of GMX

● 2 million GMX belong to the bottom price fund (the bottom price fund is used to support the price of GMX)

● 250,000 GMX tokens distributed linearly to the team within 2 years

first level title

MCDEX

——

Section five

first level title

1. Product introduction

The latest version V3 of MCDEX provides services on Layer 2 Arbitrum of Ethereum. The product has officially started testing on September 1. MCDEX products have actually been launched in 2020, but the V3 launched in September will completely replace the previous version, so we only analyze the v3 of MCDEX.

Similar to GMX, the transaction process of MCDEX is also a three-party game of multi-party, short-party, and LP (liquidity provider). Its core mechanism is as follows: First, the counterparty of all transactions is LP, and MCDEX's LP provides USDC single-currency liquidity, so there is no trouble of impermanent loss. At the same time, since the counterparty of all transactions is LP, there is also a zero-sum game between LP and traders: if the trader loses, LP gains, and if the trader gains, LP loses.

In terms of transaction price determination, MCDEX adopts a "complex AMM" mechanism: when a user initiates a transaction at any time, the transaction price will be determined based on the total depth oracle price of LP and the net positions of all transaction users: when all transaction users are net When the position is a multi-party position, the transaction price determined under the complex amm mechanism will be higher than the price of the oracle machine, thereby encouraging users to open short to reduce the overall net position of trading users; when the net positions of all trading users are short positions, complex The transaction price under the amm mechanism will be lower than that of the oracle machine, which is equivalent to encouraging users to buy more.

We can see that the price determination mechanism of MCDEX actually includes the management of naked positions. Compared with the traditional fund rate method, MCDEX's naked position management will be more direct, which is directly reflected in the underlying price.

As the counterparty to the transaction, LP can obtain not only the trader's transaction fee, but also the price difference between the user's buying and selling price and the price of the oracle machine under the complex AMM, and the capital fee paid by the trader when the long and short are unbalanced. , fines for forced liquidation, and additional MCB incentives.

On the product page, in order to better display the depth, MCDEX displays the liquidity of the AMM mechanism in the form of an order book, and also supports limit orders and stop orders. Overall, the product has perfect functions and an excellent experience.

2. Business data

Data source https://app.mcdex.io/pool/

At present, the trading volume of MCDEX mainly comes from the officially certified trading pool, which uses USDC as the margin and supports the trading of ETH perpetual contracts and BTC perpetual contracts. Since its launch on September 1, the cumulative trading volume has exceeded 130 million US dollars, and The transaction volume has increased significantly. At the same time, the thickness of LP has exceeded 8 million US dollars, and the development trend is good.

In addition, since the risks and benefits of LP are not certain in nature, in order to avoid the trouble of LP before market making, MCDEX also discloses the "net asset value" in each pool, which represents the value of each deposit in the LP pool. The change in the net value of a USDC actually shows the historical profit and loss of market making from the side. We can find that although the online time is not long, in general, the share value of LPs is still rising, that is to say, LPs generally have positive returns, and traders generally have negative returns, which is also in line with our intuition.

3. Token Model

The native token of MCDEX is MCB. The token model of MCB has undergone a major change at the beginning of 2021, changing the total amount from 100 million to 10 million. At present, there are a total of 2.3 million in circulation, of which 1 million MCB belongs to the team, consultants and investor:

● The development team obtained 484,000 pieces

● Consultants get 75,000 pieces

● Angel investors received 109,000 pieces

The rest will be issued by MCDEX DAO. Of the newly issued part, 75% will be used for community incentives and 25% will belong to developers.

first level title

Cap Finance

——

Section VI

first level title

1. Product introduction

Cap finance provides services on Ethereum's Layer 2 Arbitrum, and the product will be released together with the test of Arbitrum on September 1.

Cap's product logic is extremely simple. The margin and LP currently supported are both ETH. Traders can open a position after selecting the corresponding target and leverage multiple. When opening a position, they will deposit the corresponding amount of ETH, and the price will be traded in real time according to the price of the oracle. There is no need for AMM, and a simpler game logic is also used in the transaction process: if the trader makes a profit, he can directly withdraw the ETH stored in the LP in the Vault; on the contrary, if the trader loses money, the margin of the trader's loss will also belong to the LP Vault.

LPs can currently get transaction fees.

Regarding naked positions, the system currently does not have a hedging plan. In the official document, Cap finance recommends LP users to hedge by themselves.

The style of the front-end page of the product is minimal, there is no candlestick chart, and it does not support stop loss orders or limit orders

2. Business data

In terms of data, Cap also uses a consistent minimalist style. It disclosed on its official website that the total transaction volume since its launch has exceeded 85 million US dollars (more than 29,100 ETH), which is equivalent to a daily average of 4 million US dollars.

At present, the capacity of LP is 24 ETH, but the current balance of LP has reached 54 ETH, and the income of LP is significant (meaning that traders have suffered heavy losses).

3. Token Model

The native token of Cap finance is CAP. Regarding the token model, the project party has not disclosed much. At present, we know that Cap is a project issued in 2020. The original total amount was 10 million, but the total amount was later reduced to 100,000;

Generally speaking, Cap Finance's current products are still immature, but with its simple logic and the popularity of Arbitrum, its monthly transaction volume is likely to exceed 100 million US dollars, which is quite successful as a cold start.

Deri Finance

——

Section VII

first level title

1. Product introduction

Deri Finance provides services on BSC, ETH, POLYGON, and HECO chains, and trading products were launched at the beginning of this year. In addition to perpetual contracts, Deri also has perpetual option business. Let's take the BSC chain as an example to introduce Deri's perpetual contract transaction process:

The logic of Deri is similar to that of GMX and Cap. Trading users can directly trade various targets according to the price of the oracle. Trading users can start trading after depositing BUSD, WBNB or CAKE as a margin. The transaction is executed in real time according to the price of the oracle machine, and the income can be withdrawn in real time.

The counterparty of all transactions is the LP pool. Users deposit BUSD, WBNB or CAKE to become LPs and start market making. Because it is a single currency liquidity, there is no trouble of impermanent losses. The counterparty of all transactions is LP, so there is also a zero-sum game between LP and traders: the margin lost by traders will be directly allocated to LP (reflected as an increase in the value of LP shares), and the profits earned by traders will also be directly obtained from LP Acquisition (reflected in a decline in the value of LP shares).

Deri's perpetual contracts are currently divided into the main area, the innovation area and the open area. The main area mainly supports mainstream assets, and the transaction target supports BTC ETH BNB, sharing the same LP pool; the innovation area supports the transaction of new assets such as AXS MBOX AGLD, sharing the same An LP pool; the open area supports users to build pools without permission, and users can customize the basic assets and underlying assets.

Deri uses the funding rate mechanism to balance naked positions. Since Deri not only has long and short parties, LPs will also assume the role of counterparties, so the funding rate will also be allocated to LPs.

As the counterparty to the transaction, in addition to the additional Deri rewards issued by the system, the LP can also obtain 80% of the transaction fee, part of the funding fee, and 50% of the liquidation income.

The Deri trading page is shown in the picture above, and currently does not support limit orders and stop loss orders.

2. Business data

Deri Finance currently does not have a panel for disclosing transaction data. From its monthly report, we know that in the past three months, the monthly trading volume of Deri perpetual futures has exceeded US$10 million.

The upper limit of the native token DERI is 1 billion, of which 400 million are allocated to the team, investors and treasury (Treasuary), 600 million are produced by mining, and the current circulation is about 111 million. Recently, the team announced that some of the tokens belonging to the team will be allocated to the treasury instead, and the specific rules are waiting for the team's disclosure.

first level title

Section VIII

——

first level title

Mechanism comparison

After understanding the basic logic of the above projects, we will conduct a comparative study of their mechanisms:

We believe that for any exchange, the core factors that determine the experience are as follows: transaction depth, target availability (whether it supports unlicensed listing), and liquidity provider (LP) income.

● The importance of trading depth is self-evident, especially for margin trading, a better trading depth not only means lower slippage, but also means that it is less likely to be pinned out.

● The availability of the target is also easy to understand. Everyone should have more or less used leverage trading to go long or short a certain currency for speculation or hedging, but they have no experience in finding a suitable trading place.

● For most agreements that do not adopt the order book model, liquidity providers (LP) are the counterparty of trading users. For exchanges, trading users are their real service objects, and LPs are their incentives object. CEX has already started to provide different fee rates for makers (order holders) and takers (order takers), and even some exchanges have negative fee rates for makers, and even the "pending order mining" that was launched is actually in the Encourage users to become makers, because makers are liquidity providers for taker transactions, that is, counterparties. We are also very clear about what happened in DEX. The competition for TVL (that is, LP) among DEXs is very fierce.

In fact, if we review the explosion of DEX represented by Uniswap in 2020 from the above perspective, we can see that, in addition to benefiting from the vigorous development and composability of DeFi itself, on the one hand, they are simple and effective. The method encourages ordinary users to become LPs, making DEX comparable to CEX in terms of transaction depth for the first time; Users provide a wealth of target availability. The improvement direction of Uniswap V3 is precisely the income of LP (capital efficiency).

Of course, in addition to the factors mentioned above, factors such as transaction speed, completeness of functions (such as whether to support limit orders or stop loss orders), and transaction fees are also of great concern to trading users. In terms of transaction speed, the above-mentioned derivatives exchanges are generally built on public chains or Layer 2 with higher TPS, so in terms of the speed of pure transaction execution, the difference is not significant; for the perpetual contract DEX project that is still in the exploratory period As far as we are concerned, it is far from the stage where we need to rely on transaction rates and complete functions to snatch users, and the above-mentioned problems are important, but they can be solved, so we will not involve these factors in the following analysis.

In addition, we also pay attention to the protocol's handling of naked positions (excessive naked positions will not only cause potential losses to LPs, but also affect the security of the entire protocol), and the performance of the protocol in terms of composability .

1. Trading Depth

For any exchange, trading depth is the core competitiveness of the product. In the above projects, the design of transaction depth can be roughly divided into three categories:

● The first category is order book design, represented by DYDX. The transaction depth of the order book model depends on the counterparty.

● The second type is the XYK model, which determines the depth of the transaction is the K parameter, which is divided into 2 sub-categories, using the Perpetual V2 that plans to use AMM, the Perpetual V1 that uses the virtual AMM, and the V3 of MCDEX. The transaction depth of this type of model depends on the K value, that is to say, for the AMM model, it depends on the depth of the corresponding LP, and for the virtual AMM, it depends on the setting of the K value.

● The third category adopts the "global shared liquidity" mechanism, which is characterized in that the transaction is directly concluded according to the price of the oracle machine, including GMX, Cap Finance and Deri Finance.

From a design point of view, the third type performs best in terms of transaction depth, because for this design, the theoretical transaction depth is unlimited (the transaction price will be exactly the same regardless of whether the transaction is 1 ETH or 10,000 ETH), This is mainly because closing the transaction itself does not require any liquidity. The transaction depth of the order book model depends on the counterparty, the depth of the XYK model depends on the K value, and the transaction depth of the third type of model will only have a soft upper limit, that is, the amount of the LP pool. This is because LP assumes the responsibility to pay the traders. When the transaction amount is close to the LP balance, there may be some concerns about the payment ability of the entire system.

The first and second categories are more important to see how the project party motivates the transaction depth. For example, the transaction depth of the order book model is actually relatively difficult to motivate, but DYDX uses the exquisite design of transaction mining-market-making mining-pledge mining The combined punches and deep binding with stakeholders make DYDX the first among all derivatives agreements to obtain a daily trading volume of more than 1 billion US dollars, and the depth performance is also very good; although the virtual AMM mechanism is also It was abandoned by Perpetual Protocol, but Perpetual Protocol did use this mechanism to become the first perpetual futures agreement with a daily trading volume of more than 100 million US dollars.

In addition, the order book and the transaction depth designed by the xyk model cannot be shared under normal circumstances, that is to say, the depth of BTC's perpetual contract has nothing to do with the depth of ETH's perpetual contract. On the premise that the depth cannot be shared, if you want to expand more trading pairs, you need to encourage more liquidity in general. MCDEX's current USDC pool supports both ETH and BTC transactions, which is equivalent to aggregating the liquidity of these two pools, thus providing users with better trading depth.

The advantage of the protocol adopting the third type of model is that they can theoretically share the depth of all trading pairs, which will bring a better experience to trading users (more transactions without slippage) , On the other hand, it will also increase the income of LP.

2. Target availability (marketing without permission)

At the level of target availability, we mainly examine whether the above-mentioned project parties support unlicensed listing of transaction targets, and the dependencies of this listing process.

● DYDX: Similar to CEX, it adopts a centralized method to determine the listing bids.

● Perpetual Protocol: In the v1 version, it is still centrally determined to list the bids (because the K value needs to be manually set), in the V2 plan to realize the listing of trading targets without permission, and there are no details about the implementation at present.

● GMX: There is no information about unlicensed listings. GMX currently supports all 7 cryptocurrencies (BTC, ETH, LINK, AAVE, YFI, SUSHI, UNI) that Chainlink provides quotations on Arbitrum.

● MCDEX: Any user can list the target without permission (that is, create a transaction pool), and the creator (operator) of the pool can also obtain a certain percentage of transaction fees. However, due to the complex mechanism of MCDEX, there are many parameters that need to be filled in during the process of building a pool. In addition to the amount of LP deposited by the user, the setting of parameters will directly affect the transaction depth of the pool. Overall, the operation is more complicated. At present, there are pools created by some users, but the liquidity is low.

●Cap Finance: No information about unlicensed listings has been found, and Cap has also supported all 7 cryptocurrencies that Chainlink provides quotations on Arbitrum

● Deri Finance: It supports unlicensed listing. Compared with MCDEX, the operation is much simpler. Currently, there are 3 pools created by users. The liquidity of the pool is also not very great.

In fact, due to the deep dependence of the perpetual contract project on the oracle, at the current stage, even without permission, the support of the oracle is required. Except for MCDEX, which supports Uni v3 TWAMM as an oracle, other projects generally use Chainlink As an oracle, at this stage, which trading pairs are supported by the perpetual contract exchange, the final decision factor is which currencies Chainlink supports to provide quotations on the chain.

Therefore, compared with Uniswap's self-construction pool, which does not rely on any external data at all, the current independent pool construction of decentralized perpetual contracts is more limited.

However, with the continuous development of the oracle project itself, in the future, the characteristics of perpetual contract trading products that do not require permission and are convenient to list will become more and more important.

3. LP income

The capital efficiency of LP will determine the income. Of course, the most important factor in determining capital efficiency is the transaction volume of the platform.

In the projects of GMX, MCDEX, Cap Finance and Deri Finance, the benefits that LP can obtain include the following categories:

● Transaction fee

● Rewards for additional issuance of platform tokens

● Losses of trading users (segmentation can be divided into realized losses and liquidation deposits)

The main potential losses are:

● Profits of trading users

The profit and loss of trading users cannot be predicted, so we mainly compare the transaction fees of the platform and the distribution of additional token issuance.

● GMX: LP gets 50% of the transaction fee, and can get additional issuance of tokens

● MCDEX: LP gets 68.75% of the transaction fee (official pool), and can also get token issuance

● Cap: LP gets all transaction fees and does not get additional issuance of tokens

● Deri: LP gets 80% of the transaction fee, and can get additional token issuance

In addition, it should be mentioned that for GMX, Cap Finance and Deri Finance that adopt the global shared liquidity plan, because LP only undertakes the payment responsibility and will not directly serve as the counterparty of the transaction, they have the motivation to transfer all LP does aggregation, because greater liquidity means better payment guarantee (unless the project side is deliberately isolated from risk considerations, such as Deri distinguishing the main area, innovation area and open area), LP is also happy to see this, because Supporting more trading pairs means that more fee income can be captured.

As for MCDEX, which adopts a complex AMM mechanism, the current USDC trading pair also supports BTC and ETH transactions at the same time, which improves the capital efficiency of LP and brings higher returns.

4. Naked position management

For the entire exchange, if the net position held by trading users in a certain direction is too high, coupled with violent market fluctuations, systemic risks may arise, because the margin of the losing side is limited, and the theoretical profit amount of the winning side is infinite.

For perpetual contract exchanges (including CEX and DYDX) that adopt the order book model, the difference between the floor price and the mark price shows the overall naked position held by the user, so the order book model exchange adopts the floor price and mark price Funding rate is charged based on the price difference to reduce the overall naked position of users;

In the projects we researched above, Perpetual Protocol, MCDEX, and Deri Finance all have a management mechanism for naked positions. Perpetual also uses the difference between v-AMM price and mark price to balance naked positions. The mechanism is similar to CEX and DYDX;

For MCDEX and Deri, due to the existence of LPs, LPs are always passive counterparties to transactions. The naked positions held by trading users are the opposite positions held by LPs as a whole (for example, if the overall net holding of trading users is 50 A long order of ETH is equivalent to a net short order of 50 ETH held by LP in general). Therefore, in order to hedge the risk of LP, in addition to encouraging trading users to open positions in the opposite direction, both MCDEX and Deri will also give part of the fees charged to net long positions to LP.

However, GMX and Cap Finance, which are relatively new projects, do not currently have a solution for naked positions. They all recommend users to hedge themselves.

5. Composability

The development of DeFi benefits from composability, which mainly lies in two aspects: whether the products of other protocols can be used, and whether the products of one’s own protocol can be used by other protocols.

"The product of one's own agreement is used by other agreements" may be more difficult for decentralized perpetual contract agreements, because it depends on other agreements' understanding and cognition of decentralized perpetual contract agreements. There are usually only two products of the decentralized perpetual contract agreement, one is the position of the trading user, and the other is the pledge certificate of LP. Whether these two products can interact with other protocols in some form, so as to improve the efficiency of users' funds at the cross-protocol level, is a question that needs to be considered next by each decentralized perpetual contract protocol.

6. Summary

On the whole, the exploration of the composability of the decentralized perpetual contract agreement is still in the early stage, which is also related to the early development of the entire track. When the influence of the decentralized perpetual contract agreement is growing, We also look forward to the continuous development of protocol composability in the perception of users and the market.

6. SummaryThe author believes that in the future competition of decentralized perpetual contract trading platforms, the design of the core transaction structure is crucial. Moreover, the success of the AMM mechanism in decentralized spot exchanges does not necessarily apply to decentralized derivatives exchanges.GMX, Cap Finance, and Deri Finance have all carried out certain transformations on the method of "transactions are concluded according to the price of the oracle, and all LPs are jointly responsible for payment" created by Synthetix, a leader in synthetic assets (It is also worth mentioning that Synthetix's The synthetic futures that are about to start testing on the testnet can also be classified as perpetual contracts. For more information about Synthetix, please refer to

【Mint Ventures In-Depth Research Report】Synthetix's Vision: Derivatives Trading Market with Infinite Liquidity

), so far it has achieved good results. The author believes that compared to the AMM mechanism, the decentralized derivatives project that adopts "transactions are concluded according to the price of the oracle and all LPs are jointly responsible for the payment" is more likely to succeed. Because this mechanism naturally has:

● The simplest new listing process (except for the oracle, it hardly depends on any other external conditions, so it is easier to achieve unlicensed listing)

Section IX

Summarize

——

first level title

Summarize

1. Summary

This article introduces several perpetual contract agreements that have already launched actual products from the perspective of product mechanism, and from the perspective of transaction depth, target availability (listing without permission), LP income, naked position management, availability, etc. These protocols are compared in terms of composition and so on.