Perpetual Protocol - Research Copy
Event Brief Researcher
- Mitch
Copy of -- PRE-CALL CHECKLIST ---
Topic, Project, and Guest
- Guest: Yenwen
- very Brief overview on guest background:
- Co-founder
- Topic: Brief one line intro about concept to be explored.
- Perpetual Protocol
- short guest bio.
- Background in engineering
- Experience in e-commerce
- Fell down crypto rabbit-hole in 2018
- Was enlightened by Cryptokitties and found an opportunity to do derivatives on top of any token
- noteworthy achievements
- ????
- Guest: Nick
- very Brief overview on guest background:
- Head of Strategy & Co-founder
- Topic: Brief one line intro about concept to be explored.
- Perpetual Protocol
- short guest bio.
- University of Sydney (2008-2012)
- CEO & Co-founder at Edisse
- Head of Product at Lumi Finance
- noteworthy achievements
- ????
Detail the problems this product is trying to solve
- what do people need to stop doing?
- Trading spot if they are educated on derivatives/perpetuals
- Trading minimal assets and taking on low levels of leverage
- why should they stop doing it?
- returns on perpetuals are much higher
- Traders can open long or short positions and trade with up to 20x leverage
- list an example of the problem
- Investor wants to trade derivatives for cryptocurrency, gold, and other commodities but can't due to the protocol's capabilities. Additionally, an investor/user does not get his/her desired returns trading spot. Perpetual Contracts have no expiration date nor leverage limits till 20x leverage is reached - enabling traders to gain more earning potential in certain market conditions.
- how does the product improve or fix this
- Increases the number of trading assets
- Low fee structure by integrating L2 scaling solutions to provide fast transactions with minimal fees.
- Secure: open-source and third-party audits by Consensys and Peckshield.
How the product works
- basic information about the product
- decentralized derivative protocol built to trade perpetual contracts for every asset powered by a Virtual Automated Market Maker (vAMM).
- perpetual contracts don't have an expiry date and can be traded for an infinite amount of time.
- In addition to perpetuals, the project aims to create novel financial instruments by democratizing Futures and other crypto-asset derivatives.
- Key Features:
- Zero Impermanent loss
- Guaranted Liquidity provided by vAMM
- details of product stemming off high level overview
- PERP's core innovation is the vAMM:
- It's a constant product (x*y=k) AMM that does not store liquidity in liquidity pools.
- Instead, trade collateral is stored in a smart contract that emulates a vault and manages all collateral.
- Every time a trade is made, the vAMM calculates the entry or exit price in the same way prices are calculated on Uniswap or other AMM style exchanges.
- Leverage
- Traders use leverage by backing a position with a margin - up to 20x leverage
- Liquidation
- The exchange enforces a minimum ratio between the position's value and the margin, called a maintenance margin - 6.25% on Perpetual Protocol
- Margin Ratio
- Liquidation is determined based on your position's margin ratio.
- If the margin ratio falls to 6.25%, your position may be liquidated.
- Funding Payments
- Funding payments act to converge the mark price (the price on perpetual protocol) and the index price (the average price from major exchanges)
- Uses Chainlink for the index price. Other oracles will be added as needed.
- results of the product so far
- Fees Collected: $30,239,785
- Trade Volume: $30,273.780,163
- Number of Trades: $6,038,984
Value proposition
- Uses PERP token - stake the token to earn fees, staking locks for 2 weeks, rewards are locked for 6 months, rewards paid in PERP and USDC.
- PERP governance voting - grants initiatives voted on by PERP, 50k USD voting, token listing is voted on by community, token swaps voted on by PERP holders.
- Overview on other products in the space that also solve this problem and how their solutions differ:
- Synthetix: Trades synthetic assets
- Bad Differences: Uses Oracles instead of constant-product curve. Traders can place any size orders without slippage.
- Good Differences:
- Stakers on PERP are not exposed to impermanent loss
- PERP uses TWAP, which minimizes the risk of price manipulation and adds another layer defense against manipulation.
- Futureswap: Margin Trading
- dYdX: Trades Perpetuals
- Bad Differences:
- dydx has higher throughput and no slippage
- Good Differences:
- When there is low liquidity on dydx, the psoitions are auto-deleveraged much more easily than those on centralized exchanges. Perp.fi has no auto-deleveraging.
- Neutral Differences:
- dydx has an off-chain matching engine. Perp.fi is 100% on-chain AMM
- why should I use this product over the other products
- Perp.fi's exchange model does not use liquidity or liquidity providers
- Uses concentrated liquidity similar to Uniswap
- Perp.fi is 100% AMM based; there is no order book
- The on-chain price reflects trades on Perpetual Protocol - the price only moves when positions are opened or closed.
Practical applications of product:
- detail current functionality of project, where it is deployed, TVL, audited?
- TVL: $14,315,676
- Audited: Consensys and PeckShielf
- highlight current upgrades soon to be released
- speculate future use cases
- ????
- outline steps for a beginner to get started
- User can go long or short on a wide variety of assets:
- Includes BTC, ETH, DOT, SNX, YFI. etc.
- User can trade with up to 20x leverage
- User can trade with low gas fees using xDai
- All of the trading is 100% on chain and it is non-custodial
- Essentially: All the user needs to do is:
- Set up a Metamask wallet (support for more wallets coming soon...)
- $USDC on Ethereum
- Deposit USDC and start trading!
- best case scenario of project
- Becomes the #1 perpetual/derivative platform for traders
Risks
- detail risks associated with project.
- Lots of competition
- Price appreciation for PERP is largely tied to network usage, tied to overall DeFi usage.
- A smart contract bug or exploit may compromise the protocol. Perp.fi's Insurance Fund protects users in case this happens - but the risk still remains.
- worst case scenario example
- Daily Trading Volume has decreased drastically since May and June. Traders behavior might be leaning towards hodling or using competitors products. Without high levels of volume, PERP may go extinct.
- general risks in the industry
- Whether Perpetual Protocol can maintain market share among competition depends on its staking and yield farming perks, which seem to be evolving with v2: Curie.
- Regulatory pressure from governments can stop derivatives and perpeturals from being traded
Roadmap/future applications
- technical updates
- Problem with v1:
- Insurance fund takes on the risk
- Used x*y=k pricing model
- Solution with v2:
- Introduce liquidity providers. Concentrated Liquidity reduces slippage and protects both sides from price volatility risk.
- Uses UniswapV3 pricing model
- Curie: Perpetual Protocol v2 is rolled out over four phases:
- v2.0 testnet
- v2.1: Mainnet Launch with Uniswap v3 Concentrated Liquidity and market makers on Optimism
- In contrast to v1 where trade execution and settlement is split between the Ethereum and xDAI (sidechain)
- v2.2: Limit orders and liquidity mining for PERP stakers
- v2.3: Multi-collateral assets beyond USDC
- v2.4: Permissionless, private market creation via Uniswap v3 pools. (Important step for Perp.fi)
- Though Perpetual v1 will remain active in parallel on L1 and xDai, the
- community updates or changes
- Solid community around this project
- Need more information on the specifics of updates or changes.
REFERENCES
- Website: https://perp.fi/
- Docs: https://docs.perp.fi/
- Twitter: https://twitter.com/perpprotocol
- Discord: https://discord.gg/mYKKRTn
- Telegram: https://t.me/perpetualprotocol
- Newsletter: https://perpetualprotocol.substack.com/
- Dune Analytics: https://dune.xyz/yenwen/perpetual-protocol_2
SOURCES