Understanding Decentralized and Perpetual Perpetual Contract Protocols: Solving Losses Using Virtualized Market Makers

Continued declines and setbacks are inevitable evils for manufacturers and traders using DEX (based on the AMM model). Therefore, DEX, which emerged after Uniswap, to solve these two important problems is a big challenge.

Currently, most DEXs strive to reduce sag loss and depressions caused by the use of oracles. However, the results do not prove that Oracle technology alone can solve the problem. If there is a hacker attack or the oracle machine is not working, the problem persists.

So, is there another way to try?

The perpetual law developed in a completely different way. This means eliminating side orders (without setting up retail) and only keeping side orders (buyers), permanently reducing losses and slipping off the base. . At the same time, it is also working to tackle high oil prices, a problem that has plagued investors for a long time.

How to know the donation of assets without exchanging? How to reduce fuel costs? The Mars Financial app features Perpetual Protocol, a DeFi derivatives platform sought after by Multicoin Capital, Three Arrows Capital, Alameda Research, Binance, and other organizations, regarding mining and development capabilities.

1. What is a key rule?

Perpetual Protocol is a decentralized perpetual bond trading platform that launched its mainnet in mid-December last year (now over $ 1.2 billion in trading volume), supports the trading of perpetual BTC and ETH contracts. A combination of Uniswap and BitMEX with a maximum resolution of 12x.

As we all know, Uniswap is the DEX market leader and BitMEX is a pioneer of the ongoing commitment to the CEX industry. Perpetual means a mixture of Uniswap and BitMEX. Is it because the past lives in a decentralized world and often gives permanent business promises?

Of course not. So how do you understand the “Unswap BitMEX = Perpetual” instruction?

Obviously, BitMEX is often defined as perpetual because it is one of the few trading contracts in the DeFi market. Based on Uniswap's popular AMM problem, Perpetual gave it the name Uniswap because Perpetual developed a vAMM (Virtual Automated Market Maker) model that attempted to solve long-term downtime and downtime. AMM, and that's a good thing. actually a point.

To understand Perpetual, we need to talk about vAMM.

2. Automated Market Maker for Virtualization (vAMM)

The success of Uniswap last summer took AMM (Automatic Market Maker) one step further, and I know that most of the DEXs that followed achieved the consistent performance of x * y as well. = k (constant objects). Developer, AMM Type 1) Token exchange.

vAMM, developed by Perpetual, would be a virtualized automated company compared to AMM. This model regularly uses the same products as Uniswap, but the two values ​​are different.

1. vAMM itself does not store real money (k), the real assets are kept in a smart contract which governs the full reimbursement of vAMM.

2. vAMM is the key to value discovery and is not used for commercial purposes.

3. In the constant formula (x * y = k) developed by Perpetual (at this stage), the value K is fixed and adjusted manually by the installation team and after configuration by algorithm.

Unlike traditional AMM, which requires financial resources to provide pond drainage, water in AMV comes directly from contract storage outside of AMM. Therefore, the Perpetual Group emphasized that vAMM does not require financial service providers to provide income, and that investors themselves can provide income to each other.

"With vAMM, there is no permanent downside in the first place because there is no need for financial service providers."

In terms of reducing slippage, in the traditional AMM model, the size of the investment pool increases (the higher the value of K), the less slippage is experienced by slippage traders. In this case, vAMM is similar to AMM. The k value increases and the slip decreases. However, the value of K in vAMM is correct, manually set by the development team at first, and then can be algorithmically adjusted based on the packaging industry, interest rate, financial expense, and other business information.

3. Working mechanism

The perpetual and centralized derivative trading processes are basically similar, but the main difference is that in perpetual trading the counterparty is the vAMM itself, and in a centralized platform the counterparty is the manual order.

Before understanding the function of Perpetual, it is clear that the developer has to define the number of virtual assets stored in vAMM, this asset is equivalent to the asset and the real assets are stored in smart contracts.

Assuming vAMM's token pair is vETH and vDAI, the initial asset value is 100 vETH and 40,000 vDAI. Shopkeeper Alice chooses to buy and Bob chooses to sell. The procedure for running Perpetual is as follows.

1. Long Alice

1) Alice chooses to use 100 DAI, or 10 times that of ETH, as promised.

2) Alice puts 100 DAI in the smart contract of the next process.

3) The following process provides 1000 vDAI (100 DAI, 10x leverage) of Alice, and vAMM calculates the value of vETH Alice received based on the constant market value (x * y = k).

4) Alice currently has 2.4390244 vETH and the price of vAMM is stable data of 97.5609756 vETH and 41000 vDAI.

2. Luv Bob

1) Bob chooses to use 100 DAI as collateral and 10 times ETH.

2) Bob also puts 100 DAI in the same safe.

3) The persistent protocol provides -1000 vDAI by Bob for vAMM. vAMM counts the number of negative vETHs received by Bob as a constant commodity (x * y = k).

4) The standard perpetual data that Bob sells is 2.4390244 vETH short, and the vAMM assets are currently 100 vETH and 40,000 vDAI.

In this process, the vAMM actually acts as a “co-pilot” and the smart contract is where the assets are stored after it. Assets stored in vAMM are properties, but the actual property is in the vault.

Perpetual's working mechanism uses the same financial interest rate model as the FTX exchange to balance buying and selling at that price. The platform also has capital gains (50% of the value converted into insurance money and nearly $ 500,000 converted into cash) for the benefit of merchants who complete the order.

(FTX payment terms)

Usually the money from the insurance fund is used to pay off the contract for two types of losses. First, staff failed to close dangerous jobs on time, and second, trade inequality and vAMM had to pay for it. If the funds are not sufficient to cover the losses, Perpetual will sell PERP tokens in the store to cover the costs.

4. Capture the value of the PERP token

PERP is Perpetual's national token and has three responsibilities.

1. Management

PERP managers can handle the entire process and manage restrictions, including exchange rates, inventory, and financial insurance.

2. Investment

PERP insurers can join the sign pool and receive medical bills and stake incentives.

3. Guarantee

In extreme cases where insurance coverage is exhausted, PERP staff will make a final recovery. When this happens, Perpetual issues new PERP tokens, bids, and pays the winning trader.

The total amount of PERP is 150 million, and the distribution of tokens is as follows.

17,500 PERP: used for Balancer LBP as market guidance.

* Note: Liquidity Seed Pools are smart pools whose process gradually changes the weight of the token in the pool over time.

2.36 million PERP: distributed to teams and consultants (Tokens will be issued 6 months after the launch of the main network, and quarterly for the next 30 months)

3.25 million PERP: distribution to surrounding culture (Binance investment in Perpetual circa 2018)

4.22.5 million PERP: after distribution to the consumer advisor (in equivalent of LBP electronic components in the pool) reached (25%), start of seed propagation and marketing strategies and once a month for the next 12 month).

5. 77.75 million PERP: Support traders, stakeholders and producers to create a viable ecosystem and a gift.

As of February 6, according to data from Debank, the volume of the perpetual protocol system exceeded 21 million, an increase of 269% from the previous month.

In terms of trading volume, perpetual trading volume over the past 7 days has exceeded $ 210 million, overtaking synthetic ($ 200 million) activity in synthetic assets.

(DEX trading volume category for the last 7 days)

(Continuous trading in the last 7 days)

As for tokens, the current PERP circulation is 21,801,250 (total 150,000,000) and the price has increased 355% in the past 30 days to around US $ 7.5 per coin, including market value at US $ 165,498,864, with 3,612 owners. .

V. Conclusion

In addition to using the vAMM model to reduce downtime and downtime, Perpetual is also launching an xDAI (Layer2 solution) sidechain to power the trading platform, which fixes a long-standing issue that has made sell retailers.

According to a Perpetual article published in mid-January, the process was only $ 183 to manufacture 179,000 units, since xDai oil prices represent only 1% of Ethereum's mainnet.

Overall, it should be noted that Perpetual has focused on major solutions in the DeFi market and is still in the early stages of development.

See more :

1. 《In-depth analysis of the virtual MA (vAMM)》

2. "Brief description of the perpetual contract"