With the collapse of the FTX empire, the industry impact it brought still leaves people with lingering fears. As the world's second largest cryptocurrency exchange, FTX's rapid demise not only caught users off guard, but also caught the capital giants behind it by surprise. Losing all the money, this black swan incident also made the encryption circle realize the importance of decentralization and transparency. The migration of trading activities from CeFi to DeFi is no longer a guess, and future development is only a matter of time.
From the data in the figure below, we can see that most on-chain transaction volumes are still dominated by spot DEXs such as Uniswap, but the transaction volume and TVL of on-chain derivative protocols are also increasing significantly.
Derivatives trading on decentralized exchanges (DEXs), which allow users to trade derivatives without the need for a centralized intermediary, are becoming increasingly popular in the DeFi space, especially as centralized platforms become This trend is particularly evident after insolvency. This has led to the growth of DeFi derivatives and become one of the most active industries in the DeFi field.
Currently, judging from the 24-hour trading data of Binance, the world's largest CEX, the trading data of the derivatives market is about 28 billion U.S. dollars, while the spot trading data is about 13 billion U.S. dollars. The derivatives market is 1% of the spot market's trading volume. More than times; on the other hand, in DeFi protocols, derivatives trading is greatly underestimated. From CEX to DEX, spot trading volume is 15%, while derivatives trading is only 3%. This fully illustrates the decentralized derivatives track. Has huge explosive potential.
The landscape of decentralized derivatives exchanges
1. dYdX
dYdX is a layer-2 decentralized trading platform built on Ethereum, supporting a variety of financial products such as perpetual, margin trading, leverage trading, and spot trading. It combines the off-chain order book with the on-chain settlement layer to achieve two-way transactions.
The dYdX platform is divided into two main modules, providing DeFi products with different functions.
·Margin: Spot and margin trading on the first layer of Ethereum.
· Perpetual: Layer 2 transactions powered by Starkware.
L1 spot and margin trading is a trading platform running on the Ethereum blockchain smart contracts, allowing trading without any intermediaries.
Permanent non-custodial transactions run on L2, a system that operates separately from the previous dYdX protocol on Ethereum.
Transactions are processed off-chain and submitted to the Ethereum chain with proofs of validity, which are called ZK-Rollups (zero-knowledge proofs) - an Ethereum Layer 2 solution powered by Starkware.
Advantage:
·The central limit order book (CLOB) model is in line with user habits, and when the depth is sufficient, the wear and user experience is better than the AMM model
· Huge incentives to increase transaction depth
·Built on StarkEx, a solution for L2 that can provide 0 gas transactions
·To build a super application chain, the team is very ambitious. It is not just satisfied with making a Dapp, but plans to build a high-performance application chain independently, which is not limited by the resource space of traditional public chains.
Disadvantages:
·StarkEx lacks composability and applications cannot interact with each other
· Huge selling pressure. The incentive model of dYdX is a simple and crude transaction mining model, which leads to a certain false prosperity for product users, and the mining output of market makers will cause continuous selling pressure. At the same time, team investors and other lock-up agents The currency will be unlocked soon (December 2023)
· It has not yet achieved complete decentralization because it is an order book model and has a centralized matching engine. This problem will be solved in the upcoming V4 version.
2.GMX
GMX is a decentralized spot and perpetual contracts exchange developed in September 2021 on Arbitrum and Avalanche. What's special about GMX is that traders can use the unique model GLP Pool to trade with relatively low fees, 0 slippage, and 0 funding rates.
Since the launch of the project, GMX’s continuous innovation has attracted many investors, competing with projects such as Perpetual and dYdX. In addition, the token economics are also very unique, bringing exponential benefits to long-term holders.
The GMX model is rather special. There is neither an order book model like dYdX nor an AMM pool like Perpetual. GMX has its own liquidity pool---GLP, and the transaction price is based on the oracle price feed.
Advantage:
·GLP has no funding rate and is cheaper
·0 slippage, using an oracle to feed prices, allowing large transactions, and the transaction amount is related to the GLP pool funds
·Can provide a large amount of liquidity and does not require high TVL like AMM
·The platform’s income will be distributed to pledgers, making it more attractive to retail traders, and user data will grow healthily and steadily.
Disadvantages:
·There are few trading pairs, but synthetic assets are about to go online. After going online, not only the assets in the GLP pool can be traded, but theoretically all targets whose prices can be provided by the oracle can be traded on GMX.
·When using the liquidity pool model, the trading volume on GMX is limited by the liquidity in the pool itself, which means that users cannot conduct larger trading volumes. However, GMX managed to attract a lot of liquidity, thus partially solving this problem.
·Trader’s transaction fees and loan interest may not necessarily continue to open orders.
3. GNS
Gains Network is the developer of gTrade. gTrade is a decentralized perpetual contract exchange that uses oracles to feed prices. Liquidity providers and traders serve as counterparties. LP is a pure stable currency (gDAI) and supports cryptocurrency. , stocks, foreign exchange, counterparties supply each other, that is, two-way capital charges.
Every time a trader opens a position on gTrade, Gains Network’s revenue stream will be collected from the following fees:
·Opening fee: order opening fee, ranging from 0.02% to 0.12% according to each asset type
·Spread: On-site fees are charged at 0.04%
·Price impact: Spread fees, calculated based on open interest and open interest
·Overnight interest and funding fees: Overnight interest and funding rates
·Closing Fee: Closing fee, about 0.08%
Advantage:
·Index asset asset model, which can trade a large basket of assets (as long as the oracle can quote), can attract many retail investors and other target traders like GMX
·The spot liquidity of assets determines the slippage of on-site transactions and prevents price manipulation.
·The volatility of asset prices and the long-short ratio determine the cost of ongoing positions and respond to unilateral market conditions
·Net worth model (treat all pledgers fairly, share risks in extreme market conditions) coupled with liquidity adjustment (excess mortgage buffer) and cash flow circulation to build a robust LP
Disadvantages:
·The composability is not strong, there are almost no composability projects based on GNS
·Synthetic assets have no moat and may be seized by GMX.
·LP is completely a stable currency. If the trader makes a profit, it will issue additional GNS, and if the trader loses, it will repurchase GNS. If it encounters a unilateral bull market, it will be unfriendly to the LP (when traders are all making money, there will be a large amount of GNS Additional issuance will dilute the value of tokens in the hands of GNS holders)
Innovation in decentralized derivatives exchanges
PVP AMM
This new trading model was proposed by GMX in its X4 documentation
Core philosophy:
·Traders place their collateral into the pool
·Traders who make "relatively" more money get a larger share of the capital pool, while traders who make "relatively" less money will lose money.
To put it simply, GMX is a bet between GLP and Trader, while PVP is a bet between Traders.
Advantage:
·Pure Alpha trading, just to be better than competitors
·Traders can play without additional LP
·Solved the so-called unilateral market problem. If all traders made the same trades, they wouldn't make money anyway
challenge
·There need to be enough traders to have a good trading experience
·The mechanism is complex and difficult for users to understand
At present, the competition in the decentralized derivatives track is very fierce. Although the PVP AMM trading model was proposed by GMX, due to its current focus on synthetic assets, the PVP AMM model has not yet been developed. This model has been developed and developed by other latecomers. After it was released, it also lowered the threshold for users to use it and made certain simplifications in the mechanism.
in conclusion
The article mainly lists three representative exchanges with different Perp models. In fact, there are many projects in the entire track. From the CEX data and the competition between various projects, it is not difficult to see that decentralized derivatives are a very In a track with explosive potential, the battle for dominance has just begun. Competition will only become more intense in the future. There will be more DeFi adoption and more transactions on the chain, and protocols will be more likely to work together. With DEX (spot or derivatives) as the base layer, other protocols can be stacked on top like Lego blocks.
