Nft lover Interested in defi
As fears of another crypto exchange collapsing have gotten the community on edge, more crypto users are turning towards decentralized perpetual protocols to satiate their demand for leveraged trading. Throughout the recent bear market, perpetual exchanges have been one of the few bright spots in an otherwise gloomy state of DeFi, providing an avenue for users to trade with leverage in a permissionless way while allowing liquidity providers to earn sustainable fees in an environment starved for yield.
Dive into our State of Decentralized Perpetual Protocols Report as we explore the history and evolution of decentralized perpetuals, how they have performed thus far, and what we can expect from decentralized perpetuals in the near future.
We’ve summarized the key highlights, but be sure to dig into the full 18 slides below.
The State of Decentralized Perpetual Protocols: Top 5 Highlights
Decentralized perpetual protocols have evolved to improve trading efficiency and unlock new earning possibilities for users.
The top six decentralized perpetual protocols dYdX, GMX, Level Finance, Kwenta, Gains Network, and Perpetual Protocol, each operate with a different model and have varied offerings, particularly when it comes to supported assets and maximum leverage.
Since reaching its all-time high in November 2021, open interest across top 6 decentralized perpetuals has experienced a significant decline of over 65%, with dYdX still controlling 55% of OI.
In line with OI, trading volumes have also fallen by 66.2% from its peak in 2021 Q4, as dYdX still dominates with 58.9% share.
Holder revenue distributed by decentralized perpetual protocols to governance token holders sparked the “real yield” narrative, and caused demand for these tokens to skyrocket.
1. The Evolution of Decentralized Perpetual Models
Decentralized perpetual protocols have gone through multiple evolutions to provide more efficient trading and other earning possibilities for users:
Central Limit Order Book
The first iteration of decentralized perpetuals largely mimic those of centralized perpetuals, by aggregating orders and matching buyers and sellers on an order book. While trades and liquidations are executed and settled on the network, the order book and order matching are handled off-chain.
Virtual AMMs (vAMMs)
From off-chain order books, Perpetual Protocol introduced vAMMs that utilize the same constant product formula as traditional AMMs such as Uniswap. No real assets are stored on the vAMM. Instead, they are stored in a smart contract vault which then acts as the collateral backing the vAMM.
The Great Layer 2 Migration
The first decentralized perpetuals were built on Ethereum, but network congestion and high transaction fees hampered their viability, which relied on high throughput and lower costs. As such, protocols began migrating to alt chains and Layer 2 rollups. Perpetual Protocol V2 launched on Optimism, while dYdX V3 launched on Starkware.
Protocol Fees to Token Holders
As trading volume grew, these protocols also earned trading fees which could be distributed to governance token holders via staking mechanisms as a form of incentive. These fees were paid out in ETH or stablecoins instead of more governance tokens, offering a “real yield” to holders unlike other typical DeFi yield farms
Liquidity Pool Model
Popularized by GMX, newer decentralized perpetuals began utilizing a liquidity pool model, allowing liquidity providers (LPs) to become the counterparty for traders. If traders profit from their trades, losses are socialized by the liquidity pool, and vice versa. LP tokens increase in value as trader losses are added back into the pool.
Read the full article here :
As fears of another crypto exchange collapsing have gotten the community on edge, more crypto users are turning towards decentralized perpetual protocols to satiate their demand for leveraged trading. Throughout the recent bear market, perpetual exchanges have been one of the few bright spots in an otherwise gloomy state of DeFi, providing an avenue for users to trade with leverage in a permissionless way while allowing liquidity providers to earn sustainable fees in an environment starved for yield.
Dive into our State of Decentralized Perpetual Protocols Report as we explore the history and evolution of decentralized perpetuals, how they have performed thus far, and what we can expect from decentralized perpetuals in the near future.
We’ve summarized the key highlights, but be sure to dig into the full 18 slides below.
The State of Decentralized Perpetual Protocols: Top 5 Highlights
Decentralized perpetual protocols have evolved to improve trading efficiency and unlock new earning possibilities for users.
The top six decentralized perpetual protocols dYdX, GMX, Level Finance, Kwenta, Gains Network, and Perpetual Protocol, each operate with a different model and have varied offerings, particularly when it comes to supported assets and maximum leverage.
Since reaching its all-time high in November 2021, open interest across top 6 decentralized perpetuals has experienced a significant decline of over 65%, with dYdX still controlling 55% of OI.
In line with OI, trading volumes have also fallen by 66.2% from its peak in 2021 Q4, as dYdX still dominates with 58.9% share.
Holder revenue distributed by decentralized perpetual protocols to governance token holders sparked the “real yield” narrative, and caused demand for these tokens to skyrocket.
1. The Evolution of Decentralized Perpetual Models
Decentralized perpetual protocols have gone through multiple evolutions to provide more efficient trading and other earning possibilities for users:
Central Limit Order Book
The first iteration of decentralized perpetuals largely mimic those of centralized perpetuals, by aggregating orders and matching buyers and sellers on an order book. While trades and liquidations are executed and settled on the network, the order book and order matching are handled off-chain.
Virtual AMMs (vAMMs)
From off-chain order books, Perpetual Protocol introduced vAMMs that utilize the same constant product formula as traditional AMMs such as Uniswap. No real assets are stored on the vAMM. Instead, they are stored in a smart contract vault which then acts as the collateral backing the vAMM.
The Great Layer 2 Migration
The first decentralized perpetuals were built on Ethereum, but network congestion and high transaction fees hampered their viability, which relied on high throughput and lower costs. As such, protocols began migrating to alt chains and Layer 2 rollups. Perpetual Protocol V2 launched on Optimism, while dYdX V3 launched on Starkware.
Protocol Fees to Token Holders
As trading volume grew, these protocols also earned trading fees which could be distributed to governance token holders via staking mechanisms as a form of incentive. These fees were paid out in ETH or stablecoins instead of more governance tokens, offering a “real yield” to holders unlike other typical DeFi yield farms
Liquidity Pool Model
Popularized by GMX, newer decentralized perpetuals began utilizing a liquidity pool model, allowing liquidity providers (LPs) to become the counterparty for traders. If traders profit from their trades, losses are socialized by the liquidity pool, and vice versa. LP tokens increase in value as trader losses are added back into the pool.
Read the full article here :
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