# DeFi Deep Dive: Polynomial Protocol By [Sean](https://paragraph.com/@ogmoonboi) · 2023-08-22 --- This article intends to serve as a closer look at Polynomial Finance, a leading Perpetuals DEX on Optimism that allows users to trade on 45+ assets with up to 50x leverage and the lowest fees in the ecosystem. About ----- Founded in 2021, Polynomial raised $1.1 million in a [pre-seed round](https://medium.com/polynomial-protocol/polynomial-raises-1-1m-to-build-a-defi-options-marketplace-d8e613740dfc) led by Archetype, accompanied by Genblock Capital and Caballeros Capital. The first version of Polynomial went live on mainnet in March ‘22 after 5 months of testing and building. Since then it has reached over **$2 billion** in cumulative trading volume, making it one of the top derivative protocols in the ecosystem. Merging the power of Synthetix protocol on Optimism with a sleek, mobile-friendly interface, it’s easy to understand this level of growth. While decentralized derivatives trading remains its core product, the Polynomial team continues to ship other innovative features seamlessly deployed into the protocol which we’ll explore in this article. Integrations ------------ Polynomial utilizes the [Synthetix](https://synthetix.io/) protocol to provide traders with access to deep liquidity and low trading fees on a wide variety of assets. Synthetix has built its reputation as being the authority set of permissionless and decentralized smart contracts for perpetual futures. While currently in v2, Synthetix continues to develop its contracts and has already accomplished major v3 milestones, with the Perps v3 Market still in progress. ![Source: Synthetix docs](https://storage.googleapis.com/papyrus_images/5b9953e6dfc416eee3ad2ebad8b80ddab49790309b74fb7895f93d95cd10c382.png) Source: Synthetix docs The other major integrations within Polynomial serve the purpose of up-to-date token pricing. To efficiently provide traders with accurate and real-time token prices, oracles from Chainlink and Pyth networks are used. Each of these oracle networks is known as a household name for DeFi price feeds. This allows users on Polynomial to trade with the confidence of knowing that their assets are being traded at the most current and accurate exchange rates. [https://docs.trade.polynomial.fi/partners/oracles](https://docs.trade.polynomial.fi/partners/oracles) Trading on Polynomial --------------------- The first thing you’ll notice immediately when you visit the trading platform is the stunning User Interface. Whether you’re on a mobile device or desktop, the sleek and intuitive UI/UX offers a superior experience compared to centralized exchanges and other decentralized derivatives platforms. ![](https://storage.googleapis.com/papyrus_images/d5827ad87feeec80292b351a6bd39050e8790fa60cc018bbfb027791ed1baa3c.png) To begin trading on Polynomial, it’s required to create your Polynomial Smart Wallet upon connecting your web3 wallet to the platform. This unique feature boasts many benefits. The advantages of using smart contract wallets include: * **Advanced security.** A smart contract wallet is programmed to execute transactions automatically according to a pre-defined set of rules, making it resistant to hacking or other security breaches. * **Custom orders.** Allows Polynomial to offer custom orders such as limit orders, stop loss orders, TP, and more. * **Transparency.** All wallet transactions are recorded on the blockchain and can be easily audited. Once a Polynomial Wallet is created, it can easily be funded with an accepted stablecoin (sUSD, USDC, DAI, USDT, LUSD.) ![](https://storage.googleapis.com/papyrus_images/165cbd73a8b635569f72618e985810971fd743c9c128f9743cfceda6ea619412.png) Check out [Polynomial Swap](https://swap.polynomial.fi/) to purchase any of the accepted stablecoins. After depositing, users can view and access their total holdings balance from anywhere on Polynomial via Smart Wallet at the top of the screen or directly from the trading terminal. ![](https://storage.googleapis.com/papyrus_images/af26826735145daf23472fe3b63a460abc17c525901d852bf4f7024d9ef5b9bc.png) To open a trading position, go to the Perps section and browse through the available tokens (currently there are 47.) Standard market orders are available by default and are designed to immediately execute your trade at the current market price. Simply choose the direction (Long/Short), enter the Margin size with the desired amount of leverage, and place the order. The minimum margin size is $50. ![](https://storage.googleapis.com/papyrus_images/8928de3be28b80a1d18967cc035535eb2cbf4116636c46c74d2a62c6853c8137.png) For those interested in placing custom orders, Polynomial now offers [Advanced Orders v2](https://mirror.xyz/0xf3897707d8Fa5dC27b2A6575319e409a464eB8D8/qm5sPeA9l9MLP1ovN9F7pDErLDKss3ytSPV7I1_ovWQ) which allows users to choose which market/price conditions must be met for their trades to be executed. Benefits of Advanced Orders v2 include: * **Enhanced Risk Management.** Advanced order types enable traders to set exit points, limiting losses and securing profits. * **Improved Trade Execution.** Choose desired price levels for entering or exiting positions, enhancing trade execution. * **Automation and Convenience.** Advanced orders automate trading, eliminating manual monitoring and execution. Traders can set pre-determined parameters for automatic execution when specific conditions are met. Taking advantage of this feature is as simple as switching to the “Limit” and “Stop” options. From there, all of the desired parameters for the order can be entered. ![](https://storage.googleapis.com/papyrus_images/f67789ca48b58369d8a52242bd2aaa399d77e68eab3fb573ddf71bb0eff9d485.png) ### Limit Orders A limit order is used to buy or sell an asset at a specific price. It’s ideal for users who are interested in purchasing an asset, but do not want to buy at the current market price. They can also be used to set a maximum loss to protect capital. ### Stop Orders A stop (long) order is used to capitalize on an upward price movement or to enter a trade at a specific level. It’s ideal for those who wish to buy an asset once its price surpasses a predetermined stop price. In a similar way, when a downward is expected is possible to place a stop (short) order in key prices and around resistances. Once the new limit or stop order is created, it will appear under the Orders section of the trading terminal. Users can cancel the stop or limit order at any point in time. When the price execution reaches the stop/limit price, the order will be executed, and your position will be opened. ### Take Profit & Stop Loss Take profit and stop loss orders enable traders to set target profit levels and maximum acceptable loss levels. Take profit and stop loss orders provide a level of automation that allows traders to stick to their predefined trading plans. To allow traders to define both their target profit level and the maximum acceptable loss level, both orders can be placed simultaneously when entering a trade. Once TP and SL transactions are submitted, they are accessible from both the Orders and Positions tabs. It is also possible to modify and cancel these orders after they have already been submitted. To learn more about the features and mechanisms behind trading on the platform, check out the [Polynomial docs](https://docs.trade.polynomial.fi/trading-guide) for reference. Strategies on Polynomial ------------------------ As the protocol continues to develop innovative and cutting-edge features, it has now begun to offer other trading strategies outside of derivatives. Its latest launch of the Funding Rate Arbitrage feature allows traders to gain exposure to a delta-neutral strategy to profit from positive funding rates in DeFi. ### How does it work? Funding rates are the fees set by protocols to maintain the balance between contract prices and underlying asset prices. They serve as a mechanism for fund exchange between long and short trade, adjusting the cost or profit of holding contracts to keep the contract price close to the underlying asset price. To take advantage of a funding rate discrepancy and achieve delta neutrality, trades can be opened on 2 different platforms with opposing directions. For example, a long position will be opened on Exchange A, while simultaneously opening a short position on Exchange B of the same asset value. By holding these positions open during the funding period, you earn the funding rate as profit. The longer you hold the positions, the more funding rate you accumulate. With the Funding Rate Arbitrage feature available directly from Polynomial, traders can take advantage of this strategy in one click without manually searching for funding rate discrepancies and placing trades on multiple platforms. ![](https://storage.googleapis.com/papyrus_images/935f01238db3083ea786f0fe14cd31203b2c64555c888a19ee2c1ef84ff0b68d.png) Although the feature is still considered to be in “beta”, it is currently already being offered and easily accessible to all traders of the protocol. $OP Rewards for Trading Season ------------------------------ Polynomial introduced an incentivized trading campaign powered by Synthetix in July ‘23. At the time of publishing this article, there are still roughly 2 weeks remaining to participate. Users who participate in the Trading Season can level up by trading on Polynomial and earn exclusive NFTs to compete in trading competitions that offer $OP prizes. ![](https://storage.googleapis.com/papyrus_images/6f94089e516c46e417c4f632db5aedb7d98fa78b1cbfe8ce937834d0f5fa6d73.webp) The season features different levels (tiers) that are determined by XP. There is a 7-level tier system, each requiring specific XP criteria for access. Traders earn XP and level up based on trading volume and profit. Traders who reach a certain level are also eligible to receive a multiplier on their $OP rewards. After reaching level 4, traders have had the opportunity to participate in weekly trading competitions. Polynomial has paid out **350k $OP in rewards per week** to these users based on their PnL (Profit and Loss.) ![](https://storage.googleapis.com/papyrus_images/432d3a21bd75a515a9daa06593cb143dff3258a2fedc30960f0474729b98f4b9.png) It’s still not too late to participate during the final weekly epoch of the contest! Everyone who trades on Polynomial during the competition is automatically a participant. Looking Ahead ------------- There’s no doubt that the future of Polynomial is indeed promising. The team has already shown extreme competence and has gone to great lengths to provide users with an incredible trading platform that offers innovative products while rewarding loyal traders. With that being said, Polynomial’s growth and development show no signs of slowing down. The project has recently announced the completion of yet another fundraising round in May, this time for an undisclosed amount. ![Source: Rootdata](https://storage.googleapis.com/papyrus_images/1bd2090b9cd0d2c4e597fb490c828692f1b19a2e34d7a291f78cc9ac38b34fc6.png) Source: Rootdata It’s safe to assume that the many investors who are backing the project will continue to provide the Polynomial team with the resources needed to continue building and shipping innovative features. A great example of this is the upcoming deployment of [Power Perps](https://mirror.xyz/0xf3897707d8Fa5dC27b2A6575319e409a464eB8D8/Ry5bC-rq2bWdl-nzu1SMTWU4kr7qFrkhQMihZkMr3Jc) which introduces a unique delta-hedged AMM. The AMM will apparently offer tighter spreads, lower funding rates, and consolidate market liquidity to provide an ideal portfolio management and diversification tool. Additionally, other planned innovations include stablecoin collateralized short positions, more automated delta-neutral strategies, and expansion of offered markets. It’s expected to see Polynomial continue to develop from being solely a derivatives trading protocol to a complete DeFi powerhouse that offers a suite of many more features and products. It’s recommended to stay up to date with their developments by following them on [Twitter](https://twitter.com/PolynomialFi) and joining their [Discord](https://discord.gg/polynomial). Enjoyed this article or found it helpful? Consider subscribing to receive more DeFi Deep Dives directly to your inbox! [Subscribe](null) Sources: * [Polynomial docs](https://docs.trade.polynomial.fi/) * [Polynomial blog (Mirror)](https://mirror.xyz/0xf3897707d8Fa5dC27b2A6575319e409a464eB8D8) * [Synthetix docs](https://docs.synthetix.io/synthetix-protocol/readme) * [Polynomial seed rounds](https://www.rootdata.com/Projects/detail/Polynomial?k=Mjk5OQ%3D%3D) * [Cumulative trading volume data](https://dune.com/polynomialfi/polynomial-trade) --- *Originally published on [Sean](https://paragraph.com/@ogmoonboi/defi-deep-dive-polynomial-protocol)*