Smart Liquidity Framework for On-Chain Perp | Shao-Kang Lee, Perputual | ETHTaipei 2024

hey I'm sha from Perpetual protocol Perpetual protocol is a decentralized Perpetual exchange since 20120 uh first I'm going to um introduce what is peret future you may not I guess not all of you know so in high level Perpetual future is a a type of derivative contract that allows user to speculate the future price of an asset without expiration date but why does this matter if you look at binance trading volume Perpetual volume is consistently higher than the spot trading volume however this does not extend to decentralized exchange let's take a look at what the current status and the brief history so it's around um Mid 2020 the first generation Pro deex came out and and then there are more more and more Pro deex every year and around end of 2022 FTX claps at that time there are many crypto enthuastic say it's finally the time for decentralize FTX it's probably true for spot trading but uh it's not true for Perpetual Futures as you can see Perpetual future decentralized Perpetual Futures market share it's just so small compared to centralized exchange it's almost neglectable after everyone's hard work after this past few years but why it's common to criticize infrastructure it's so hard to use metam Mas yes it's expensive the gas price is high and it's also um you know waiting for a trade for a second it's just super slow but after some thanks to the E effort from the collective ecosystem uh we actually I think we are already reaching to a point that we can offer a simless experience that user don't need to notice their blockchain underlying but um so where user transfer their Fone from centralized exchange to decentralized exchange if it's fast affordable and easy to use probably not unless there are some incentive or air drop but let's take a step back uh how about decentralized spot trading how about Unis swap they all have the same weakness it's expensive it's slow and it even has more fishing scam because after perit to but look uni swap overpass coinbase last year so how does decentralized spot trading thrives when when they have all the same weakness is there something incredibly valuable for user that so they can overpass okay overcome this hles and uh even there the centralized change is easier faster and cheaper but there just something that centralization cannot compete as a decentralized exchange should we focus on improving weakness or strengthen our strength um I think improving weakness is undoubtly important but uh most of the time a user user product it's not because it has less flows but it has something that extremely good in some unique use case that no one else can offer think uh for unch trading democratized liquidity provision is the key and that's the strength of Dax so can we just apply this lesson from spotex to perex we have some experience over the past few years but the answer is not that straightforward let's take a look at the liquidity mechanism landscape so first peer to pool model it's very easy to understand for retails but it's also quite vulnerable due to its dating nature when multi condition shift and next peer-to-peer and of course Li order it's also very flexible but um it's just so hard to make it on CH some of interesting approach like warp WP they have something that wor exploring but it's still very hard and expensive to build active Market making strateg on top of that and also range order invented by Unis swap um we used to think that's the closest answer so this why we build the per V2 on top of Unis V3 but it's still very expensive and hard to build a active Market making strategy and build a maker vot for retails we do have some hard lesson from Runing V2 for two years but from those lessons we came out a very simple idea um that can fix those issues and just uh we call this uh smart liquidity framework it's per V3 um it's a generic platform for any liquidity strategy as long as they can generate a price so we're coming from the uh bounding curve and range order then we move a further step we abstract the LG LP strategy away I call this uh we call this LP abstraction so uh what does it look looks like in practice for example uh anyone can build a strategy on top of a very simple conent product formula X YK and then um just use this as a price but most of the lp may not want to use this of course you can also utilize an external Oracle could be Chan link piece or even your own private Oracle so just uh very simple just use that price to markate accordingly but what's more than the pricing the programmable pricing is you can run arbitrary code on your maker your strategy so by decouple this pricing engine from the trading strategy there are so much so much more things we can do for example uh at a simple cost shows uh you can put your idol Fund in some lending asset like a and earn yield and you can also when there is some uh take a trade with against with your maker you can just hedge in another Vue and if we uh this example is very powerful that uh it's something similar to like a basis trading strategy so uh let's take a look at the basic trading strategy simple so this maker I mean the trader alies want to uh take a one is long and this maker running a basic trading strategy you can just um concurrently buy one e at Uni swap to get one e uh spot underlying spot to hch and maybe you can optionally add a spread on top of that price but essentially this Trader get the same price as Unis swap with leverage so it's some it's something like it can utilize the liquidity from Unis swap with with very low capital and for LP it's also a very low risk strategy that since it's a delta neutral strategy and it's not only limited by uh trading between spot and per you can actually integrate with every other Dex or even centralized exchange it's basically bridging all the liquidity from other exchange into the same place it's probably not new for professional Market maker but it's revolutionary for retail and since you can have so many strategy so what the the workflow looks like so um to provide a better user experience there will be something like a router on top of all the strategies and then this uh UI Trader can just use that router to route to the best price among all the strategies and for b or smart contract you can also of course bypass this router to integrate with each strategy directly and what's more interesting thing is the position across different strategy are funable which means a Trader open a position on strategy a it can easily close Str your position on any other strategies this is not only improving the price because you know every strategy has its own strength and weakness but uh it only create a new dynamic between strategies because a strategy can rebalance their exposure between each other other strategies so uh let me summarize uh what I've shared about the per V3 so um it appears to pool model so Trader can benefit from Infinity strategies and by having this programmable pricing and hook anyone can build different kind of strategies could be amm Oracle base could be unchain even ofch strategy can hatch or unhat so it creat it makes makes us or other like Market maker risk exper a lot more flexibility to build different kind of strategy and we can even utilize this framework to build a retail friendly LP V have to welcome the broader audience so uh imagine a year or two when someone represent this Market dynamic between decentralized exchange and centralized exchange I hope the child will be different and we're going to open source per visory it's not business license like others so uh we come to take a look and R as your own risk I believe that uh everyone should have a better and transparent trading experience thank you thank you