Exploring the Use of Perpetual Protocols in DeFi Applications

all right my name is Chester Bella I'm one of the founding members of parify parify is a Perpetual protocol that focuses on bringing parity between all different Market participants today's presentation we're going to speak a little bit more about exploring the use cases of Perpetual protocol in D5 so it will be more General and towards the end we're gonna speak a little bit more about what we have been up to a little bit about myself I've been involved in crypto since 2013 initially as a market participant around 2017 I started to work on product research product ideas and prior to that I was working in trade 5 at n26 which is in Germany or in Europe one of the fastest growing mobile Banks after that I was working for hyperport which is a B2B fintech company that focuses on mortgage aggregations for banks and Brokers so they can offer their retail or end consumers the best mortgage offerings good afternoon everyone my name is Danny Bohan um I would also like to do a short introduction about myself I got into the D5 speed around 2017 in terms of like my background I actually worked at n26 as well similar as Chester and was in the anti-money laundry unit and later on I worked in fintech providing mortgage aggregation for banks and also partners and end users all right a little bit about the agenda so this is pretty much the overview we're going to speak a little bit about what professional Protocols are about the advantage and challenges that Perpetual protocols might face towards the end we're gonna conclude it with some examples and potentials that we see and summarize a little bit what we have been up to and improvements that we see moving forward what are Perpetual protocols is anyone aware of what Perpetual Protocols are hands up all right okay quite a few people well what are Perpetual protocols Perpetual Protocols are blockchain based Financial products that enable Traders but also protocols to trade on derivatives without any expiry date and unlike traditional future contracts it allows people to pretty much hold their position without any set expiry date in the future and one of the cool things about Perpetual protocols is that it is generally speaking we have lower fees due to the fact that you don't have a lot of fees such as rollover fees or custody fees that are normally applicable to trading future derivatives and if we are comparing Perpetual protocols that are out there generally speaking you have two types of Perpetual protocols one that uses an order book one example would be dydx and on the other hand you have a Perpetual protocols such as snx synthetics or GMX that have an amm to facilitate trade and markets awesome now we're going to dive a little bit into to discuss the key findings of Perpetual Perpetual contracts and also future contracts so with Perpetual contracts there is no expiry date with future contracts there is actually expiry dates so another aspect as well that we should look into is the leverage with leverage it do occurs on both Financial products as well and yes price of workers is of course one of the key factors that is important for Perpetual protocols ideally you would like a protocol to use on-chain oracles that are less successful susceptible susceptible to manipulation and on the other hand you have traditional Brokers the normal life that normally use centralized price data that are more susceptible to manipulation and that's why we see that there is clear and advantage of utilizing Perpetual protocols yes so trading fees occurs on both Financial product products so there's a key difference in terms of the Perpetual stuff the trading fees are a bit lower than on future contracts however um both of them occurs um the one one advantage on Perpetual contract is actually that there's no rollover fees that needs to be paid and also when it comes to when it comes to the funding rate both occurs on both products as well it makes sure that the shorts and Longs are actually being in a healthy ratio all right this is an overview of a few popular Perpetual protocols we use three examples um and we differentiate we will go no more in depth about the features and how they are different on one hand you have dydx of course GMX and synthetics I think one of the cool things is that some Perpetual protocols um allow you to trade assets Beyond crypto such as snx in form of synthetic access which brings which is really cool because it brings flexibility in the exposure one can have because synthetic assets can come in the form of Commodities Forex Etc pretty much anything that has a price feed yes so also the architecture is a bit different as Chester mentioned before so for example on dydx they do have a order book approach with GMX and also synthetic they do have amm approach and as well there's also leveraged trading a possibility that users can make use of however they do have different levels of Leverage trading due to different risk assessments um when it comes when it comes to also to the fee structures there are different paramedics that they use so therefore there's a bit of change now going back to the funding rate as I mentioned before it makes sure that the ratio stays unbalanced in terms of the shorts and the logs that has been taken yeah and another I think like uh cool thing is that Perpetual protocols can be deployed on multiple evm chains obviously one example is I mean dydx is uh deployed on starkx which is a layer 2 solution which is a little bit less sexy in my opinion because it makes it less composable or for people to build Financial products on top of their existing protocols and on the other hand you have of course GMX and synthetics that are deployed on multiple evm channels allowing other products as well to build new Financial products and also just make take advantage from all the all the composibility advantages that it brings yes so how can Perpetual protocols be used in D5 applications does any one of you guys have an idea or any protocol in mind or in a project any idea Beyond regular trading does anyone has any idea well no problem I think it is oh yeah certainly for Forex to help limit FX evaluation risk yes that's correct yeah oh well one thing is with the emergence of Perpetual protocols it allowed as well pretty much a new space to um to emerge that allows people to create new marketplaces but also new financial instruments yes so we have three examples of the marketplaces so first of all it's weather derivatives so whether derivatives is that the actually users able to to hedge against the weather conditions that would change and then also there is carbon credits so carbon credits can also be an hedge or also a position that a Trader can hold in order to see if the if the project or the trade that he's holding is more carbon and environmental friendly and then there's also intellectual intellectual um intellectual properties with intellectual properties there are two con consistents of it once it's first the trademarks and one and another one is patent and the nice thing about it is that everyone who is actually an innovator and also a Creator can make sure and monetize on those Market spaces well one more thing is with new marketplaces potentially new financial instruments emerge and one of the things that then you kind of alluded already is that you might have uh being the ability to trade derivatives that are not direct directly impacted by the weather but somehow indirectly if I take one example for example let's say there's a country where there is a drought the drought has impact on the crop and whatever vegetable um is being grown and this will unfortunately probably have some impact some form of impact on the vegetable or the crop so this might open up a window of opportunity in order to allow us where people to potentially trade on this particular price rise that might come from instances like that from that vegetable yes there are also other scenarios for example when it comes to carbon another scenarios could be that the trader can actually manage his position on let's say an airline company that he feels like they are and they are having a good emissioner policy and also less emission print and then what you can do is to make sure that his future is contract he can hold it and once it's in a positive he can either sell it or buy it and then also when it comes to intellectual into into the intellectual um one second so intellectual um when it comes to the intellectual property another thing is that actually someone who is bidding on um trademarks or any any other intellectual properties that go up in the near future what they can do is they can they can actually sell them on a pre on a later stage and then the Creator and innovator will actually earn on those sellings all right here are some examples of not necessarily Perpetual protocols but Financial Diva protocols that are live out there but that could have been built potentially on top of existing Perpetual protocols overall this will require some form of modification for the specific use cases that each protocol requires yes so hedgic is one Hedrick is an option so so far an option that users can use they can trade cryptocurrencies like Bitcoin and also ethereum on it then another platform is poly Market with poly Market you can actually engage into real life events on highly debailable topics and you can make your boat and if your vote is right then you'll be rewarded and also opium insurance is very interesting where you actually have tokenized position in these tokenized positions can either be be against smart contract vulnerabilities or in other in other cases as well defaults against stable coins all right let's talk about the advantages well one of the advantages that I alluded earlier already is the composibility I think that a lot of opportunities emerge from that and one of the things is it enables of course users but also protocol Builders to really build new Financial Primitives by combining multiple protocols and of course enhanced liquidity utilization might derive from that if we take an example where you have two protocols that collaborate together and deepen the liquidity this can of course raise the capital efficiency but also create passive earnings opportunities for liquidity providers and of course then you have the lower fees as I mentioned already with Perpetual protocols by a few fees that are not applicable such as rollover fees custody fees that are normally applicable to uh when trading future contracts and this is one of the cool things so transparency is also very important users can actually before they interact with the Perpetual protocol they can go GitHub have a look at their smart contract they can see the audits they can also have a look at the interface before actually participating and another thing which is very important also in this space is that through ownership is important and also Financial certainty so the user is actually solely owner of this funds he can deposit and withdraw his funds at any time giving let's talk about the challenges well unfortunately there are also some challenges that arise that come from being composable or building on composable Primitives and one of the things is of of course the dependency risk because some problems might lead to liquid detect liquidity fragmentation if we are taking one example where let's say two Protocols are liquidity pool they could come they could come to a scenario where let's say liquidity for the protocol a doesn't have access to the liquidity to cool B and what does it do is that the user is actually unable to execute the transaction on their platform and if we are talking about downtime we are not necessarily talking about down times in the context of a server being done more in instances where protocol is potentially exploited or for whatever reason has to be halted this can obviously like lead to situations where liquidity is not necessarily immediately available for the people that are on the protocol air in that example and of course then we have the complexity um building with multiple protocols appears some complexities that might arise that might open new attack vectors to exploit smart contracts that could of course lead to user funds being lost so this is one of the things I think you should pay more attention yes then there's also integration risk integration risk can occur when for example there is a fraudulent protocol website which looks similar to the original one and a non-technical user gets on board on it and actually make the May course that funds to be lost on that as well and also inaccurities audits can also be a be a source of suspicions where a user will be vulnerable all right let's talk about the potential and the impact yeah one of the things of course is uh reducing information asymmetry I think this is one of the cool things that blockchain building on top of the blockchain brings I think it reduces as well it brings an even Level Playing Field for all Market participants I think this is one of the things that is cool of course enhance liquidity I think it's really cool that we are now in a time where we can really build on top of existing protocols especially like for new product projects it allows them as well to utilize um well they don't necess they don't need to necessarily bootstrap their liquidity from scratch so they can tap into the existing liquidity of certain protocols so of course this leads to Better Price executions in the context of Perpetual protocols because the more the deeper the liquidity is the better the prices the less slippage yes passive build opportunity skips actually Traders also the possibility to be a market maker where they can actually deploy assets into the liquidity pool and earn on passive earnings as well yeah and if we are talking about adoption I think Perpetual protocols have really the potential to lower the entry of barrier if I take myself as an example my parents are originally from Congo and I can tell you for sure that people in condo don't have the possibility to actually participate on the open market this is due to many reasons such as not having the right documentation to be able to access certain Financial products and I believe as the industry is evolving and the better we can improve the user experience the more we might potentially be able to onboard the next one billion people yes let's head over to conclusion and key takeaways so advantages as said before in his liquidity make sure that users are actually getting better prices and also the orders are being matched and then as well the possibility of combining different protocols together gives the users also new experience as well yeah but one thing has to be mentioned dependency risk is unfortunately still something that needs to be kept in mind when building on these Primitives that are fairly new and of course as I mentioned earlier we think we can really democratize finance and lower the entry of barrier for a lot of people that don't have access to certain Financial Services all right before we wrap up I just wanted to mention as I mentioned earlier we are currently building ourselves a Perpetual protocol where we are changing a few things that we see as flawed for example for the pricing what we are doing now is using a gaussian formula and on-chain oracles actually to augment the prices and one of the cool thing is that the ratios are self-adjustable based on the utilization of the actual pools and how how many Longs and shorts are open basically the ratio um we think that for example we think that a Perpetual protocol that is built on top what that uses an amm approach to make markers should not have funding rates I we don't think that the funding rates should be charged between the Traders since the liquidity provides us actually built a highest risk we believe that we should charge a borrowing rate they should go to the liquidity providers to incentivize the right Market Behavior it doesn't make any sense that the Longs and shots are kind of trying to balance out the ratio and yeah of course as I mentioned we believe with the with what we have been currently building we might be on something so we're gonna publish in the upcoming weeks a little bit more details about how the formula works and how it might be helpful and yeah QR code