DeFi By Design EP#38: Bringing the Trillion Dollar Derivatives Market to Ethereum

Transcript

[Music] d5 slate team [Music] what's up y'all real quick if you like the d5 state content on twitter and youtube and sub stack please please give us a like and a subscribe on this video on youtube and join our channel join the community we'd really appreciate it we're pumping this stuff out for you all as much as we can and we really enjoy the support and the community that we've built thank you very much and enjoy what's going on guys welcome to episode 37 of the d5 by design show we are here today with my co-host robbie we both happen to be in florida by the time you're hearing this the whole

bitcoin in miami conference will be gone and long gone but here we are today with the team from perpetual protocol um yen wen and wei tang uh we are super excited to kind of be in in in the space of decentralized derivative trading in 2021 i truly think it's going to be one of the bigger opportunities for a lot of players between that and d5 options as we kind of grow it and mature into all sorts of new sectors so pass over to robbie we're both in florida today it's beautiful out here how you doing yeah we have another beautiful day in florida you know it andy i'm doing great i had a great memorial day weekend saw the family saw the dogs drank a little bit so it was all good um i hope everyone

also had a safe and enjoyable memorial day weekend and yeah super stoked to be talking to these guys from perp um i i agree i think derimitives is going to um really take on a new a new shape in d5 you know we all know the derivatives market is quite huge um in traditional finance and i i expect to see a lot of that uh transition over to a decentralized way of transacting um you know it's been tough in terms of uh scaling to get the kind of order flow through an exchange um to handle something like derivatives but uh i'm excited to hear how perp does it

and uh you know what kind of value they bring to the d5 ecosystem so i will pass it over to wei ting and uh waiting how are you doing today you know let's hear it a little introduction about yourself for sure i'm doing really good um so my name is wayne chen and i'm the growth manager of perpetual protocol um i've been working in this space for over four years now and it has changed a lot from these ties and i started as a product manager for bitcoin debian company and then transition to operation role for central exchange and then later i started in 2020 i started to play around some new d5 apps at that time and that's why i

entered this space and then when i saw yangon post a job posting for this role and it's about derivative and and d5 even though at that time i don't know anything about derivative i just apply this role as if i know everything about it and luckily i got this rule um so that we are doing quite good so that's how i joined provider protocol sweet and yen when i took it you've been working on this for quite a while yeah yeah that's actually um so i'm young when um so we actually started working on derivatives like in 2018 so my co-founder i i think at that time we you know we brag about

actually crypto kitties and then we are so hyped and then we just fill down the crypto rabbit hole at that time and then the market is good ico booming so i mean we just want to do something at that time so we're actually working on a derivative option actually is the option protocol at that time uh but they kind of like the head of this i mean like uh old time and uh at that time there is no g5 yet i mean people are not calling the decentralized derivative of ski-fi but anyway um so i think we have been struggling for like several years we joined our finance lab and the further acceleration but but actually the monkey crash so we're

actually working on other stuff but uh i think the beginning of last year we kind of like pivot back to i mean derivative um because we saw the success of uni swap and then psychics we feel that yeah we should bring back our idea and then and then you know build something on top of that so yeah um just so yeah you guys were like a little bit early in your in your um your creation you know it's it's really interesting to see how there's products and protocols that are so applicable to like the common place but if their timing just isn't at the right spot it you know you just have to keep building away so yeah that's

you know that's interesting you were saying though yeah so yeah i'm saying uh yeah i'm interesting that so we started like last year so actually when when we feel that everything is really where we you know we want to go out and not support it actually the call will be happen so like nobody is investing nobody actually take a look at the crypto at that time because bitcoin crashed to 3 000. yep so pretty bad time we just like um kind of like hold it back and then we just like kind of like uh go back to the building mode we built a prototype announce it and got some like really good feedback and then the com compound release their own token

comp and then you know like eo farming everything just gets started i mean that's i think that's june so we actually launched our um we actually finished everything like last september and then we want to launch it but at the time the gas price is like um you know uh you know just 400 yeah something like that and so we we actually calculate that uh you know in order to open a position you have to spend a hundred dollars compared to central exchanges it's actually like several cents uh it doesn't really make sense and um so we kind of i pull it back we said that we are going to be about there too so we actually picked between magic

and sky at that time so we picked sky and um we launched it last december um so it's actually almost like this month and i think that we we we are actually doing pretty well i think we got like over like 15 billion trading volume since last december so i think that's quite well um uh but of course like the market is so hard i mean recently so that's the main reason but uh scale the protocol kind of like goes through a lot of uptake downs yeah but yeah so i think that's uh just briefly yeah yeah there's definitely been a development of of uh

of the types of exchanges that have kind of grown um from ground zero as you were saying kind of getting started in the bear was rough you know maybe a little bit early to the d5 space because at that point you know it was all amms amms were kind of like the groundbreaking like wow this could be the future and that was kind of still it when um we joined the whole d5 craze which which was about a year ago or so we had been in crypto for since 2016 2017 but this whole d5 and amm space kind of just blossomed last year right and now we're seeing this transition into these layered two amms on on polygon on phantom on on on salon and all these other platforms

um you know so i'm i'm i'm kind of curious what what you guys think the natural progression is of these decentralized exchanges so we started with kind of amms on layer one you know now we've got amms on layer two um you know so where where do we head next is there you know we have a derivative platform on layer two is there options on layer two is there you know more order book i guess what i'm asking is kind of what do you think the general progression could be um laid out in the future starting from the amms that we have now and kind of transitioning towards perpetual protocol and derivatives and kind of what's what's to come if you had to make a prediction um yeah that's a good question so uh

personally i'm i mean i'm i'm more i mean from the engineering background so i think i will put my bath on am um so um so maybe the first question is like the sega one no two so definitely year two will be the future of d5 i mean i think the question is just like which layer two i mean they are you know polygon doing pretty well bsc doing pretty well arbitrage is launching optimism um skill working on that but uh i think that i mean there will be a kind of like a a layer to war i mean in the end of this year and then there will be like one there two winging out that's why i think um

for so we talk about like we got like a very good vlogging on perpetual i think one thing of course the market is hard i mean i mean especially the beginning of this year but uh i think the second reason is that we are actually one of the first to be on year two so we i think yeah on layer two because of fees is so i mean people are more willing to trade compared to like um you know unison bigger one even myself i mean like i'm so familiar with the fire every time i check you i want to place a trade on uni swap i check the east case station i have to check i mean i have to check the gas price i mean like but on x sky you don't i mean you just play

trade i mean you don't do anything else so i think that's actually helped a lot and i believe all the if i proco if they move to there too i think that you know they got like 10x checking volume that's why i believe yeah yeah because the fees are really at least 10x cheaper if not more like a thousand decks um so it makes sense that you're going to see that reflection in your volume my my question is more on the decision that you guys made to choose xdi over polygon you know polygon has really uh been a lot more popular than x die at least as of recently well i'm just kind of curious what you know stuck out on x died that that um you know put it

over and above polygon in your perspective um at that time actually uh we don't know if we are going to choose again um i think we probably will pick uh polygon because there are more other vocals on top of that you see rv on that you see sushi shop you see a lot of like familiar politicals but uh when we make a decision last september actually i mean like uh polygon or magic at that time it's magic they just finished their like proof of stake uh bridge and then it's all new and uh they got a very good team i mean like we talked to some people a lot but we just kind of like picked this guy

because he actually i mean have been in the market for longer and also our engineer is more familiar with sli but uh i mean fast forward to now i think polygon actually i mean like they really do well so yeah so i mean it's very happy for them yeah but uh yes but uh it's really hard to move i mean like um even if we want to move i mean moving from sky to maybe bse or other place i think that's um so that's really hard for us yeah but is it is it a complete transition um from one to the other or can you integrate both and they can work like side by side um yes actually that's uh that's the plan

but um there are like um different things especially i mean like uh we are actually working on a v2 right now so we actually want to deploy v2 on more like other more layer tools maybe on polygon maybe i'll be trying maybe on like bsc i mean like uh so v1 actually is more reshaped because of the design so uh so we actually hold that back we actually want to deploy a more chance but we hold that back and then we want to work on v2 first after we finish v2 we can deploy on like many chains yeah so it's more like our problem i mean like

our decision that we prioritize how we prioritize things yeah well it seems like a lot of protocols would benefit from a more composable approach and it sounds like you're working your way there you know to to be able to engage a lot of these different layer twos at the same time and then you know maybe there's some sort of uh like aggregator or just all-in-one bridge that allows you to to go between the different layer twos and and all of them can compose into one protocol um you know i think a lot of applications would benefit from a setup like that in addition to perpetual um and it seems like you guys you know have already had this thought process and are on the way there when it comes to these choices about you

know v2 right so the upgrades and what you know where to move and all that stuff right we've got the perp token as the governance token right but i'm kind of curious about the advisor side of perpetual protocol so i know that you guys got a a decent investment from three arrows capital for example right so are these guys and other investors are they helping kind of shape um where you guys go you know do they have a say you know what is kind of like the advisor role that that these investors have um you know that that comes into let's say you know the choices of where to migrate or what to upgrade or you know how how the marketing goes so

i'm keen to understand kind of what that what that relationship looks like and you can disclose what you know what you like uh that's a good question um yes uh we do talk to them a lot i mean like so we do got um so i think we raised the i mean i was our like a raised fund at private ambassador last may and actually at the time we hardly i mean put together wrong because i think that's after kobe everybody everyone just like scared of asking um so i you know we are really happy that um you know these i mean these investors they i mean they back us

even if no one is backing new protocols of new scalps and and since then actually uh they involved in the public design especially in the early days and uh but i mean like um fast for forward to now we are more in the i mean a later stage we i mean like if you look at like traditional stuff we are more like a serious ac speed type so i think we actually switch to focus more on the community so actually community talk to us more much more so i mean we have like um i mean um we have a user interview we talked to them and then but uh you know uh um committee members just i posted a lot in all this core and then

we just tried to digest those and then um give feedback they you know they also give us a lot of feedback so i think nowadays we actually talk to community more yeah and everything that we are going to change we will launch a vote so like recently we uh we have this skating i mean it used to be like 14 days it's cool down and then we you know kind of like um want to change it to like seven days so i mean we have a vote we talk on the i mean this course somebody disagree we explained and then they i think they they they'll agree that maybe like uh shorten this is a little bit better yeah but uh yeah yeah i think uh just my opinion but

i think for the private investor or maybe vc i mean like in crypto space i mean some maybe like some community members they don't like vcs but personally i think vc help you especially when you are small when you don't have resource when you don't have connection they help you on the connection side help you on the decide on the political design i mean like there are lots of things that you can help that's that's just how i feel yeah yeah and you start in the beginning with you know this kind of concept of few you have a you know a very small amount of people who are participating in the protocol in the startup who have equity who own tokens et cetera and the vcs kind of help you get that you know that strong foundation

and then the community and the marketing and the team grows to many and over time it starts from like a strong kind of core and it goes to like this massive you know kind of group and i think i think that's the right like way of doing it and thinking about it um so yeah it's definitely uh i was definitely keen to see that um you know on three arrows website the investment in perpetual protocol that actually fueled me to purchase perp token under a dollar still holding haven't sold a single one whoa and so now yeah i got a question for you wade tank how are you going to pump my bags without doing it illegally so so basically like you know with with these

derivative platforms right we all saw kind of like the downfall of bitmex right with just the bull crap the bart's the just basically wrecking retail traders on high leverage was like their main form of stacking up their insurance fund i mean hell it it worked out well but it was a cesspool of just blood right so how do you wait to kind of view the marketing and spreading awareness of perpetual protocol um you know and wanting to grow the community without kind of you know incentivizing this this like gambling kind of nature of of leveraged trading you know like where's the where's the middle ground there yeah that's a really good question so uh from the product design right now we only over up to 10x leverage

so actually from system design we could offer up to 16x average but we want to prevent user from opening too much leverage so on the front end we limit user to open up to 10x leverage so it's one way to prevent user to doing high level trading and at less than time uh because uh right now we are trading on xdi design is is relative fast is still kind of slower compared to centralizing so users need to be um they when they trade they tend to be thinking about longer term like they are not going to open a position and starting just right after it's just close it because the price movement will not be as far as central exchange so people

from people trading it over here first they they they are they won't open too high leverage and at the same time they usually trade most earlier than under the centralized exchange so those two things we think is a good way to prevent user uh from wrecking themselves basically and as for spreading awareness uh a real sound for us is we cannot uh promoting to uh the countries that they the countries that dislike derivative trading so because uh even though the smart country is commissioners anyone could just you know trade with these programmatically but the size the domain per die change is actually owned by the team right now

so you know we don't want to get our domain guest see so if you want to access production from certain resolution you can access it but having sales we actually have released two tools the first tool is uh called command line tool and the second one is slide site so people could find those two tools on github and then use those two tools to access to a smart contract themselves they could for instance they could spawn out a light site on their computer and then they could interact with our smart contract without ever touching product exchange so yeah yeah exactly i think those tools could help us to reach more audiences but the thing i want to emphasize is we still think people

should follow the rules the regulation in their service station yeah most definitely i've it's it's kind of weird that i've owned the token for a protocol that i've never used that kind of goes against like my personal like rules but it just seems so obvious to be able to have this kind of access to this decentralized kind of bitmex if you will um you know yeah i mean i'm kind of curious what you guys think about the recent kind of crackdown or um rules about uh trading on leverage and and using derivatives in china and then also there was some stuff earlier this year or perhaps it was last year about the uk i think they they're banning some sort of synthetic derivatives uh i think like

snx was like a problem it was like whoa whoa it's gonna be a problem so you know again when i'm kind of curious what you think about this recent uh kind of narrative of crackdown on derivative trading on on exchanges and you know if that could really blow up the the d5 derivative scene you know in a kind of a a permissionless way um that's a that's a really good question um yes i think um so um the i think the regulation is tightened at least for this year so like uk you see uk you see china and also like i'm from taiwan and also from taiwan as well um i think that's um it yeah um actually i agree with you

that they're actually good to us yeah because i think central change like by bit they actually kind of like move away from china and uh yeah personally i believe they got i mean a huge percentage of my usage from china but anyway um um so that's actually good for us but um to be honest i also feel that [Music] there will be a way that i mean the regulation i mean like uh i mean um there is a new like fatal or something like that so they i mean they just don't want to have like some regulation on top of g5 or something i think that would happen i mean even if there's no good to maybe

fight in hope but that will happen and then that it becomes kind of like a uh i mean like um i mean just kind of like maybe not a war but uh i mean like um you fight i mean like a critical people will receive and then um i think the real problem is that it's so easy to be anonymous i mean i mean like you know that the the biggest coin right now bitcoin you know it's anonymous person or a team we don't know yeah so it's so easy so it's really hard to i mean like have a good regulation because um you know we like us we can just say that you know we i mean like um you know we quit and then you know some other

like a lot of people i mean take it i mean like just like take take care of it just like sam take care of like sushi shop and then there's not a lot of people might be less i don't know i mean like it's just like so complicated i mean like um yeah so it is so not like governable it's not governable by like one country you know like i have to say one of our questions like it's like who who governs the crypto protocols like is there a nation state like like like how is it governable you know yeah yeah so i think only they can approve that they know who satoshi is other otherwise i i believe that we can all be anonymous so easy i mean like so um anyway i just feel

that um it's very hard to i mean like so china want to ban this that's fine i think d5 actually we are benefit and uh i think i mean either centralized change become more decentralized because they want to avoid this kind of regression risk and uh so i think um anyway i think we i see like defy i mean like booming i mean you just like go to the whole device system but there will be a lot of like you know regulation like um i mean like they want to enforce this and then we just like you know turn into anonymous or like we just find other ways to avoid it yeah yeah yeah that's super interesting

because i mean there's plenty of anonymous characters that are that are creating projects um i i wouldn't necessarily go so far as to say that like the regulation is good for crypto but i can see how um any any like resistance to uh kind of innovation and the progress that's made in decentralized finance is going to um just is going to be a uh obstacle for centralized exchanges because they're coming to a point where it's already regulated and for them to try to integrate something that is not regulated it's uh kind of foreign to their system so like i i kind of go back and forth

on whether or not regulation is going to be healthy for the ecosystem or not i think overall yeah like i would agree with you um that it's going to try to it's going to wash out some of the uh non-productive projects some of the scams and just the blatant um you know just uh projects and and malicious activity that's in the ecosystem um but ultimately i i think it the regula the regulation has to be um accepting of the innovation that's happening in the space and if we see that it's not and it's just kind of a blanket um law that that prohibits a lot a lot of activity

i think we're going to stifle innovation and um there might be some more uh animosity between like a decentralized world of finance and this more centralized world yeah yeah totally agree yeah yeah it's nuts um let's kind of bring this back to what's going on at perpetual protocol um so i guess like one question that i have is kind of like why i feel like we should ask in the beginning but you know why did you why create this you know like what was uh what was the inspiration um and kind of you know why why perpetual yep uh that's a good question so um actually like i said we i mean at the

beginning we actually want to build an option protocol so um it's actually a very interesting design um but uh um but uh i think there are like some photos that uh you know we just like uh abandoned that project uh but uh personally i'm very interested in derivative all kinds of derivative i mean i used to work in like think a company before so i got a lot of i mean i'm not like financial background but i learned a lot of like how this financial instrument work and like i said i'll go i think stocks is doing well i think spot

trading is going well one of the most trade uh financial insurance how to make it make a a and on top of it yep and then um do like pick a good like instrument and then we want to work on that yeah we we kind of got you cut out there but i think i got the gist of it kind of comparing what like a ms and and options protocols and all these different types of financial instruments that are available and be able being able to create that in d5 is awesome um you know i'm kind of curious what your mental model is on order books versus amms currently you know like is there an ecosystem where

they both can work together you know is one better than the other you know what are your what's your take on the amm model versus like the traditional order book model that's a great question yeah i want to answer this okay so like i said i'm more i mean like bet on the am side but the i mean personally i think unisof v3 kind of like which is two together i think that's really cool i mean like they i mean uh you just could be like either go like you mean okay book or a m right but uh they kind of like build something in the middle i think that um yeah that i personally think that's the future

i mean like um i i i mean so for us i mean they are also like some other like projects they do they do perpetual swap on this too but i mean we still got more vlog i think one of the reasons is that we are much easier to integrate either maybe because it's on a sky is the same as ethereum that's might be one of the reason uh but uh i think that am is still easier to integrate so i mean we we chat to lots of like users in our discord and then some of them i mean we found out that if the user is like more like program

trader so they build their own box actually they are more willing to skip with us so that's what we found and then the ams still have this advantage that it's easy it's much easier to build a bot on top of it and univ3 actually kind of like in the middle you make it a little bit harder for the bot builder or like for the program traders but at the same time it also brings the good i mean like good good features from the bin older book so yeah i will bet on unib3 and i think uh unib3 will be like kind of like one program dominate all the spot 3d market yeah

right because it's kind of got the yeah the mix of both as you said um using the concentrated liquidity to basically have the kind of order book style and in the sense that you get to place your limits but then also having the amm inside of those limits basically which is what where all the liquidity is um yeah it's yeah i like that a lot it's uh it seems like they can both co-exist um you know and mesh together in this world but yeah it's just the whole amm concept was so new as of recent um that it really brought out a new you know uh on like a nascent approach to this whole thing i wonder what v4 is going to be like honestly yeah one thing i want to add is that the univ3 or the am

actually i mean like we all know that the older books so you have this market makers so they you know they just like place all the beads and i mean ads and beats and then um try to maintain that market but i think the most interesting i mean in my point of view about university is that maker actually take 100 of the fee of the taker so traditionally i mean in traditional finance or like in central change the monkey maker they either got like zero i mean a fee rebate so they got theory bay maybe like 25 base point or like um something around there but uh unisof actually gives you like 100

of the fees so it's actually like 300 base point i mean like uh personally i think that's really interesting because um which means that it's so easy so profitable to be a monkey maker right so i i think actually changed the whole dynamic between i mean the maker taker or accenture exchange personally i think monkey maker should definitely look at univ3 because it sounds really profitable to me yeah so it's really profitable even though they're getting they're having to pay 100 percent of the commission the trade commission because they're getting a liquidity provider fee no uh but you don't have to trade i mean

like um so i mean like you just provide equity i mean on the platform you just place all these like readme orders you can you can you can just view oh everything is getting older um you can be free when you provide equality yeah yeah i guess more what i'm what i'm saying is normally uh in centralized exchanges um those those centralized exchanges will almost incentivize liquidity um with the fee rebate for market makers but but now uni uniswap isn't isn't providing that fee rebate in they're actually making market makers pay 100 of the trading fees um so i guess you know is uniswap not so

concerned about uh getting more and more liquidity or really is the question more like how uh is this still profitable um with market makers paying 100 percent of the fee um i think actually also by market maker i think that's uh that's the quick provider i mean uh on univ3 so you on univ3 if you want to provide equity and then i mean um uh the quickly got filled you actually earn fees you are not paying fees right you're earning you're earning the liquidity provider fee right yes so you're you're not paying any fees so actually you are earning

so if you don't if you don't don't trade if you don't like um you know go in on the out from the other side from the taker side if you only do the maker i mean you only place like any orders then you only receive fees right yep so i think that yeah i think that uh different very different from like traditional like market making to your money like you said yes they pay off fees they got fee rebate sometimes they got more they got even more i mean like uh to to reward them but right now you kind of like got everything from the caker because there's no miguel man so right yeah there's nothing there's nothing like that in the in the traditional world right now yeah you get to set your your orders

basically as the end points for your lp position and then you get to earn all the fees while still maintaining that position which is just like yeah yeah yeah i think it changed lot of dynamic personally i think yeah and we're starting to see some tools kind of augment that that um protocol right like uh now if we're gonna if there's a tool that comes out and i this might already be available that allows you to shift your range um as the price moves then you can always kind of keep those brackets around the price so that you're always earning those fees and providing liquidity um wow so that yeah it definitely seems like uniform is going to be like a

revolutionary kind of technology is there any plans for like collaboration between you and and uniswap or you know is there any kind of composability that could happen between uh like uniswap's concentrated liquidity amm and integrating some sort of derivatives protocol into um that kind of setup yeah i think that's an interesting question i think that uh that's definitely something we are looking at right now but uh i mean like um this will be hard i mean there are several issues but uh definitely that's i think that's actually the way to go i mean for long term i think for derivatives i mean like either on like

like perpetual or like options i think uh having is kind of a concentrated equity and then uh you have another group of people either liquid provider or maker they can choose they can have their own like strategy built on top of it i think that's actually i think i think in a half year most of the poker will be like that yeah right and so so this is kind of on the on the fence of of using uniswap's liquidity for perpetual protocol almost as as some sort of like aggregator now this might be like a a grade six question here but where does the where does the perpetual protocol current liquidity

come from like where is the is is there there are obviously some sort of makers and takers on the protocol that are operating uh in the pool i like i understand that there's like a perp usdc pool um you know on on on uni swap for the token but where does the actual liquidity come from that is traded on xdi on the on the exchange itself um you know is there liquidity providers does the do you guys provide most liquidity you know where does that come from yeah waiting do you want to take it yeah for sure so currently um for the current version we use units for v2 x multiplied by y equals k formula to calc to use to determine the price of derivative on our platform

so for instance when we launch a new market we will say out the x and y on this market for instance uh when we launch btc market i kind of forgot the number but for logic markets we could say there are 100 virtual btc uh on this market sdx and for why we just use the current market of btc and multiply by 100 then we just say those those two things up in the virtual end because this this is a virtual end so the number the x and y inside are vertical they are just numbers so whoever used to want to open long position for instance a user wants to use 1000 usdc as the collateral to open the tanks position right how the system does is

the system will means 10 000 usdc turns on virtual usdc and put inside the virtual end so the y inside the virtual increase then the x inside the virtual decrease and the differences between the x and the new x is how many virtual btc this user gets so by doing this we don't need to have liquidity provider for the for perpetual protocol because the liquidity inside are actually virtual so they are just numbers so however you want to open a position they use usdcl collateral and the system just means virtual usdc or means negative virtual usdc so that's how our system works currently right and so yeah so you kind of use the

price on on um on dexes as like an oracle almost for what the price is on perpetual and then basically yeah and then you have your own system within um to to dictate the liquidity uh no so currently we use virtual and uh x multiplied by equals k formula to determine the price of derivative right but at least in time once per hour we will use the overall price uh to calculate the funding payments so big heart fund payment does is because uh while usage is trading here is derivative right the price authority sometimes is different from the azure price of the spa markets for instance on bbc perpetual markets

sometimes the price usually given bull market the price of a btc perpetual country is higher than the btc spa markets so what a funding payment does is it will incentivize users to take the less less the less popular site so in the bulk market usually the long side those who expect btc go up will pay the short side so by doing this once per hour we incentivize user to take the lesser public side hence the balance the differences between the price on our market and the price on spa market so that's when we use the oracle price we usually use this once per hour yeah for the founding payment exactly so which is also a way to mitigate the

potential uh risk of using overall costs because we all we have seen a lot of cases that oracle price gets exported and then the the protocol just gets lost a lot of money right so that's one way we actually help to mitigate this risk nice yeah the oracles can really ruin everything if they go down um i think that's why chain link is so popular and has such a huge community because it basically the backbone of everything um yeah no i wish i would have thought this way about uh the funding rates about three weeks ago when um we were paying freaking 18 a year just to borrow some usdc at the top like jesus man like come on like gotta be better than that right um yeah no um that's that is a good explainer and i

i appreciate that um kind of curious what the slippage would be like for for traders so you know if if if there's a large trader um you know using this kind of virtual formula is there is there a way that you guys are able to mitigate the slippage um you know is there a problem with slippage or is there a situation in which users might be affected um by slippage using this kind of this virtual formula yeah currently um the slate page is highland centralized change unfortunately because we use the x multiplied y equals to k formula so usually um currently when you want to trade perpetual um virtual protocol we actually recommend you start from small

so that's one actually one differentiator from us because on other protocols you cannot trade with one us dollar but here you could start from trading on with one us dollar and if you just if you think a i keep get making profit then you could starting from over there but i think once we upgrade the current system to v2 we could help to mitigate i think in terms of sleeping we will make a lot of or we will make some improvement on that sweet yeah yeah i think the same page right now is actually okay it's not good um so i think for v2 that's something we want to fix sweet yeah let's get into that so v2 um let's talk about a bit about uh the

tokenomics so we we recently launched uh the staking uh i saw that for perp token um is there any integrations coming with the perp token within the protocol itself you know kind of how how binance has like the b and b burns um or you can if you're if you're a perp holder then you get less fees or something like that right is there anything that you guys have have thought about on the protocol level with the token or kind of more focused on um the tokenomics usage kind of outside of the protocol um yeah that's a good question so uh we do have a plan that we are going to share the the fees so um more is it's more like how social work so sushi they share the

fees with the skater so i think in the near future future we will enable that so we can share positive feeds i think one of the questions we have and then we are still kind of like monitoring on on the fees because i think uh the feast we got actually is not quite stable so i mean like um so like uh the pogo gots like um you know uh maybe like um four maybe like last week it got like a two million fees i mean like how much should be given to the skater is skill i mean we should figure trying to figure out like what percentage should we have a fixed percentage or i mean of course i skate

like you you always say like 99 yeah i mean like um but still i mean like we need some money to keep the you know the political wrong i mean we have this insurance phone that we need to like prepare for like you know when the best thing happens so yeah it's just like oh so this is important but uh we don't have a schedule yet and yen when i'm kind of confused on on what the stake in contract does um and and i i don't think i've used the protocol quite to the extent that andy has but

um if the liquidity providers are is that is that what the staking contract is used for is to stake the liquidity no it's actually not yeah right okay so maybe maybe you could kind of unpack the staking contract and and how liquidity provision is uh kept on the platform sure sure of course yes so so for us we like we can said we actually traded provide equity to each other so we don't have a pool that trade against the traders but we do have an insurance phone insurance fund actually pay for the first thing the bad app so when the market crash you know they i mean like um

so we have i mean like we could get here will come in liquidate like the under characterized positions but uh sometimes it's just not fast enough so we have that app so it shows from pay for that that's actually the same as central change the second thing is that the insurance don't pay for funding payment at any given time actually the i mean our whole system am the vam actually participate in the funding payment so it might receive or pay out the funding payment so it so you um i mean so we have this insurance phone trying to cover that so there is a situation that um like uh the market actually crashed i

mean like a bitcoin crash to like maybe like 10 000 and um and uh and actually we we accumulate a lot of that that so we will withdraw i mean we will pay it back through the insurance round but once the insurance fund is depleted we will actually mean more token so it kind of like um the skater is the last result of everything yep so um um yep so that's like the uh the safety module right and ave has a has a similar setup so like the stakers are are yeah like like you said the uh the last defense right before uh kind of breaks okay yep so yeah that's how it works so

it's not providing equity just like um when things happen that bad thing happened what guess let's style of defense gotcha and and it's it sounds like the insurance fund is more prominent in the way that liquidity provision is is circulating um so in this in this case is and this that you might have mentioned this earlier in the podcast but are uh people bringing their own liquidity to perpetual finance or is it more of just a virtual pricing machine that waiting was talking about earlier um it's actually both okay so if you look at like traditional uh perpetual change like bimx so you

actually they tried to do the matchmaking so the founder taker they found a mac maker so they kind of met match these two like older together so it forms a pair so all the takers need the maker something like that right so all the one position needs a show position so we actually kind of are doing that but we do is through the am so if you bring along you you want to have a long holder you i mean like you're actually i mean like a place order on the am so we give you that wrong position but at the same time we actually are kind of looking for other people to take show positioning right you need to encounter a counterparty for that trade

yeah so the actual am itself is kind of like a buffer okay and no normally the way to do that so that every trade has a counterparty is to trade against a pool of stakers right where the stakers are are kind of rewarded or incentivized for providing their liquidity and then the pool always takes the other side of every trade but that's that's not what perpetual does it sounds like you guys have a different system where the the the trader actually well yeah like how does your matchmaking system work if um you don't have a pool to take this other side of every trade how do you make sure that you know each side has a counterparty

um so we don't so you kind of like have a buffer so we have a buffer of that um but the interesting thing is that if the so if the vam doesn't stop i mean like you actually always have that buffer so um um i don't know if um so it's actually kind of like a so that's actually a very interesting design that we i mean that's why we call this uh virtual am is that uh um the we have this oh everything is virtual so um we actually kind of i mean more token because you you want to play i mean like

like for example like everyone want to open one position so we kind of like we have a buffer so we kind of like go the buffers so we have a buffer of loss of loan precision right but if you want to cash out you have to close that position or you have i mean in the same way actually you are placing a short position so you kind of close that position so if we have like 10 people come in they all want to have one position so if the first person close i mean i close her position first i mean like she will earn money because i mean like she actually sell the instrument at the higher price but why is it

because actually the price goes down so if the all the 10 i mean like people they close their position yeah there would be some winner and some some people actually lost their money right so that's how you decide yeah i put it differently so basically our protocol every trader is chatting against each other so whoever used on the trail platform they need to deposit their money into a smart contract we call it votes right and the money inside the boat is how much uh traders their equity could get from the port can win from this protocol so let's use alice and bob as example so right now we have alice she used 100 usdc is collateral and open tense levels right so that

means her buying power is one thousand uh 1000 usdc right and then once after she opened this position and then bob also used the same amounts of collateral to open uh uh open a position of 10 000 usdc right then after bob opened his position alice closed her position then after that bob closed his position in this situation alice actually makes the money and on the other hand bob loseman so because you know because ali bumps bum the price then bob also bump out price then alice just closed her position and drops down price then bob closes his position and then drops

down the price to the original label so because uh because alice uh opened her position when the price is lower and closed the position for bob actually had bumble price so that's why alice actually makes the money who asked for bob bob pulls the money so that's why i uh also young mentioned that in our season traders are actually trading against each other so one traders one traders again equals two one traders lost yeah right yeah i waiting that that made a lot of sense in that in that uh explanation and again when you had you had a great explanation to it it now makes sense like the slippage is what's moving the price up and down

someone can capture that slippage either as a profit or as a loss and you know it doesn't matter so much the the uh counterparties taking the other side of every trade because like you said waiting everyone is trading against everyone else so in that sense you know the the traders are going to move slippage up or down but that's not gonna affect the the price or the yeah the liquidity on the system um because everyone you know put put in their deposit initially and it it can move up or down um based on who else comes into the system and who else leaves so yeah that that made sense and and um it's not so much like a traditional

order book or traditional order router that uh is match making one to one you know between different people's orders sweet that's awesome stuff guys so what's on the agenda for v2 you know what's coming up um there over the next few months and then uh let's let's wrap it up um yep um we cannot say much but uh definitely i think there are like two things we want to fix i think one thing that i have mentioned that we want it to be more efficient so um so we i mean like uh the v1 actually i mean like we got a good uh trading volume but uh definitely spawned

by so so like we can say we use xyk model so it's actually bunked by k i mean uh so um so in order to get more like trading volume we need to kind of increase okay but also bringing another set of risk so i think that uh that's a trade-off so we are i mean i kind of like look at that how we can i mean like increase the liquidity increase i mean like decreased escapage and then even if we do that the system is still in a good shape i think that's the challenge we have so the first thing is efficiency the second thing is the we talk about that

funding payment that briefly so that's actually have a risk to the insurance fund so we also want to revoke that yeah this and um the third thing is um we don't have um so right now is isolating margin so we want to have the close margin i mean like in the system um there are just like too many changes we want to do so the last one will be we want to be more like unison so anyone can launch their own market so that's actually a huge design i mean like a huge change to the city the overall system uh but uh that uh that's definitely something we want to do

awesome i'm looking forward to it guys thank you for coming on it was an absolute pleasure that was really fun thank you yeah thanks for having us thank you guys yeah we we uh we're hyped to see v2 i and i want to engage with uh perpetual a little bit and and learn a little bit more about these virtual amms i'm going to dig in yeah there's something yeah cool guys goodbye