PERPETUAL PROTOCOL - Next Level In Decentralized Trading? (Layer 2, Uniswap V3)

Summary

This video introduces Perpetual Protocol, a decentralized finance (DeFi) project focused on creating an accessible and secure exchange for perpetual futures. The video explains the concept of perpetual futures, a financial product without an expiry date, and highlights the recent improvements in Perpetual Protocol's Version 2, launched on Optimism Layer 2. It covers how the protocol leverages Uniswap V3 for liquidity and trading, the benefits of decentralized exchanges over centralized ones, and future plans to expand to non-crypto markets like forex and commodities.

Takeaways

• 🚀 Perpetual Protocol is a DeFi project aimed at creating the best decentralized exchange for perpetual futures.
• 🧑‍💻 Originally called 'Strike,' the project was founded in 2019 and pivoted to perpetual futures in 2020.
• 🌐 The protocol's first version launched on the xDai network in December 2020, while Version 2 (Curie) launched on Optimism in November 2021.
• 💡 Perpetual futures allow traders to gain exposure to an asset's price without holding the underlying asset, and they can be held indefinitely.
• ⚖️ Perpetual contracts use a funding rate to ensure prices stay close to the underlying asset's value, with longs paying shorts or vice versa depending on price divergences.
• 💰 Traders can use leverage to control larger positions, but this comes with the risk of liquidation if the market moves against them.
• 🧩 Version 2 of Perpetual Protocol leverages Uniswap V3's concentrated liquidity, enhancing trade execution and liquidity management.
• 📈 Makers provide liquidity and earn fees on the platform, but must manage risks like impermanent loss by choosing price ranges strategically.
• 🔗 The protocol uses USDC as collateral, with plans to expand to other collateral types and markets (including forex and commodities).
• 🌍 The launch of V2 on Optimism enables faster transactions with lower fees, and future plans include staking, limit orders, and multi-collateral support.

Q & A

What is Perpetual Protocol and what does it aim to achieve?

Perpetual Protocol is a DeFi project that aims to create the best, most accessible, and secure decentralized exchange for trading perpetual futures. It focuses on offering derivatives in a decentralized manner.

When was Perpetual Protocol founded and what was its original name?

Perpetual Protocol was founded in 2019 by a team of startup founders and software engineers. Initially, it was called 'Strike' but later changed its name in the summer of 2020 to focus on perpetual futures.

What is a perpetual future and how does it differ from standard futures?

A perpetual future is a derivative that allows exposure to an asset's price without holding the underlying asset. Unlike standard futures, perpetual futures have no expiration or settlement date, allowing them to be held indefinitely.

How does the funding rate help maintain the price of perpetual futures close to the underlying asset?

The funding rate is paid periodically and ensures that when the perpetual future's price diverges from the underlying asset, market participants with long or short positions are incentivized to align the prices, with longs paying shorts or vice versa.

What was a key improvement in Perpetual Protocol's Version 2?

Version 2, launched on Optimism, introduced a new model for managing positions and executing trades using Uniswap V3’s concentrated liquidity, improving scalability and reducing transaction fees.

How does Perpetual Protocol use Uniswap V3 in its operations?

Perpetual Protocol uses Uniswap V3 to handle liquidity for its perpetual futures trades. When users open or close positions, vTokens are traded in the corresponding Uniswap V3 liquidity pools, such as vUSD-vBTC pools.

What role does the clearinghouse smart contract play in Perpetual Protocol?

The clearinghouse smart contract is central to Perpetual Protocol's design. It mints and burns vTokens, which represent virtual tokens used for trades. It also handles collateral and facilitates interaction between traders and liquidity providers.

How does Perpetual Protocol allow for providing liquidity, and what risks are involved?

Liquidity providers, or 'makers,' deposit USDC into the clearinghouse, which mints vTokens and adds liquidity to Uniswap V3 pools. However, makers are exposed to impermanent loss, especially when prices fluctuate outside their selected range.

What are some features and markets that Perpetual Protocol plans to introduce in the future?

Future updates include features like limit and stop orders, staking, multi-collateral, liquidity mining, and permissionless market creation. Additionally, Perpetual Protocol plans to expand beyond cryptocurrencies to markets such as forex, commodities, and stocks.

What is the significance of Perpetual Protocol launching on Layer 2 solutions like Optimism?

Launching on Optimism, a Layer 2 Ethereum solution, allows Perpetual Protocol to scale effectively by reducing transaction fees and increasing throughput. This enables the platform to handle more trades efficiently and at a lower cost.