Deri Protocol V2 is set to launch as key infrastructure for decentralized finance, providing extreme capital efficiency to all users.
Deri Protocol introduction
Deri Protocol V1 has been operational and functioning successfully since February 2021 as an introduction to the DeFi manner of trading derivatives. Deri Protocol aspires to be a crucial infrastructure for decentralized finance from the start, delivering extraordinary capital efficiency to all users in a safe and resilient decentralized financial system.
Deri Protocol V2 inherits all of the characteristics of V1 and adds:
– Dynamic mixed margin
– Provides dynamic liquidity
– Several trade symbols in a same pool
With these qualities, derivative trading on the Deri Protocol can reach optimal capital efficiency, perhaps more than that of centralized exchanges like BitMEX.
V2 Features introduction
Dynamic mixed margin
Deri V2 has a margin system that accepts several base tokens. With such a system, a trader may select one or more base tokens from the supported range to post as margin. And it is no longer necessary for this to be a stable currency.
To explain it in even simpler terms:
Assume you’re going to do your first long trade on BitMex: You fund your BitMEX account with 0.5 BTC and establish a 2x long leverage position on the BTC/USD exchange. Shortly later, Bitcoin’s value plummets dramatically, and your position is set to expire. You still have some $UNI in your web3 wallet and decide to transfer them to BitMEX, only to learn that you can only deposit $UNI to BitMEX to support your soon-to-be-liquidated $BTC long margin position. Deposit possibilities on centralized exchanges are severely limited to a few assets, and at BitMEX, even to $BTC only. As a result, a $BTC margin position on BitMEX cannot be increased using $UNI, $CRV, or any other currency other than $BTC. To prevent liquidation, you must first acquire $BTC for your $UNI on a spot market and then transfer the exchanged $BTC back to BitMEX.
However, these needless and wasteful intermediary processes consume much too much time. And your employment has already been terminated. This is referred to as capital inefficiency, which Deri Protocol V2 will address by providing Dynamic mixed margins.
Assume you opened the identical trade on Deri v2 as described before, $BTC decreases dramatically in value, and your position is going to expire again. In contrast to BitMEX, you may now utilize your $UNI on your web3 wallet to back your $BTC-margined long position without first utilizing a spot exchange to obtain the appropriate asset. All Deri Protocol V2 enabled base tokens can be utilized to expand $BTC margin position. As a result, capital efficiency improves dramatically.
Dynamic liquidity providing
Deri Protocol V2, like the trading side, lets liquidity providers pick one or more base tokens from the supported range to offer liquidity. The supplied liquidity is also dynamic, much as the margin value.
In contrast, Hegic, a non-custodial option trading exchange, pays yield to customers who contribute liquidity to its liquidity pools.
There are just two assets to choose from: $WBTC and $ETH. Please keep in mind that the yields from the two pools are not the same.
Assume that people want to join in the $WBTC pool since the APY is now the highest there. Regrettably, the user only possesses $UNI, and there is no $UNI pool. The user must first convert his $UNI into $WBTC in order to deposit $WBTC as liquidity into the appropriate pool, which is inefficient.
Instead, Deri Protocol V2 allows users to contribute several assets as liquidity to the same pool. By retaining the provided liquidity dynamic in Deri Protocol v2, tokens that would otherwise be difficult to trade owing to a lack of liquidity, such as we see on exchanges of all types, gain from the depth of mixed, shared liquidity. This strengthens the accessibility, and the efficiency to trade and provide liquidity.
Multiple Trading symbols in one pool
Another new feature included in Deri Protocol V2 is the ability to trade several trading symbols (i.e. underlyers) in a single pool. Because transactions of various symbols use the same liquidity hub, this improves capital efficiency even further. The degree of capital efficiency improvement is determined by the correlation between the price movements of the trading symbols. The less linked the price changes, the better the capital efficiency of the pool. Please keep in mind that this is unthinkable in the traditional order book-based trading paradigm since an orderbook is always for a single trade symbol and there is no mechanism for two or more symbols to share liquidity.
Audit and Bug Bounty
Deri Protocol prioritizes security. To feel confident about deploying Deri Protocol V2, Peckshield and Certik security assessments are performed to limit the risk of direct protocol vulnerabilities.
To assist in the discovery of possible vulnerabilities, a bug bounty program will begin on the day Deri Protocol V2 is released, with up to $50,000 awarded for significant problems.
One of the major motivations of upgrading Deri V1 to V2 is to improve the capital efficiency of derivative trading. One limitation of Deri V1’s capital efficiency is that for derivatives trading, customers must deposit stablecoin as margin. If cash could be avoided as an intermediate step, capital efficiency would be significantly improved. While depositing house as collateral is difficult to execute in traditional finance (possibly only in some bespoke OTC deal), it’s reasonably feasible to accept a wide range of non-cash-like tokens as collateral to trade derivatives in the DeFi world, simply because a lot of tokens or assets are just one swap away from the “cash” or “cash-equivalent” tokens, e.g. USDT or DAI, given there is a spot AMM supporting the swap.
And, because of the DeFi framework’s modularity, this one-swap-away gap may be readily filled with a function call to the spot AMM app. In short, any DeFi program may regard a swappable non-cash-like token virtually like “currency” using the exchanging capabilities given by spot AMM. Please keep in mind that it is “nearly like” because there is still one swap operation to be completed and price volatility (i.e. market risk) must be addressed. Nonetheless, treating non-cash-like tokens virtually as if they were cash could result in exceptional capital efficiency.
Why is Deri V2 needed?
Deri V1 has been performing brilliantly in the months since its initial release. To suit traders’ speculative and hedging demands, multiple blockchain networks have built a range of trading pools with various trading symbols (both crypto and traditional financial) (ETH, BSC, and HECO).
Some of the DeFi system’s most substantial benefits have yet to be realized. Because of the spot AMM infrastructure, most components of the DeFi universe are tokenized (either fungible tokens like ERC20 or non-fungible tokens like ERC721), making them extremely easy to swap into other tokens.
Only “cash” or “cash-equivalent” tokens may be used as “liquidity tokens” in traditional finance or the pre-DeFi crypto world. After the stablecoin infrastructure evolved, typical “cash” or “cash-equivalent” tokens were Bitcoin or Ethereum in the pre-stablecoins, e.g. USDT or DAI.
In the DeFi world, the entire blockchain is currently one unified financial system, with every DeFi app serving as a module of the system and readily available for interaction with other apps. Furthermore, such unification will be strengthened by the established cross-chain infrastructure. Because of the comprehensibility and modularity of DeFi apps, any token is only one swap away from another token as long as there is a spot AMM, such as Uniswap, offering liquidity for such a swap on this blockchain (or across blockchains in the future).