Perpetual Protocol (PERP)

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Revision as of 03:29, 14 November 2022 by Grand Master Pepe (talk | contribs) (→‎Cons)

Basics

  • Based in: "Team members and advisors are located across Asia-Pacific, North America, and the EU." Both founders are from Taiwan.
  • Interface is 'based in the Republic of Seychelles' and arbitration is handled in Taipei.
  • Founded in: 2019
  • Mainnet release: 16-12-2020
  • Enables users to go leveraged long or short on any asset, only by interacting with one asset (the collateral asset).
  • From The Defiant (9-9-2020):

"Perpetual Protocol, a decentralized perpetual contract trading protocol that allows up to 20X leverage on long and short positions."

History

"Perpetual protocol, formerly known as Strike, was created in 2019 inspired by emerging DeFi protocols such as Synthetix and Uniswap. The team sought to combine the merits of these protocols to create a decentralized perpetual contract trading protocol on Ethereum."

Audits & Exploits

  • Bug bounty program can be found here (15-1-2021) with a max of $540.000.
  • From their blog (15-1-2021):

"Perpetual Protocol has undergone several stages of auditing by Consensys and PeckShield. Audits are ongoing as we make upgrades to the protocol."

Bugs/Exploits

"Following a period of high volatility on both centralized and decentralized markets, we saw a period of instability across all exchanges as the price of ETH dropped significantly. What resulted was a cascade of liquidations of large and highly levered positions — the price reached a low of nearly $870 USD before recovering back to the market price."

Governance

  • From their docs (5-2021):

"Before the on-chain governance voting platform is ready for PERP token holders, core protocol contributors will guide critical decisions. We believe it’s important to keep governance nimble in the early days of the Perpetual Protocol. You can learn more about the governance plan here."

Admin Keys

DAO

"Post-launch, Perpetual Protocol has been very actively managed, with 16 governance proposals having been put to vote on Snapshot since January 2021. On average, about 532,000 tokens have voted per proposal, which accounts for 1.2% of the current circulating supply, and roughly 3.5% of the circulating supply at the time the protocol went live on mainnet. Furthermore, the level of governance participation among the community has dropped over time, as the first eight proposals garnered about an average of 618,000 votes, while this has declined more than 30% to ~427,000 over the last eight. It’s also important to note that governance of the protocol is not yet fully decentralized, as proposals still have to be implemented on-chain by the team. "

Perpetual Ecosystem Fund

"Perpetual will swap tokens with dHedge, Charm, Lemma Finance to strengthen its DeFi relationships. It has set aside a fund of 3 million PERP tokens, worth about $47.67 million at the time of writing."

Token

Launch

  • From The Defiant (9-9-2020):

"Will be the first DeFi project to list its token via a Balancer Labs-based Liquidity Bootstrapping Pools. Balancer’s LBPs have a high starting price so that there’s no benefit in rushing into the pool before others. The PERP token distribution starts today."

"As intended, the LBP neutralized advantages that bots typically have over analog human investors in token sales, by shifting incentives from buying immediately to waiting for the market to determine a fair price. This is exemplified by a likely automated purchase made at the start of the sale that was subsequently sold back at a loss. A total of 1,355 investors participated, with the vast majority appearing to be long-tail investors accumulating relatively modest quantities of PERP. Only 8 participants accumulated more than 1% of the PERP tokens sold, with the largest stack amounting to 4.1%. The order sizes seen in the chart below indicate that some whales were involved, but most orders were within the reach of typical investors."

Token allocation

  • From their docs (5-2021):
  1. "Balancer Liquidity Bootstrapping Pool (LBP)- 7,500,000 PERP tokens (5.0%)
  2. Seed investors - 6,250,000 PERP tokens (4.2%). Binance Labs, invested in early protocol development in 2018. Note: tokens are vested; 25% unlocked at mainnet launch.
  3. Strategic investors - 22,500,000 PERP tokens (15%) Note: tokens are vested; 25% unlocked at mainnet launch.
  4. Team & advisors - 36,000,000 PERP tokens (21%) Note: tokens are vested; progressive unlock begins 6 months after mainnet launch.
  5. Ecosystem & rewards - 77,750,000 PERP tokens (54.8%)

The total PERP token supply is set at 150,000,000. The token supply can be inflated via two mechanisms, both of which have a low chance of occurring: Governance may decide to mint more tokens; the insurance fund is exhausted and PERP are minted to make up the shortfall."

Utility

"Currently, 100% of the transaction fee goes to the Insurance Fund. In the future, 50% of the transaction fees will be distributed to stakers on the protocol."

  • PERP can be used to stake and earn DEX tx fees, plus it can be used to vote. It has no further utility within the system, as users use USDC for their trades, so tx fees are not paid in  PERP.

Token Details

Stablecoin

Coin Distribution

"As intended, the LBP neutralized advantages that bots typically have over analog human investors in token sales, by shifting incentives from buying immediately to waiting for the market to determine a fair price. This is exemplified by a likely automated purchase made at the start of the sale that was subsequently sold back at a loss. A total of 1,355 investors participated, with the vast majority appearing to be long-tail investors accumulating relatively modest quantities of PERP. Only 8 participants accumulated more than 1% of the PERP tokens sold, with the largest stack amounting to 4.1%. The order sizes seen in the chart below indicate that some whales were involved, but most orders were within the reach of typical investors."

  • There are 7152 holders (8-7-2021). Distinctive active traders are around 2200 users. Showing 2/rds of the token holders are not actual users. The top three addresses when it comes to total supply are contracts, which are not clearly named. The top address holds 60.5%, which presumably is the treasury/staking contract. Number two and three hold 15 and 10% respectively. After this we have Binance with a 3.5% and two unknown addresses holding 2 and 0.8%. This shows that the team and investors either have already sold huge amounts of their tokens or have dispersed their holdings over a large amount of smaller addresses.
  • From Bankless (26-7-2021):

"Control over the protocol is also heavily concentrated, as 40.2% of the token supply is controlled by the team and investors."

Tech

Implementations

How it works

"Perpetual Protocol enables users to create synthetic leveraged long or short positions (against USDC collateral) on any asset that is supported by the protocol. In order to support an asset, the protocol needs to have access to the underlying asset’s price to correctly determine the size of the recurring funding payments.  

Because the perpetual contracts don’t have an explicit expiration date (compared to e.g. futures), they use funding payments to keep the perpetual contract’s price in line with the underlying asset’s price.

Funding payments work as a price controller mechanism:

  1. Perpetual’s price > underlying’s price → perpetual’s price needs to go down → longs pay shorts, which helps drive down the price
  2. Perpetual’s price < underlying’s price → perpetual’s price needs to go up → shorts pay longs, which helps drive up the price"
  • From their docs (5-2021):

"Like Uniswap, traders can trade with our vAMMs directly without the need for counterparties. The vAMMs provide guaranteed on-chain liquidity with predictable pricing set by constant product curves. The vAMMs are also designed to be market neutral and fully collateralized."

  • From their docs (5-2021):

"An important difference with the vAMM is that no swap is occurring. Unlike Uniswap, for example, where traders arrive with asset A and leave with asset B, on Perpetual Protocol traders always arrive with USDC, and leave with USDC. This allows the protocol to operate without ever having held the underlying asset."

Fee Mechanisms

"The Perpetual Protocol charges a 0.1% trading fee (take rate) on each trade executed on the vAMM."

"Currently, Perpetual Protocol charges a 0.10% fee on every trade made in the vAMM, with 100% of fees going towards an insurance fund that is used as a backstop the protocol in the event that positions become under-collateralized, and bad debt is unable to be liquidated.

Once “Stage 2” goes live, 50% of fees, or 0.05% of volumes, will be distributed to stakers in a dividend type-manner similar to SushiSwap, Curve, or Synthetix. Furthermore, once V2 goes live, PERP holders will be able to earn additional trading fees from user-created “private markets,” as well as lending interest through deploying capital from the insurance fund into low-risk yield strategies."

Upgrades

  • Perpetual Protocol v2 (codenamed Curie) has been launched on the Optimistic Ethereum mainnet (30-11-2021).
  • From this thread on its V2 (2-7-2021):

"Perpetual protocol V2 is utilizing Uniswap's V3 concentrated liquidity feature introducing makers into the DEX. Liquidity Providers have the ability to develop automated strategies and have access to leveraged liquidity providing. V1 is migrating from xDai to Arbitrum utilizing its optimistic rollup solution to reduce gas fees and transaction latency.

Instead of waiting for the protocol to list markets via a governance vote, any ERC20 token with a Chainlink or Uniswap TWAP price feed can use this as the index price and be immediately listed.

Public markets are considered to be safe markets that have the same Insurence Fund. Private markets are riskier markets that have a separate IF but can be voted into a public market via $PERP stakers."

Staking

  • From their docs (5-2021):

"PERP holders can become stakers by staking the PERP tokens in their possession to a Staking Pool. In return, stakers are rewarded with a portion of the transaction fees in stable coins plus staking rewards in PERP."

  • Stakers are rewarded with PERP for taking the risk of being slashed:

“The goal of staking on Perpetual Protocol is to ensure demand for PERP, while also keeping PERP off the market. This goal exists to provide the ability for the exchange to react in emergency situations, such as extreme market events. Such an event, one example being a severe market crash, could cause the exchange insurance fund to be depleted. PERP tokens will be sold at market to cover any shortfall. Stakers are compensated for shouldering this risk using rewards. These rewards will be updated over time in order to maintain a healthy number of staked PERP.”

"Token holders can lock-up their PERP for a fixed amount of time to the Staking Pool. Stakers get rewarded through staking rewards and are eligible to claim a portion of the transaction fees generated during the epoch proportional to the number of tokens staked. PERP stakers should be aware of 5 things when staking their tokens:

  1. Stakers must stake their tokens for a fixed amount of time. During this time, know as “epoch”, stakers are not allowed to withdraw their tokens. Each epoch lasts 7 days.
  2. A transaction needs to be submitted if a staker wishes to withdraw their staked tokens.
  3. Staking rewards are time-weighted, meaning stakers are free to stake their tokens anytime during the epoch but will only receive a portion of the stake incentives.
  4. Transaction fees can be claimed right after the epoch, but the staking rewards are locked until the first day of the same month in the following year.
  5. If a staker doesn’t unstake their tokens at the end of the epoch, the tokens will automatically roll over to the following epoch."

Staking Stats

"Over 21 million tokens, about 50% of the current circulating supply, is staked."

Liquidity Mining

Scaling

  • For V1 it used xDai, and for V2 it is migrating to Arbitrum.

Interoperability

Other Details

Oracle Method

  • From their docs (4-2021):

"Perpetual Protocol uses ChainLink as the Oracle for the funding rate calculation. The Oracle price is not used elsewhere. This limits Perpetual Protocol's exposure to Oracle failure or manipulation.

Perpetual Protocol only uses the Oracle price at funding time (every 1 hour), and in addition, the 1-hour TWAP is used. This minimizes the usage of the Oracle and the risks of the price being manipulated."

  • From their docs (1-7-2021):

"Oracles are not used to determine prices while trading, which minimizes the risk of price manipulation (ex. front running)."

Privacy Method

Compliance

  • Has a long Terms of Service in which they mention limiting users geographically from using their front end and go extensively into compliance and IP (8-7-2021). Meanwhile, the team has also open sourced (25-5-2021) its UI, which could indicate that they want to encourage more open ways of interacting with the contracts.

Their Other Projects

Roadmap

  • Can be found here (4-2021).

Usage

  • From their blog (15-1-2021):

"Within 1 month, we managed to make it into the top 10 on the Dex Metrics from Dune Analytics! (7-day volume) Trading volume peaked at over $80M USDC on Jan 11.

Close to 500k of trading fees have entered the insurance fund so far. There is over 600k in our insurance fund to secure the protocol. Note: 100% of fees are put into the exchange insurance fund. After the staking pool launches, a portion of these fees will be awarded to stakers."

  • From this thread on its V2 (2-7-2021):

"In January the cumulative trading volume was $400mm. Today it's approaching $20B."

"Like volumes and fees, user counts have fallen similarly in recent months, with the 7-day moving average of traders declining 47% from 359 to 196. In addition to retaining whales, Perpetual Protocol has also seen less concentration of volume among them, with the top-5 addresses accounting for 38.5% of volume, down considerably from its May peak of 71.4%."

  • Had been the number one derivates exchange, until dYdX launched its token and blasted straight past it (14-8-2021).

Projects that use or built on it

Competition

"In addition to centralized exchanges, Perpetual Protocol is competing against order book -based perps protocols like dYdX, DerivaDEX, MCDEX. The difference between Perpetual Protocol and its competitors is the use of a virtual AMM to price trades and bootstrap liquidity.

When a new asset is added to the protocol, a virtual AMM is created to enable trading with it. Unlike in Uniswap, where liquidity providers deposit real assets into a trading pool, in Perpetual Protocol the initial asset balances are virtual, set by the pool creator (currently the core team).

When a user purchases a perpetual contract, the price of the asset is determined like it was traded on a traditional AMM like Uniswap, even if there are no “real” assets in the pool -- all trades are simply accounted against the user’s collateral balance."

Pros and Cons

Pros

Cons

Team, Funding, Partnerships, etc.

Team

  • Full team can be found [here].
  • Strike Co. Ltd. is the company behind the development (11-2020).
  • Yenwen Feng; Co-Founder
  • Shao-Kang Lee Co-Founder
  • Vinta Chen; only person credited on their Github (8-7-2021).

Funding

"The protocol has collected nearly $23M in revenue, with an average of ~$9K revenue/trader. On average, each trader makes 1600 trades and contributes $5.39 in fees per trade."

  • Matter Labs; according to Matter Labs, the founders and leadership of a bunch of DeFi projects, among which this project, joined in on the $50m raise for zkSync (8-11-2021).

Partners

  • Partnered with TrueFi "to launch a first-of-a-kind lending portfolio of $5M to facilitate deeper liquidity on Perpetual Protocol v2!" (9-2-2022).

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