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(Fishing Boats by the Sea of ​​Saint-Madiramo, Vincent van Gogh)

Today's DeFi, lending and trading fields have initially developed. At present, the outstanding loan volume of the three major DeFi lending agreements is as high as 22 billion U.S. dollars, and the transaction volume of DEX in the last 12 months exceeds 810 billion U.S. dollars. Relatively speaking, the development of futures contracts lags behind. The current cumulative trading volume of Perpetual Protocol, which ranks first in trading volume, is 24 billion US dollars, while the trading volume of Uniswap in the last 30 days exceeds 36 billion US dollars.

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(The transaction volume, number of transactions and number of transactions of the Perpetual agreement, DuneAnalytics)

According to statistics from Messari, the spot trading volume of CEX in May this year reached 2.3 trillion US dollars, while that of DEX reached 160 billion US dollars. DEX currently accounts for about 7% of the trading volume of CEX. Considering that DEX has only been developed in the past year or so, this speed is already very fast. In the futures contract market, the futures trading volume of CEX in May was as high as 2.6 trillion US dollars, while the futures contract market of DeFi was only 10.7 billion US dollars, which is less than 0.5%.

This situation is also related to the development level of its underlying facilities. For contract and margin transactions, transaction speed, fees, depth, and varieties are all users’ concerns. Compared with CEX futures contracts, the current DeFi futures contracts have no outstanding advantages in other aspects except for non-custodial and private key personal control.

In addition, the regulation of CEX will also promote the development of DeFi futures contracts to some extent.

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There are more and more agreements in the field of DeFi perpetual contracts and margin trading. Among them, the Perpetual agreement is temporarily at the forefront in terms of transaction volume and number of people. For a long time before, dydx's leveraged trading was at the forefront, but with the development of the Perpetual protocol, dydx is not so dazzling in comparison. This can be seen from the changes in market share in the chart below:

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(Changes in market share of perpetual contracts, Messari)

Interestingly, not long ago, dydx also launched its token economic incentive mechanism, and its transaction volume and number of transactions are also increasing sharply, and it is likely to overtake Perptual within a certain period of time. The rivalry between the two has only just begun.

According to the development trend of DeFi, one or two DeFi futures contract agreements with leading transaction scale will emerge in the future. Who will be the "uniswap" and "sushiswap" in this field?

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Curie is Madame Curie in Chinese, named after the great scientist Madame Curie, which is also a form of tribute. So, what are the new iterations of the Curie?

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* Possibilities brought by the adoption of Layer2

In the past year and a half, from the development of the DEX protocol, we have seen the journey from impossible to possible. Now, all this will be reproduced in the field of decentralized contract transactions.

With the maturity of L2 landing, due to the obvious improvement of trading experience, this will bring more trading users, which will drive the increase in trading volume. The impact of L2 on Perptual will be gradually revealed in the future.

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* Leverage the composability of DeFi

Thanks to the composability of DeFi, more and more decentralized futures agreements now use DEX as the execution layer for their contract transactions. In Perpetual's Curie plan, it plans to adopt Uniswap V3 as the execution layer. Perpetual V2 will upgrade its vAMM model, and market makers can put their vTokens (virtual tokens) generated through vAMM into the Uniswap V3 pool to provide liquidity.

To put it simply, users can deposit collateral such as USDC (up to 10 times leverage) on Perpetual V2's Clearing House smart contract, and then generate Virtual Token, referred to as vToken. These vTokens have liquidity pools on Uniswap V3. Perpetual V2 transactions will utilize the Uniswap V3 liquidity pool. The liquidity pool consists of vToken and vUSDC token pairs. The transaction on Uniswap V3 forms the mark price, and the index price of the underlying asset is fed by Chainlink to calculate the funding rate.

Curie plans to integrate the vAMM model of the Perpetual protocol and V3 of Uniswap, and combine them as the execution layer to improve capital efficiency and user experience. In addition to this, Curie's proposal also attempts to address the issue of sustainability.

In Perpetual V1, there is no clear counterparty. Users trade with vAMM, that is, the Perpetual protocol itself is equivalent to the counterparty, and the protocol itself bears certain risks. If the market is very unbalanced, the settlement of profitable transactions may require the use of insurance funds.

Funding in the insurance fund comes from agreement fees. The growth of the insurance fund reduces the risk of the agreement not being repaid. However, its sustainability also has a certain premise, that is, it needs the support of continuous growth in transaction volume, and the growth of transaction volume captures protocol fees to achieve the growth of the insurance fund. However, if there is a large long-short imbalance, these funds may be consumed quickly.

To alleviate this problem, Perpetual V2 introduces a counterparty. Any long position corresponds to a short position. This is mainly due to the introduction of the Uniswap V3 liquidity pool and the introduction of market makers. In this way, the pressure on the insurance fund is reduced, the dependence on the agreement fee is reduced, and the solvency is improved.

On Perpetual V1, the agreement's smart contract (Clearing House) pays USDC income to the profiteer, while on Perpetual V2, the change of vToken balance on Uniswap V3 represents the profit or loss of the transaction.Iteration of Curve: from line to surface》。

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Curie’s upgrade also plans to introduce a leveraged liquidity supply. In other words, the market makers of the Perpetual protocol can increase leverage on the liquidity they provide.

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(Perpetual's leveraged liquidity provision, Perpetual Protocol)

From a trader's point of view, the transaction process is basically the same, except that it will be executed through the vToken on the Uniswap pool.

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In Perpetual V1, when an asset’s vAMM mark price (current transaction price) deviates from Chainlink’s feed price (index price), traders have the opportunity to earn funding fees. In Perpetual V2, market makers can provide liquidity for V2 perpetual contracts or vToken token pairs, and can customize price ranges and trade hedging. Market makers become a new role on the Perpetual protocol.

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*Anyone can build a perpetual contract market

Anyone can build a perpetual contract market, and there is a lot of room for development here. If it can be operated properly, this will be a big market.

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Curie supports users to use cross margin, allowing traders to set up multiple positions using their account balances as a common collateral pool. In addition, there can be a variety of mortgage assets. For example, not only USDC, but also multiple token assets such as ETH can be used as collateral. For example, suppose you open a long position in the BTC/USDC market using ETH as collateral. At this time, if the US dollar price of BTC rises (relative to the opening price), when the user closes the position, the user can obtain USDC income. If the USD price of BTC drops (relative to the opening price), when the user closes the position, it will be deducted by ETH according to the loss, that is, the user's ETH balance will decrease.

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Perpetual V1 charges a flat fee of 0.1% on all transactions. Of this, 50% (0.05%) goes to the insurance fund and the remaining 50% is allocated to stakers of PERP tokens. In May 2021, Perpertual’s protocol revenue was as high as $4.3 million, which means that in May, its PERP token stakers received a profit of $2.15 million. Of course, monthly income also fluctuates. The current Perpetual protocol has captured transaction fees worth more than 24 million U.S. dollars. As the transaction volume increases in the future, the protocol fees will continue to rise.

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(Perpetual trading volume trend, DuneAnalytics)

• On this basis, Curie has upgraded the token economy and expanded the source of fee income. In V1, the income of the Perpetual protocol mainly comes from the transaction fees in the open market. In Curie, there are also two new income streams:

• Transaction fees from private markets (markets for user-created futures contracts)

Re-mortgage market: The funds in the insurance fund are invested in other low-risk agreements to increase returns.

• It can be seen from the above that the income of the Perpetual agreement mainly comes from transaction fees, and transaction fees are related to transaction volume. Increase transaction volume and help capture more fees. Several potential factors for Perpetual V2 to increase transaction volume include:

• The adoption of Layer 2 accommodates more transaction users and larger transaction volume

• Creation and growth of private markets, opening of new markets

• The Stimulus of Leveraged Liquidity

• The entry of market makers increases liquidity and brings greater trading volume

• Support more margin assets (not only USDC)

Perpetual V2 transaction fees are distributed between market makers, insurance funds, and stakers. First, there will be an allocation between the insurance fund and the market makers. After the insurance fund reaches the target value, the remaining funds will be distributed between the protocol treasury and stakers. If the treasury achieves its target value, the remaining fees go to stakers.

(Perpetual agreement fee allocation, Perpetual agreement)

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Who can win in the field of DeFi futures contracts?

One of the opportunities for DeFi futures contracts is that CEX contracts are facing increasing regulatory pressure, and users may flow to DeFi futures (perpetual contracts, margins, etc.). The reasons for the resistance of DeFi perpetual contracts before, such as liquidity, transaction speed, transaction fees and other issues will be gradually resolved, especially the gradual implementation of Layer 2 solutions, such as dydx using StarWare's solution, Perpertual using Arbitrum's solution, etc. Over time, almost all DeFi futures will adopt the Layer 2 solution.