After a series of centralized black swan events, the trading volume and attention of decentralized derivatives exchanges have gained a significant boost. At the infrastructure level, L2 public chains such as Arbitium, Optimism, and Zksyn have gradually become hotspots, and various types of Appchain open-source architectures are being further improved, while various types of sidechains such as BNB Chain and Polygon have made great strides in terms of performance, stability, and ecological expansion.
These external conditions have allowed DEX to grow tremendously in terms of reliability and concurrency performance. There is no doubt that the Perp DEX (Decentralized Perpetual Contract Exchange) track has become the best class of products with the best expected returns in the future. As the industry continues to explore the degree of decentralization, this type of product may become the most important part of DeFi's subsequent development.
Statistics show that the peak daily trading volume on CEX exchanges in 2022 amounted to more than $100 billion. Currently Perp DEX (Decentralized Perpetual Contract Exchange) has a total TVL of less than $2 billion, a total vault value of about $1 billion, a cumulative market capitalization of these solutions of about $2 billion, and a 30-day trading volume of close to $7 billion. Obviously this only accounts for a small portion of the contract trading market, but the growing market capitalization and user attention are all indicative of the blue ocean that has opened up in the Perp DEX track, and a $100 billion market is waiting for a new blue chip to rise.
Decentralized perpetual contracts on the market mainly adopt the following two models: Orderbook model represented by Dydx, and GMX's Pool and Vault model. In this article, we will focus on the application prospects of Perp DEX through the more innovative L7 DEX.
Analysis of L7 DEX innovation mechanism and advantages
L7 DEX is a decentralized perpetual contract exchange published on BNB Chain. By using the innovative "PvP-AMM" protocol of "peer-to-peer" and automatically deployed smart contracts, L7 DEX further reduces transaction costs and brings a more simple and easy-to-use trading model, creating a more efficient, fair and secure trading environment for users. L7 DEX has brought a simpler and easier-to-use trading model, creating a more efficient, fair and secure trading environment for users.
L7 DEX is also innovative in that it introduces new features to improve the funding efficiency and security of the protocol, thereby facilitating a whole new level of incremental business and valuation. The liquidity cap released under the innovation addition can make L7 DEX more network effect, which is expected to become a new component in the development of Perp DEX.
Unlike most decentralized perpetual contract exchanges on the market, L7 DEX adopts the more innovative "PvP AMM" mechanism, under which users can avoid problems such as limited pending orders, difficult transactions, price lag and other problems caused by insufficient order thinning on the one hand, and minimize the impact of the market on the other. On the other hand, it can also minimize the impact of the general market conditions. Thanks to the peer-to-peer mechanism of PVP, users do not need additional LPs as counterparties to trade on their own, which perfectly solves the problem of one-sided market.
The peer-to-peer mechanism naturally gives more profit opportunities to the minority side of the order, so under the combination of AMM automated contracts and multiple arbitrage opportunities, the stock game between long and short sides will be even more intense, and the impact of the market will be further weakened due to the changing identity of the minority and the majority side of the two sides.
Aggregate Prophecy Mechanism
Nonetheless, pure prediction machines and market self-regulation may still have price lag problems, which can seriously affect spot and contract trading, so L7 DEX will further optimize the price prediction mechanism.
Prophecy delay arbitrage is one of the huge problems with the DEX platform and one of the reasons why it is difficult for DEX to gain customers. In the past, DEX relied on a single prognosticator, usually Chainlink, for its prices, but the prognosticator's price updates often lagged behind changes in the spot market (especially during periods of high volatility), which provided room for a large number of arbitrage bots and impacted highly sensitive spot and leveraged trading. With L7 DEX's low slippage trading, this drawback is likely to be magnified, and both users and platforms will suffer from possible potential losses as a result.
So L7 DEX will adopt a more robust prognostic management mechanism, where prices will no longer be fed through a single prognosticator, but will be provided through an aggregated prognostic system, including Time Weighted Average Prices (TWAP) using Chainlink, Pyth and Uniswap, as well as interfacing with more CEX price interfaces to achieve a silky-smooth interface between prices and the spot market.
L7 DEX Product Advantages
In addition to the more silky transaction experience brought by the aforementioned PvP AMM mechanism and prophecy machine aggregation mechanism, L7 DEX also has a number of advantages in spot and contract transactions.
Compared with all the major second-tier networks in full swing, the advantages of the first BNB Chain will be more obvious, under the premise of greater stability and maturity: on the one hand, the performance of BNB Chain has been further optimized to achieve a doubling of throughput under the circumstance of the GAS down to 3Gwei, which ensures that the L7 DEX can provide users with more and faster, more silky smooth, and lower price of high-quality spot and contract services. services. On the other hand, L7 DEX's liquidity building and IEO strategy will also provide more opportunities and possibilities for more quality Web3 projects and users to participate in the BNB Chain's unparalleled rich ecosystem. Lower entry barriers and higher user awareness will also be conducive to the establishment of the L7 DEX global community.
In addition to the advantages mentioned above, L7 DEX will achieve the silky smooth docking and on-line of more trading pairs through the introduction of new features and further optimized aggregation of smart contracts, and complete most of the trading needs on the same platform. At the same time, all transactions will be executed automatically on the chain without the need for third-party and custodian access, better guaranteeing the privacy and transparency of transactions.
Exploration of Aggregate Revenue Modeling
The revenue of L7 DEX protocol comes from several different channels: including the commission generated by perpetual contracts and various spot transactions, perpetual contract clearing fees, liquidity construction and IEO potential costs and other platform assets minting, destruction of the costs incurred, etc., which constitute the revenue source of the L7 DEX protocol, but also constitute the user aggregation revenue model.
In L7 DEX, users will receive additional income from different channels according to the participation method, early participation users and nodes will directly receive a portion of the quota of all transaction fees and share the dividends of the project's development; holders of platform tokens will further enjoy deflationary benefits because the platform continues to purchase and destroy platform coins, and at the same time, token holders will be given the opportunity to obtain more IEOs according to the weights and further participate in the development of the primary market.
Liquidity and Farm is one of the most important ways for users to gain profit on the platform, users who build and pledge liquidity will be incentivized by transaction fees on one hand, and will be incentivized by high Farm APYs on the other hand, and the cooperation of different projects and farms with L7 DEX will also allow the liquidity builders to gain more project and ecological dividend space and opportunities. Opportunities.
The IEO strategy is the core element of the platform's assetization development and an important channel for users to participate in the primary and secondary markets. In L7 DEX's IEO strategy, L7 DEX will invest in and cooperate with 500-1,000 high-quality Web3 projects, forming a trading matrix with the platform token LSD as the core to promote the further completion of the assetization of the platform tokens including NFT and LSD and minimize the threshold of participation in the primary market. It will also minimize the threshold of participation in the primary market and provide more opportunities for users to participate.
There is a huge space for decentralized derivatives trading circuit in the long run, and the various innovations made by L7 DEX are an important development and breakthrough for Perp DEX. It has introduced many new features and improvements that have increased the funding efficiency and security of the protocol, brought a more portable way of participating in decentralized contracts, and greatly enhanced the comfort level of the user experience, attracting more users to participate in L7 DEX. With the new business increment and valuation prospects, DeFi derivatives will usher in a broader development space, and L7 DEX will become a unique benchmark in the Perp DEX track.