It’s 2022 and we have already heard a lot about prominent exchanges opening trading for perpetual futures. Before we dive deep into how perpetual protocol can potentially bring a new era of DEX development, it is integral to know what perpetual protocol and perpetual futures are.
What is Perpetual Protocol?
The perpetual protocol is a promising project aimed to create DeFi exchange platforms that are accessible, simple, and secure for perpetual futures trading. Yenwen Feng and Shao-Kang from Taiwan led the launch of this DeFi project in 2019 and initially named it “Strike”. Later, in 2020, when it became all-about perpetual futures, the founders renamed it perpetual protocol. The DeFi protocol facilitates the trading of multiple perpetual contracts of Bitcoin, Ethereum, and other cryptocurrencies added to the protocol.
The first ever version of the protocol was deployed on Ethereum layer 1 which was then migrated to xDai in 2020 due to high transaction fees and slow execution characterized by the former network. V2 brought forth new design iterations and enhanced the capabilities of the DeFi ecosystem. It introduced new modules that allow for position management and trade execution empowered by Uniswap V3 and its concentrated liquidity.
What is Perpetual Futures?
Perpetual futures are one of the hottest trading products that enable traders to capitalize on the price exposure of a particular financial instrument without actually holding the underlying asset. Unlike standard futures contracts, perpetual ones don’t expire. Since they have no settlement date, traders can hold and trade them for an endless amount of time. They can be leveraged for multiple motives including hedging, price speculation, arbitrage, etc.
Earlier, only prominent centralized trading platforms such as BitMEX, Binance, and Poloniex used to offer these popular trading products but now decentralized exchanges such as ByBit, OKEx, Uniswap, PancakeSwap, etc. have also enabled perpetual trading. Upcoming businesses planning to launch DeFi exchange solutions are already considering the huge opportunity posed by the perpetual protocol.
Perpetual Trading – A thing for new-gen DEX Trading Platform Development
The perpetual protocol has the potential to drive a progressive move towards derivatives in DeFi. Here’re some of the reasons why it is going to bring a new era for DEX development.
It unlocks lucrative money-making avenues for decentralized exchange platforms. Many opportunities for emerging and existing crypto exchanges arrive with enhanced capabilities in V2 of perpetual protocols.
It helps crypto exchanges to target a huge segment of retailers and institutional investors. The primary levers pulling the traders in the ecosystem include no expiry, high leverage, crypto margining, etc.
BitMEX set forth the revolution by bringing perpetual markets to crypto exchanges, which many centralized exchanges followed after they saw the success. Recently, prominent DEXs have also set their foot into the derivatives market with perpetual futures.
As per a report by dYdX, perpetual futures are dominating the digital asset derivatives markets. The transaction volume hit a record of $45 billion in March 2020. It is evident that volume transacted on perpetual markets exceeds the volume traded on spot and margin exchanges.
Considering the points mentioned above, we can conclude that perpetual markets are only accelerating. They are more efficient versions of their conventional counterparts. If you are planning to create DeFi exchange for your business, consider integrating such succeeding protocols to gain the most of the opportunities.
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