01 Exchange: Decentralized derivatives trading platform on Solana ｜ Project Introduction

With the deepening of the development of DeFi, people have more and more angles to explore it. As one of the most important components of the financial market, derivatives have brought investors the role of hedging market risks, and also provided diversified income channels. People's exploration of the DeFi derivatives track has gradually entered deep water district.

01 Origin of development

However, for the encrypted market, the development of derivatives is still in its early stages, and the encrypted derivatives market is currently mostly dominated by centralized exchanges. The centralized exchange (CEX) has a wealth of product functions, bringing users a diverse experience. Although centralized exchanges have greatly facilitated our trading needs in all aspects, traders still need to face the risks brought about by their centralization, such as opaque clearing mechanisms, often unable to trade under extreme market conditions, etc., while decentralization is relatively Fairness and security highlight the need for people to try and practice it.

However, the existing decentralized exchanges (DEX) still have many defects such as high gas fees and insufficient liquidity. With the launch of Layer2, the problems have been alleviated. At present, most perpetual contract DEXs on the chain choose virtual automated market makers (vAMM) or provide order books (such as DYDX, INJ) to realize transactions. However, vAMM restricts the flexibility of users to use limit orders, and some DEXs that use the order book mode mostly run their order books on centralized servers. The decentralized operation method may bring some unexposed risks to users.

So is it possible to build an exchange that not only has centralized and flexible functions, but also guarantees complete decentralization? The 01 team also thinks so. 01 Exchange originally originated from an experiment started by a group of traders and friends. They wanted to see if they could build a fully decentralized exchange with all the functions provided by a centralized exchange. As its pseudonym co-founder Stratos said: "The team's ultimate vision is to build a trading experience that does not affect decentralization, while providing the same functionality as any centralized exchange." To achieve the best of both worlds.

The use and characteristics of 01

Derivatives have brought diversified gameplay to DeFi. Futures and options are gradually becoming familiar to more traders, and more and more cryptocurrency platforms are paying attention to perpetual contracts. 01 is a Solana based Decentralized derivatives trading platform, which also launched a DeFi native derivatives agreement such as the square perpetual contract.

The platform has now released its mainnet and currently provides 20x leverage for users to participate. To use the platform, users need to connect to the Solana wallet first and pay a one-time fee of 0.03 SOL to activate the margin account.

Next, users need to deposit certain collateral before starting transactions or borrowing. 01 What is more prominent is its cross-chain deposit function. By cooperating with Wormhole (cross-chain protocol), it can provide users with cross-chain deposit services.

Usually Solana traders can only use Solana native wallets (such as Phantom, Sollet, Slope, etc.) to interact with Solana DApp, but 01 allows users to support Deposit any asset natively to any chain and any wallet on any wallet, and Wormhole currently connects to multiple chains, including Ethereum, Solana, Terra, Binance Smart Chain, Polygon, Avalanche, and Oasis. Take Ethereum as an example, which means that users can use Metamask or other Ethereum wallets to make cross-chain deposits directly from the Ethereum blockchain to the user's Solana-based 01 margin account.

01 now supports ETH as collateral. In addition, it currently supports USDC, USDT, SOL, mSOL, BTC and UST (Stablecoin issued by Terra). Users can directly The above Tokens are deposited as their own collateral, and manual bridging and manual conversion are no longer required, making the project a step closer to building a decentralized "CEX with all functions". In addition, 01 also plans to support more tokens, and it is estimated that there are more than 50 kinds.

More than that, the project has a loan function, and the collateral deposited by the user will automatically accumulate passive APY according to the loan interest rate. Because the user's deposits on 01 are regarded as loanable deposits, which provide utility for 01's lending pool, their deposits will automatically earn passive APY through the algorithm. When borrowing, in order to avoid liquidation, users also need to over-collateralize. The interface is similar to Aave and Compound, as follows.

For the trading model, unlike other exchanges, 01 wanted to achieve complete decentralization, so it chose to cooperate with Project Serum, which has a chain With the central order book and matching engine, 01 can provide an order experience similar to CEX in a completely decentralized environment.

For the derivatives market, 01 currently supports six perpetual contract markets: APE-PERP, SOL-PERP, BTC-PERP, ETH-PERP, LUNA-PERP, and AVAX-PERP.

01 As a DEX based on the Serum order book, it launched the product SQUOL, which is Power Perpetuals, which is a perpetual derivative product linked to a certain power index of the underlying asset index price. It is a novel type of derivatives first proposed by Dave White, Dan Robinson and the Opyn team, we can also call it "multiplier perpetual contract". The yield curve of the power perpetual contract is asymmetrical and convex. If the buyer is long, the target will make money if it rises, and the loss will be limited if it falls, which has the asymmetry of income.

Compared with traditional options, traditional options have an expiration date and a trading mode that needs to be exercised. Users need to move their positions when the option expires. With the approach of each expiration date, users need to In the process of relocating positions, a little liquidity cost will be incurred. In addition, traditional options have many different options because of different dimensions such as call, put, strike price, and expiration date of an underlying, resulting in the problem of liquidity fragmentation.

The multiplier perpetual contract has no expiration date, so users do not have to move their positions frequently, and because it is concentrated in a liquidity pool for transactions, it better gathers liquidity and thus solves the problem of liquidity fragmentation , lower liquidity costs and improved capital efficiency. The traditional contract starts the settlement process when it expires, while the multiplier perpetual contract allows traders to hold it until the user closes the position without liquidating the contract. So how do people settle without an expiration date? In fact, it mainly depends on the funding rate mechanism.

When traditional contracts are settled, the contract price will approach the spot price. The funding rate mechanism guarantees this feature. It is based on the difference between the market price and the spot price, and the long and short pay each other regularly Certain fees. If the market trend is bullish, the funding rate is positive, and the longs need to pay the shorts. On the contrary, if the market is bearish, the funding rate is negative, and the shorts need to pay the longs.

The funding rate in SQUOL is not the typical "mark—index", but "mark—index^power". As mentioned earlier, option products are convex, and Power Perpetuals wants to build a derivative that is also convex, trying to combine the core function y = x of the perpetual contract to adjust it to a convex function, so the underlying function is proposed as , for specific understanding, please refer to How to understand Paradigm’s multiplier perpetual contract”.

If the price of the underlying asset triples, then the corresponding square price will multiply by 9 times, which provides users with a leverage. Unlike direct use of leverage, the main advantage of Power Perpetuals is the ability to reduce liquidation risks. Due to this feature, users can increase the leverage of positions.

Project Background and Roadmap

In late January this year, 01 Exchange completed a $2.2 million seed round led by Multicoin Capital and Alameda Research, with participation from Solana Ventures and Ledger Prime.

The above is its roadmap. In the third and fourth quarters of last year, it mainly outlined the project skeleton, formed communities, developed project networks, and finalized major partnerships. In the first quarter of this year, it cooperated with cross-protocol partners and released the main The next goal is to start preparing for the trading competition, straighten out the announcement of the Token economic system, and make the DAO gradually take shape.

Comparison and summary

Users here can not only profit from the rise in the price of the underlying asset, but also profit from the fall in the price of the underlying asset. Its leverage attribute magnifies the risk and profit of the transaction and satisfies the needs of users to increase their income. needs, and users can do different risk hedging from it. More and more DeFi projects have begun to expand diversified business models and occupy a place on the derivatives track. Such as DYDX, Perpetual protocol, MCDEX, Injective Protocol, DerivaDEX, Futureswap, etc.

DYDX is undoubtedly the leading project in the derivatives track. As mentioned above, DYDX can also give users an experience similar to CEX, but its order book running on a centralized server still has certain risks . For the Perpetual protocol, users can create new projects, make markets, and trade through it, but it has stricter restrictions on regions. It adopts vAMM and does not require investors to actually provide liquidity, so there is no impermanent loss accordingly. MCDEX is deployed on Arbitrum and BSC, and the Token is MCB. It uses the "complex AMM" mechanism to determine the price, and conducts transactions through the multi-party, short-party, and LP three-party game. Although the project uses the AMM mechanism, it is in the form of an order book Displayed can better realize the depth and help traders to operate.

01 Exchange's cross-chain deposit function expands the scope of collateral and increases liquidity to a certain extent. Among them, the attempt of the Power Perpetuals model provides investors with another possibility. The current derivative DEX has its own characteristics, but it is still far from a hundred flowers blooming. However, as far as the entire track is concerned, more mature traders need to be cultivated, and users need a certain amount of knowledge reserve to participate in derivatives such as perpetual contracts. The entire track is still in its early stage and there is a lot of room for development.  

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