Understanding Rage Trade: Composable perpetual contract protocol on the Ethereum blockchain.

Rage Trade is a perpetual contract protocol based on the Arbitrum ecosystem. It aims to establish a highly liquid and composable Ethereum perpetual contract protocol through innovative mechanisms such as 80-20Vaults and Omnichain recycled liquidity. Rage Trade will also be integrated into LayerZero to allow vaults to obtain liquidity from any L1 and L2.

Rage Trade integrates DeFi liquidity from other chains (LP chains) through the Omnichain recycled liquidity mechanism. When this liquidity enters the 80-20Vaults, no more than 20% will be injected into Rage Trade's vAMM pool in the form of virtual liquidity, providing centralized liquidity for Rage Trade. The remaining 80% will still be retained in external protocols to generate profits for LPs, while LP providers can also earn fees from contract traders. The main chain Arbitrum and LP chains communicate through LayerZero's cross-chain messaging protocol.

At the initial state, 100% LP is outside the protocol. As the Ethereum price fluctuates and the protocol position increases, external liquidity enters Rage in a virtual way. Through Rebalance PnL operation, Rage can transfer the protocol-generated revenue from the protocol to the external protocol again. Rage Trade adjusts the market-making range of centralized liquidity once a day based on the latest price. If the LP liquidity accumulated by the insurance pool exceeds 20%, Rage Trade will reset the liquidity operation, close the insurance pool, and redeploy liquidity.

Rage Trade protocol revenue includes 10% of the 80-20valuat generated revenue and 0.05% transaction fee, of which 0.001% of the transaction fee will be used as LP token incentives.

Rage Trade has what innovative points?

Rage Trade has core innovations such as Omnichain recycled liquidity and 80-20Vaults, and is partnering with GMX to launch the Delta Neutral GLP Vault.

全链可回收流动性 Omnichain recycled liquidity

Omnichain recycled liquidity

Rage Trade allows all liquidity funds in existing protocols, including AMM (Curve, Balancer, Sushi, etc.), currency markets (AAVE, Rari, Euler, etc.), and derivative protocols (GMX, Ribbon), to enter. The liquidity in these protocols can be integrated into 80-20Vaults in the form of ETH-USD LP and then enter the ETH perp liquidity pool of Rage Trade. The specific process is shown in the following figure:

Rage Trade's perp, vault, and business are all deployed on the main chain Arbitrum, while other liquidity-providing chains are referred to as LP chains. To integrate liquidity across the entire chain, Rage Trade uses LayerZero's cross-chain messaging protocol to transmit messages between the main chain and LP chains, and uses Stargate to send and receive assets (USDC PnL).

When LP chains deposit liquidity into the protocol, the LP chain will send a message to the main chain to inject virtual liquidity into the vAMM pool of Rage Trade; conversely, it will be withdrawn from the vAMM pool.

80-20Vaults

80-20Vaults is a LP operational strategy for Rage ETH perp, inspired by the solutions released by Hayde (Uniswap) and Scott (DeFi Pulse). In 80-20Vaults, 80% of the liquidity deposited into the Rage Trade protocol will still be maintained in external protocols such as Curve, GMX, Sushi, etc. to generate profits, while providing up to 20% of concentrated liquidity for Rage Trade.

80-20Vaults relies on three core operations: Rebalance PnL, Update Range, and Reset Liquidity.

When in the initial state, 100% of TVL is in LP positions generating profits (outside of Rage), and the treasury provides concentrated liquidity positions around the current value (with equal amounts of vUSDC and vETH).

When the ETH price changes, the LP treasury accumulates directional perpetual contract positions. For example, as the ETH price rises, the treasury's ETH perpetual contract short position begins to increase (rising is equivalent to borrowing USD to buy ETH). Rebalance PnL operations realize PnL from these positions and transfer assets to services that can generate income, maximizing capital efficiency while maintaining sufficient collateralization.

Note: PnL represents the daily change in the value of a trading portfolio, usually calculated using the following formula: PnL = Today's value - Previous day's value.

With the fluctuation of ETH price, concentrated liquidity positions may cause imbalance between vETH and vUSDC. By updating the range operation, Rage Trade will adjust the market-making range of concentrated liquidity daily based on the latest price.

If there is a significant price fluctuation that causes the LP liquidity accumulated in the treasury to exceed 20%, Rage Trade will reset the liquidity operation, close the insurance pool, and redeploy liquidity.

Each 80-20Vaults can accept different LP positions as collateral to provide liquidity for Rage's ETH perpetual futures. 80-20Vaults aims to earn additional income for LP positions while obtaining ETH-USD LP returns in Uniswap v2. In order to attract all potential income-generating ETH-USD assets, LPs will be able to recover liquidity from all LayerZero-compatible chains.

Through 80-20Vaults, external LP positions can actually earn additional income such as trading fees and RAGE token incentives by providing liquidity for Rage Trade. And 80% of the assets are in the isolation protocol, which eliminates the risk of liquidation, making it an attractive option for liquidity providers.

Although 80-20Vaults does not have clearing risks, it still faces two forms of external risks:

Arbitrum downtime: If the Arbitrum network experiences extended downtime, the yield from the treasury may deviate from the expected UNI v2 yield. Asset risk for yield generation: Assets that generate yield, such as Curve's Tri-Crypto, may experience their own impermanent loss, which could cause yield to deviate from UNI v2.

Delta Neutral Vault

Rage Trade's Delta Neutral Vaults are a set of liquidity smart contracts that allow users to pool funds and provide liquidity on GMX in a delta-neutral manner while earning ETH rewards on GMX. The vault operates on-chain and minimizes exposure to ETH and BTC risks by shorting Aave and Uniswap with the help of two independent risk treasuries.

Two independent risk reserves are included:

Risk-Off Vault: Allows users to deposit USDC that can be used as collateral for Aave, while earning Aave supply APR and some ETH rewards from GMX based on asset utilization rate. Risk-On Vault: Earn profits through GLP while hedging against price risks of ETH and BTC. As the ratio of ETH and BTC on GMX may change, the vault will update its open short positions every time it rebalances.

Rage's vAMM How Does It Work?

Rage Trade is supported by UNI v3 designed through virtual automated market maker vAMM. UNI v3 vAMM pools hold virtual tokens such as vETH-vUSDC, which represent the underlying tokens in the spot market, namely ETH-USDC. Traders and liquidity providers (LPs) use virtual tokens to trade orders on vAMM.

Rage Trade How to establish liquidity and accurate funding rates?

Rage Trade uses Omnichain Liquidity and 80-20 Vaults to establish deep liquidity for ETH perpetuals. In addition, it has designed a funding rate mechanism called Forward Guidance to ensure that funding rates match those of CEX. When CEX funding rates and Rage funding rates are different, the Forward Guidance funding rate mechanism allows the governance module to switch between three funding rate calculation methods to keep rates close to fair value.

The funding rate mechanism is designed specifically for stablecoins such as UXD, Lemma, and Frax. This allows stablecoin issuers to earn CEX base interest rates while obtaining delta-neutral perpetual positions, namely 1x short positions collateralized by ETH.

How to use Rage Trade?

Deposit and Withdrawal

First, use Fund Movr to bridge your ETH assets to Arbitrum:

Then you need to hold both ETH and USDC at the same time. Users need to use their USDC balance to open a trading position on Rage, while also needing ETH to pay for gas fees. You can choose to use Uniswap for asset exchange:

Adding USDC Token on Rage Trade

First, you need to connect your personal wallet:

Then add the USDC token:

The amount of USDC required to open a position:

Establishing Long Positions

Taking the establishment of long positions as an example, let's analyze trading on Rage Trade.

First, select "long" on the trading interface and confirm the trading asset:

Then enter the desired amount of tokens to be traded, and the trading interface will automatically recharge the required USDC and set an acceptable slippage.

Finally, click on Swap to initiate the transaction and view transaction data:

Once the transaction is confirmed: the position status and account data will be displayed on the page.

If you want to close your position, simply click the Close Position button. Before confirming the closure, please make sure to check the pop-up window.

Team Information

The Rage Trade website does not disclose team information, but three developers related to the project can be found from the GitHub repository. Among them, the user account named 0xDosa shows in the introduction that he is not only a core developer of RageTrade, but also active in the development of GMX Insurance Library and Strategy Insurance Library.

Main Competitors

GMX is a perpetual futures and spot protocol based on Avalanche and Arbitrum, providing liquidity through GLP index tokens composed of underlying assets such as ETH and USDC in a certain proportion. GMX features zero slippage, 10bps fees, and high leverage, allowing for fast and low-cost trading of tokens such as BTC, ETH, and AVAX on the network.

GMX has transformed the traditional long-short game in futures trading into a three-party game involving the long, short, and GLP holders. In simple terms, if the trader fails, the LP profits; if the trader succeeds, the LP loses. The main source of profit for the agreement comes from the borrowing costs deducted by the trader during the transaction, and 70% of the agreement's handling fee is distributed as an incentive to the LP.

There are protocols similar to GMX, such as Deri Protocol.

Represented by Perpetual, the vAMM model

Perpetual created the virtual AMM vAMM in 2020, becoming a pioneer in on-chain Perp. Perpetual v1 uses a single currency simulation x*y=k constant product model. Simply put, users deposit USDC collateral and can trade in the virtual liquidity pool. Taking the ETH-USDC virtual pool as an example, x and y represent the quantities of ETH and USDC tokens in the virtual pool, and the protocol provides a K value.

vAMM enables more convenient liquidity in and out, supports leveraged trading, and avoids impermanent loss. Perpetual v2 integrates the vAMM mechanism with Uniswap v3's aggregated liquidity, while also providing PERP liquidity incentives and limit order functionality.

Protocols similar to the vAMM model adopted by Perpetual include MCDEX, FutureSwap, Drift, and others.

Central Limit Order Book (CLOB) model represented by dYdX

dYdX is a Layer 2-based derivatives exchange that offers a variety of derivative services similar to CEX, including perpetual contracts, leveraged trading, and lending. The protocol aims to establish a fully decentralized derivatives exchange.

Traders on dYdX conduct peer-to-peer trading through an order book and use a funding rate mechanism to balance net positions, similar to the perpetual futures contract principle of CEX. The order book system can provide more complex order types, but relies more on market makers and liquidity providers.

Protocols that use order book models like dYdX include Injective, Mango Market, and others.

Summary

Although there are already applications with different mechanisms and relatively mature such as GMX, dYdX, and Perpetual in the decentralized derivatives market, there is still a lot of room for development in terms of market size. Through innovative 80-20Vaults design, Rage Trade can improve fund efficiency and effectively isolate some risks while maintaining a good trading experience. In addition, the Omnichain recycled liquidity mechanism can help integrate existing scattered DeFi liquidity, providing effective protection for the depth of transactions. Therefore, Rage Trade is expected to become a dark horse in the decentralized derivatives field.

Reference materials

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