DEX With Margin Functions: Perpertual Protocol & Kashi
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We shared about DEXes before. They are decentralised exchanges to allow for users to trade. The current popular assets being traded are assets at spot prices. A new improvement to that is margin trading. Margin trading is where you can trade more than the value of your asset. For example, you get to trade 10x the value of the asset that you have. Adding margin trading with DEX model is innovative and that is what we want to focus on today.
Margin trading is a small category in DeFi Space. Although this niche does not have too many projects, there are outstanding projects: Kashi (from Sushiswap), dYdX, Perpetual Protocol, and so on.
We recently shared about another perpetual swap mechanism in DeFi. Perpetual Swap had become the first product built on-chain for the derivatives market to achieve impressive trading volume numbers.
In this article, we share two points about Margin DEX:
Why Margin DEXes were born
The difference between 2 DeFi derivatives Protocols
What Problem Does Margin DEX Solve?
When you trade on centralised exchanges (CEX), you will connect the market through an intermediary (exchange), your money will be managed by the exchange (custodial) whether you want it or not. Because of such a centralised model, CEX exchanges are often the top target for hackers to attack.
Even the Top CEXs in the industry have been hacked, so I don't think the problem is "was this exchange hacked or not?" but "when?". In addition to security issues, the CEX exchange also has problems related to user fraud.
Margin DEX was created to solve most of the above problems:
Trustless: Users have access to the marketplace without the need for an intermediary.
Non-Custodial: Users will be able to control and manage their own assets and do not need to deposit them with any party.
Transparency: Everything will be operated through Smart Contract on Ethereum and managed by DAO in the future.
Permissionless: Anyone, anywhere or at any time can access and use the platform of Perpetual Protocol without restricting permissions by anyone.
Perpetual Protocol is a protocol that allows the issuance of perpetual futures contracts of any asset. The goal of Perpetual Protocol is to decentralise futures contracts, allowing anyone, anywhere, anytime to access and use the platform for trading without going through 3rd part.
The core of the Perpetual Protocol is the project's protocol, which consists of two main parts:
Virtual Automated Market Makers (Virtual AMMs): A virtual automated market maker (vAMM) model inspired by Uniswap.
Note: PerpProtocol is looking to move away from VAMM model.
Liquidity Reserve: Liquidity Reserve as collateral for Virtual AMMs.
This part details how Kashi works, and how it brings revolutionary innovation to L1. We want to explain the tie-up between BentoBox and its upcoming Dapps, including Kashi. BentoBox is a vault, acting as a decentralised “App Store”, where you can deposit assets inside to activate other Dapps.
As such, Kashi is a Dapp developed on BentoBox, a margin trading platform backed by its lending protocol that allows users to create lending token pairs of varying degrees, however, they assume that profits can be maximised.
What Else Did You Miss?
How Perpetual Works
What Makes Perpetual Different
How Kashi Works
What Makes Kashi Different
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Both protocols serve in a potentially thriving derivatives market. Despite the common goal, the product architectures of the two protocols are vastly different.
Perpetual Protocol provides star delivery contracts using vAMM Mechanism along with a Funding Rate. Especially when the trader is also LPer for their own position. This gives them higher leverage.
Kashi is similar to a lending protocol but includes loan scalability features. That is, instead of mortgaging and getting a loan and mortgaging to get a new one, Kashi has integrated them into a single transaction. However, since the target collateral utilisation is 70-80%, the maximum leverage is quite low, theoretically x3, and Kashi offers x2 as the largest.