Perpetual Protocol: Go Long or Short With Upto 10x Leverage

The vAMMs offer guaranteed on-chain liquidity and predictable pricing based on product curves that are always the same. The vAMMs are also designed to be fully collateralized and market neutral.

Features of Perpetual Protocol

Users can go long or short on many assets, including BTC, ETH, DOT, SNX, YFI and more. You can trade with up to 10x leverage on these assets. Due to xDAI, low trading fees have to be paid. All trading is 100% on-chain and non-custodial.

How does it work?

The protocol's primary goal is to build a universal trade protocol for perpetual contracts. Thanks to the revolutionary vAMM-based exchange, you can trade with strong liquidity and low slippage. In comparison to other Ethereum-based exchanges, Perpetual uses a scaling technique called xDai to boost trades' speed and offer zero gas fees on all deals. As all trades on Perpetual Protocol are settled in USDC, the exchange's collateral is also in USDC.

Perpetual Protocol employs a simplified approach that allows traders to profit from xDai scaling without setting up a wallet. You can deposit USDC via their trading platform using your existing wallet, and you are ready to trade. Your funds are controlled by your Metamask wallet or another compatible wallet at all times during the trading process. 

Perpetual Protocol token holders have no risk of impermanent loss while receiving fees and rewards on their staked PERP tokens. Since staked PERP tokens are not held in their vAMM or used for liquidity – they are safely stored in the smart contract vault rather than a liquidity pool and thus are not vulnerable to impermanent loss.

Tokenomics

Perpetual DAO issued the PERP token, which is Perpetual's native protocol token.

PERP is an ERC-20 token. It is a utility token that facilitates and incentivizes the protocol's decentralized governance. As a result, PERP token holders gain voting rights proportional to their holdings.

The incentive structure is designed in such a way to encourage participation in governance:

1. Staking and trading fee increases > 2. The PERP token's value rises > 3. PERP token becoming more popular > 4. More people know about Protocol > 5. Trading volume increases > 6. Trading fees automatically increases> Return to step one

This loop is also fed by the Perpetual Protocol team's marketing activities and initiatives like Transaction Mining.

Use Cases of PERP Token

Governance 

PERP token holders who have staked their tokens, can vote on or propose new ideas to improve Perpetual Protocol using their staked PERP tokens. Core protocol contributors lead crucial decisions before the on-chain governance voting platform became ready for PERP token holders. 

Staking

Holders of PERP tokens can stake their tokens in the Staking Pool. Stakers receive staking incentives in the form of PERP-denominated staking rewards and a portion of the network trading fees in quote assets (the remaining trading fee goes to the Insurance Fund). 

Exchange Backstop

The exchange’s insurance money could be drained in the worst-case scenario. In this case, PERP tokens could be sold at the market to make up for the shortfall.

Token Distribution

Balancer Liquidity Bootstrapping Pool (LBP)

Balancer LBP token launched: 7,500,000 PERP tokens (5.0%) allocated 

Seed investors ​ 

6,250,000 PERP tokens (4.2%) were allocated to Binance Labs. They invested in an early stage of protocol development in 2018. Tokens are vested quarterly after the launch of the V1 mainnet.

Strategic Investors ​ 

Strategic investors were allocated 22,500,000 PERP tokens (15%). Tokens are vested quarterly after the V1 mainnet launch.

Team & Advisors

 ​31,500,000 PERP tokens (21%) were allocated to the Team. They are responsible for the launch of the initial version of Perpetual Protocol and other beneficial initiatives. Tokens are vested, after 6 months of v1 mainnet launch, quarterly unlock begins. 

Ecosystem & Rewards 

82,250,000 PERP tokens (54.8%) were allocated to Ecosystem and rewards. These tokens will benefit traders, stakers, and community developers who participate in the Perpetual Protocol ecosystem.  Once the protocol converts to community governance, the Perpetual Protocol community will set the distribution of ecosystem incentives.

The total supply of PERP tokens is 150,000,000.

Two mechanisms can be used to inflate the token supply, both of which have a very low likelihood of happening:

1. The insurance money is depleted, and PERP is minted to make up the difference.

2. Governance may opt to manufacture extra tokens.

Insurance Fund

Two conditions can cause the Insurance Fund to lose money:

1. Losses Associated with the Liquidation Process.

2. Keepers on Perpetual Protocol, who is responsible for liquidating under-collateralized holdings, may fail to do so on time because market prices are volatile, and the Ethereum network is crowded, thus creating the risk of insolvency.

3. Funding Payment - Because vAMMs are always the counterparty in each trade, they must pay or receive financing payments on every position they maintain (as every trader does on the platform). Even though the vAMM's funding payments and receipts should eventually balance out, the system may have a negative equity balance on shorter time horizons.

If any of the scenarios mentioned above occurs, Perpetual Protocol will first back up losses with capital from the Insurance Fund, which receives 50% of the system's trading fees.

If somehow Insurance Fund left with no money, the Perpetual Protocol smart contract will mint fresh PERP and sell them at the market to keep the system afloat.

There Were Some Key Issues With Perpetual v1 

Long/short skew  

The dynamic adjustment of the k value of AMM was a design barrier in Perpetual Protocol v1. Thus, changing the quantity of liquidity on the exchange would create more difficult difficulties to solve.

Slow Execution

The xDai sidechain confirms transactions in up to 5 seconds while being multiple times quicker than Ethereum. Furthermore, node performance can be unstable, with transactions occasionally taking several minutes to confirm for unclear reasons.

While xDai has done admirably in general and is hard at work on other scaling solutions such as "Arbitrum on xDai," existing Ethereum L2 solutions like Optimism perform far better now.

Perpetual Protocol V2 (New Update)

Due to many problems in Perpetual V1 which were stopping the protocol to scale. Perpetual protocol V 2, dubbed Curie, was launched on Optimism in November 2021.

Key benefits of Perpetual Protocol V2

Conclusion

The perpetual protocol allows for trading with upto 10x leverage. Perp protocol V1 is available on xDai and v2 on Optimism. They have planned to launch their protocol on different blockchains. They provide good liquidity and low slippage for traders, due to their vAMM model. 

The perpetual protocol is the second-largest perpetual DEX in terms of market cap. With the launch of the protocol on various blockchains, it can easily become the largest dex. As KYC is getting mandatory on centralized exchanges and centralized exchanges are also lowering the leverage, perpetual dexes will benefit from it and will gain more market share. It is in a good position to gain market share and acquire users at an exponential rate.