In Revelo Intel’s Twitter Spaces which took place on April 25, 2024, Kirk hosted Huf from Pear Protocol, Jonezee from GMX, and Justin from Vest Exchange to discuss crypto trading, innovations, challenges, perpetual protocols, and more! Read our notes below to learn more.
Background
Kirk (Host) – Head of Business Development at Revelo Intel
Huf (Guest) – Founder of Pear Protocol
Jonezee (Guest) – Communications Contributor at GMX
Justin (Guest) – Founder of Vest Exchange
Pear Protocol – an array of engineering solutions aimed to address the inherent inefficiencies and complexities when Pear-trading cryptocurrencies
GMX – a decentralized spot and perpetual exchange that supports low swap fees and low price impact trades
Vest Exchange – a decentralized perpetual futures exchange built on zkSync, a zero-knowledge (ZK) roll-up built on Ethereum
Innovations in Crypto Trading
- Jonezee describes GMX as a leading on-chain perpetual futures and spot exchange with deep liquidity and low fees, highlighting its role as a foundational liquidity base layer in DeFi.
- Huf explains that Pear Protocol allows users to long and short two assets simultaneously with leverage, filling a market need he identified from his own trading experiences.
- Justin talks about the challenges faced by various centralized exchanges that suffered insolvency, prompting him to develop Vest Exchange based on sound principles for a fair and sustainable trading environment.
- Justin explains that perpetual exchanges range from highly capital-efficient to overcollateralized models. He says that while capital-efficient models allow for high leverage and competitive fees, they risk frequent blow-ups. Conversely, overcollateralized models, like Uniswap, maintain solvency but provide less ideal pricing for traders and liquidity providers. Justin highlights finding a balance between capital efficiency and risk.
- Jonezee from GMX outlines their approach to creating a non-custodial, permissionless on-chain trading platform. He highlights their focus on risk minimization and robust security, especially in the context of centralized exchanges’ failures. GMX aims to balance the interests of traders and liquidity providers, ensuring safety and offering a responsive trading experience.
- Huf discusses the pros and cons of various liquidity sourcing methods. He describes how Pear adopts an agnostic approach to liquidity, allowing users to choose between different models like GMX, order books, or intent-based systems based on their trading preferences and the specific advantages each model offers.
Oracle Risks and Security in Perp DEXs
- Kirk asks about the trade-offs in order book efficiency and the risks in liquidity provision on decentralized platforms, specifically mentioning concerns about oracle manipulation and scam events.
- Jonezee discusses GMX’s preference for an oracle model over traditional order books, highlighting the importance of having robust, well-audited code and reliable partners to ensure security and robustness in on-chain trading environments. He mentions the necessity of constant monitoring to prevent price manipulation and protect traders.
- Jonezee adds that GMX has processed a significant trading volume and prioritizes security and robust management of Oracle risks, highlighting their successful handling of large user volumes and trading activity.
- Huf comments on the need to carefully evaluate oracle risks when integrating with other liquidity venues, pointing out GMX’s experience and their collaboration with reputable Oracle providers like Chainlink. He highlights the importance of vetting and documenting the risks and benefits of different trading venues.
- Justin agrees with Jonezee and Huf on the importance of managing oracle risks, adding that Vest Exchange focuses on avoiding risks associated with mechanism designs that could be exploited, beyond just oracle manipulation. He stresses the importance of designing secure trading mechanisms to prevent potential protocol-wide exploits.
Protocol-Specific Blockchains vs. Layer-2 Solutions
- Kirk asks about the decision to build a protocol-specific blockchain, citing dYdX as an example of a platform that chose to do this.
- Justin says that the decision depends on the product vision, explaining that focusing on a product-first approach is key. He mentions that building on Layer-2 can be a strategic choice based on how other products may integrate into the ecosystem, citing the work of GMX and Pear as effective due to their composability with other protocols.
- Jonezee agrees with Justin, highlighting that there’s no definitive right or wrong approach. He highlights GMX’s success in creating a vast DeFi ecosystem due to its fully on-chain, non-custodial nature. However, he notes the limitations and contrasts it with the HyperLiquid and dYdX model, which involves a more custodial setup due to its own blockchain.
- Huf adds that the key issue with on-chain trading, specifically on decentralized exchanges like GMX, is the fragmentation of liquidity. He describes how liquidity is spread across various platforms and how centralized exchanges like Binance remain preferred due to their aggregated liquidity. He also mentions innovations like Vertex’s Edge that aim to unify liquidity across different venues to tackle interoperability challenges.
Multi-Chain Strategies
- Kirk questions whether GMX’s future involves deploying on every chain, considering GMX is already functional on multiple blockchains.
- Jonezee acknowledges the validity of deploying on popular chains but stresses the complexity of bootstrapping liquidity on new chains, which involves significant development, community, and marketing efforts. He envisions a cross-chain model where liquidity is centralized on one chain but accessible across others, though he notes the technology for this isn’t fully developed yet.
- Huf asks about the value of deploying GMX on platforms like Base or Mantle, suggesting that such moves are often incentivized by foundational support rather than actual user demand or innovation.
- Jonezee underlines the importance of considering whether a new chain provides access to a distinct audience or community that complements their existing user base. He notes the potential of Base due to its association with Coinbase, which might attract new users, but he remains cautious about the long-term viability and user retention on new chains.
- Justin says that GMX, as a blue-chip and flagship product, draws users to specific chains, but multiple chain presences may fragment liquidity. He suggests that during meme coin seasons on Base, traders looking for quick profits might find GMX appealing for leveraging stable assets when meme coin cycles dip.
- Justin says that meme coin cycles are short, and during downturns, traders retain capital on Base without bridging out, presenting an opportunity for GMX to engage users in more stable investments.
- Jonezee says that such deployment needs careful consideration given the upkeep and maintenance of contracts on new chains. He highlights the complexity of integrating with chain-specific Oracle models and the challenges of bootstrapping liquidity.
- Justin further discusses the future vision for GMX, suggesting an ideal scenario where users interact seamlessly across chains through internal bridges, making chain distinctions irrelevant to users. He envisions a more centralized but user-friendly ecosystem where transactions feel native regardless of the underlying chain.
- Jonezee agrees with Justin’s vision of abstracting chain complexities from users, highlighting ongoing development efforts towards a GMX-specific cross-chain solution that could include a GMX bridge or even a GMX chain, though these plans are not yet public.
Rapid Asset Onboarding and Protocol Updates
- Kirk talks about the challenge of quickly onboarding trending assets, such as meme coins, to decentralized exchanges due to the potential for lost momentum. He suggests that an intent-based model could be effective for rapid asset onboarding, while a pooled model could better serve more stable, blue-chip assets.
- Huf announces that Pear Protocol is launching a public beta next week, with no whitelist or cap, featuring liquidity venues GMX V2 and Vertex. He highlights that early users of Pear could earn significant rewards from a pool of 350,000 $ARB tokens provided by Arbitrum DAO’s LTIP.
- Huf anticipates a summer market lull but sees it as an opportunity for pair trading strategies that could perform well in a choppy market.
- Jonezee updates on GMX’s developments, mentioning the successful implementation of GMX V2, which includes new single token pools allowing users to deposit $BTC or $ETH and earn returns without pairing with stablecoins, thus avoiding impermanent loss.
- Jonezee also mentions the introduction of one-click trading on GMX, enhancing the user experience by simplifying trade confirmations, and hints at upcoming updates to the trading model and governance system, along with potential chain expansion and a GMX chain in the future.
- Justin describes Vest as the first protocol to integrate risk into pricing. He explains that the mechanism considers a trader’s position and the associated risk to liquidity providers (LPs) and the protocol. This is shown through the game theory problem where fees paid by traders to LPs depend on their profits and losses.
- Justin outlines that during a bull market, LPs might not be compensated enough, despite high trader success. Vest calculates the risk at a granular level, leading to adjusted pricing impacts like slippage or fees. This system often results in more competitive price impacts on Vest compared to other exchanges.
- He further explains that in adverse market conditions, trades are configured to offer higher yields to LPs to adequately compensate for risks. Justin believes this creates a fairer system for both traders and LPs compared to other DEXs.
- Justin mentions upcoming plans, including a closed testnet or mainnet launch next week, inviting interested parties to contact him on Twitter for access.
Check out these important links
- Listen to the original audio
- Follow Kirk on Twitter
- Follow Huf on Twitter
- Follow Jonezee on Twitter
- Follow Justin on Twitter
- Follow Pear Protocol on Twitter
- Follow GMX on Twitter
- Follow Vest Exchange on Twitter
- Follow Revelo Intel on Twitter
Show Information
- Medium: Twitter (Audio)
- Show: Revelo Intel Twitter Space
- Show Title: Revelo Roundtable #10 – Perps Part 2
- Show Date: April 25, 2024