Announcement
Deep Dive Into Perp V3: Understanding the Core of the Smart Liquidity Framework
In our last update, we unveiled Perp V3, tackling some of the most pressing challenges in the DeFi world. To recap, we’re addressing three key issues: a) enhancing user experience for both seasoned and newcomers in DeFi, b) simplifying liquidity provision, and c) ensuring our protocol is future-ready. With Perp V3, we introduce the innovative Smart Liquidity Framework, poised to be a game-changer in on-chain derivatives trading — think of it as the Uniswap X for on-chain perps.
In this deep dive, we’ll delve into the technical aspects of the Framework and how it’s set to lay the groundwork for the future of on-chain derivatives.
The Architecture Unpack
First, let’s take a closer look at the architecture stack of the Framework. At a high level, it consists of the following: Router, Strategy (Pricing Mechanic), and Clearinghouse (Settlement Layer).
Router
The Router, similar to familiar platforms like 1inch or Uniswap, ensures that users get the best prices for their orders by automatically choosing the strategy that will get the trader the best available price. Everyone can run their own router. Don’t like our router? You can spin up your own!
Strategy (Pricing Mechanic)
Diverse Strategies are at the heart of Perp V3. They determine how liquidity is provided and at what price. Think of them as different ways of offering programmable liquidity. A strategy comprises two main components: Pricing and Hooks.
Pricing: This core element provides liquidity by quoting prices e.g. using an oracle to price, or using an onchain pricing curve (AMM). It doesn’t handle settlement or accounting, leaving that to the clearinghouse.
Hooks: While optional, strategies can have other logic baked into it. An example could be similar to Uni V4’s pre and post hooks (e.g. once an order has been filled, go and hedge it on venue a).
At the beta launch of Perp V3, we’re introducing two initial pricing mechanic strategies for users to dive into — Oracle based and Spot Hedge, as well as setting the stage for future Strategy developments. We’ll dive into more of the examples below.
The Clearinghouse
The clearinghouse is where everything is settled. Its primary functions include:
Positions: It records who holds which positions and at what prices
Collateral: It securely holds all the collateral
Liquidations: It gatekeeps liquidations that ensure the system remains stable and solvent
The Flow
The streamlined trading mechanism works as follows:
A trader places an order.
The Router finds the best price among available strategies.
The order is filled using the selected strategy.
The clearinghouse updates the positions for both the taker and maker(s).
Note that, if you’re a programmatic trader, you can easily skip the router and choose a specific strategy for your order.
Benefits of the Framework
Now we have the idea of how the Framework works, let’s have a look at what benefits the Framework brings to each player: LPs, traders, builders and lastly, Perp.
LPs
LPing was never easy, and Perp V2 (and Uniswap V3 as the underlying tech) didn’t make it easier. The main problem we see for LPs in Perp v2 is that they are restricted to a strategy based on Uni v3 range orders, making successful LPing a highly technical challenge. So far no one has a silver bullet for providing liquidity on-chain.
Perp V3 tackles this by implementing a modular system, letting us use different liquidity strategies for different assets while allowing new strategies to be added easily. This is great for users of all types: easy options can be built for new and passive users, and there’s no limit to what pro users can build. Some examples include:
Strategy A — Oracle based: This is an unhedged approach that looks a bit like Synthetix. At a high level, LPs are simply the counterparty to all taker trades that come in. Price is set by the oracle, plus a spread based on the ratio of longs to shorts (a simple Stoikov model). Simply put, if there are more longs than shorts, then shorts will have less spread than longs, with the goal of reaching a balance of longs and shorts. This strategy takes the opposite position to takers, and earns maker fees as well as positive PnL when takers have negative PnL (in general) .
Strategy B — Spot hedge: The Spot Hedge Strategy operates in a manner similar to Hot Tub vaults, with comparable logic. Here’s how it works: It takes the spot price and provides quotes based on it; When a taker comes in, the strategy automatically buys or sells on the spot DEX to hedge the trade.
Strategy C to Z: R&D is ongoing to create more strategies, and we hope to open this to 3rd party builders as well.
More on Strategy B: Similar to Hot Tub, users can deposit either volatile or non-volatile assets (e.g., ETH or USDC) to Spot Hedge as the liquidity provider. Spot Hedge essentially functions as a single-sided staking yield pool where users deposit an asset, and earn yield in that same asset.
Future strategies can theoretically include the development of customized AMMs, dual investments, and many more unique strategies. Our next exploration involves a Request for Quote (RFQ) system and the potential addition of an auction mechanic. These innovations are designed to allow technically savvy LPs to easily define their strategies off-chain, offering unprecedented flexibility and customization.
Traders
As we mentioned above, Perp v3 uniquely blends various liquidity sources both on- and off-chain, enabling traders to get the best prices. But how does this work in practice?
With so many possible strategies available, you can think of it as having various tools in a toolbox, each one ideal for a specific job. For example, one tool (AMM) is great for stablecoin markets, another tool (oracle maker) is better in a bear market. There’s also a special tool (RFQ) for popular assets and another one (spot hedge) that’s perfect meme coins and other longtails. Each strategy complements each other and contributes to liquidity in their own best way.
The good news is, it all happens in the background, so as a trader, you can access liquidity across numerous venues, including those that are outside of Perp v3, without hunting for prices yourself.
If you’re a pro trader that programs your own trading strategies, Perp v3 is your playground. It allows you to automate your own unique trading strategies fully on-chain, offering a level of flexibility and customization that’s hard to find elsewhere. We will expand on Perp v3’s API in a future post.
Builders
If you are a builder, Perp v3 is a great place for you to work on your projects. It’s designed so you can integrate with a range of liquidity strategies and stay fully on-chain. This means you can build in a way that’s permissionless: just innovate and build. Plus, because of its composability, your projects can easily work together with others, making everything more connected and powerful. Again, we’ll expand on this in future posts.
Perp
Finally, let’s talk about how the Liquidity Framework benefits Perp as a protocol. First, there are two main problems that we’re solving:
Uniswap v3 (Perp v2’s basic liquidity model) was “opinionated”, limiting LPs’ ability to create profitable strategies.
Transitioning between versions (Perp V1→V2) required a full rebuild from scratch, which while thorough, is not optimized for future scalability and agility.
Recognizing these two problems, we’ve designed Perp v3 to break free from the constraints of a single model and to adopt a modular system. This shift not only gives LPs unparalleled flexibility but also future-proofs the protocol. As a result, Perp becomes more adaptable, has higher capacity for rapid iteration, and is better positioned to compete with new entrants in the space. Additionally, it keeps our options open if we want to move to an app chain (just saying) in the future.
Closing
Looking ahead, Perp V3’s modular design sets the foundation for continuous innovation and improvement, ensuring Perp remains at the forefront of the DeFi space. In essence, Perp V3 is more than just an upgrade; it’s a forward-thinking move that sets Perp’s course for the coming years, ensuring that whether you’re trading today or planning for tomorrow, you’re in good hands.
In our last update, we unveiled Perp V3, tackling some of the most pressing challenges in the DeFi world. To recap, we’re addressing three key issues: a) enhancing user experience for both seasoned and newcomers in DeFi, b) simplifying liquidity provision, and c) ensuring our protocol is future-ready. With Perp V3, we introduce the innovative Smart Liquidity Framework, poised to be a game-changer in on-chain derivatives trading — think of it as the Uniswap X for on-chain perps.
In this deep dive, we’ll delve into the technical aspects of the Framework and how it’s set to lay the groundwork for the future of on-chain derivatives.
The Architecture Unpack
First, let’s take a closer look at the architecture stack of the Framework. At a high level, it consists of the following: Router, Strategy (Pricing Mechanic), and Clearinghouse (Settlement Layer).
Router
The Router, similar to familiar platforms like 1inch or Uniswap, ensures that users get the best prices for their orders by automatically choosing the strategy that will get the trader the best available price. Everyone can run their own router. Don’t like our router? You can spin up your own!
Strategy (Pricing Mechanic)
Diverse Strategies are at the heart of Perp V3. They determine how liquidity is provided and at what price. Think of them as different ways of offering programmable liquidity. A strategy comprises two main components: Pricing and Hooks.
Pricing: This core element provides liquidity by quoting prices e.g. using an oracle to price, or using an onchain pricing curve (AMM). It doesn’t handle settlement or accounting, leaving that to the clearinghouse.
Hooks: While optional, strategies can have other logic baked into it. An example could be similar to Uni V4’s pre and post hooks (e.g. once an order has been filled, go and hedge it on venue a).
At the beta launch of Perp V3, we’re introducing two initial pricing mechanic strategies for users to dive into — Oracle based and Spot Hedge, as well as setting the stage for future Strategy developments. We’ll dive into more of the examples below.
The Clearinghouse
The clearinghouse is where everything is settled. Its primary functions include:
Positions: It records who holds which positions and at what prices
Collateral: It securely holds all the collateral
Liquidations: It gatekeeps liquidations that ensure the system remains stable and solvent
The Flow
The streamlined trading mechanism works as follows:
A trader places an order.
The Router finds the best price among available strategies.
The order is filled using the selected strategy.
The clearinghouse updates the positions for both the taker and maker(s).
Note that, if you’re a programmatic trader, you can easily skip the router and choose a specific strategy for your order.
Benefits of the Framework
Now we have the idea of how the Framework works, let’s have a look at what benefits the Framework brings to each player: LPs, traders, builders and lastly, Perp.
LPs
LPing was never easy, and Perp V2 (and Uniswap V3 as the underlying tech) didn’t make it easier. The main problem we see for LPs in Perp v2 is that they are restricted to a strategy based on Uni v3 range orders, making successful LPing a highly technical challenge. So far no one has a silver bullet for providing liquidity on-chain.
Perp V3 tackles this by implementing a modular system, letting us use different liquidity strategies for different assets while allowing new strategies to be added easily. This is great for users of all types: easy options can be built for new and passive users, and there’s no limit to what pro users can build. Some examples include:
Strategy A — Oracle based: This is an unhedged approach that looks a bit like Synthetix. At a high level, LPs are simply the counterparty to all taker trades that come in. Price is set by the oracle, plus a spread based on the ratio of longs to shorts (a simple Stoikov model). Simply put, if there are more longs than shorts, then shorts will have less spread than longs, with the goal of reaching a balance of longs and shorts. This strategy takes the opposite position to takers, and earns maker fees as well as positive PnL when takers have negative PnL (in general) .
Strategy B — Spot hedge: The Spot Hedge Strategy operates in a manner similar to Hot Tub vaults, with comparable logic. Here’s how it works: It takes the spot price and provides quotes based on it; When a taker comes in, the strategy automatically buys or sells on the spot DEX to hedge the trade.
Strategy C to Z: R&D is ongoing to create more strategies, and we hope to open this to 3rd party builders as well.
More on Strategy B: Similar to Hot Tub, users can deposit either volatile or non-volatile assets (e.g., ETH or USDC) to Spot Hedge as the liquidity provider. Spot Hedge essentially functions as a single-sided staking yield pool where users deposit an asset, and earn yield in that same asset.
Future strategies can theoretically include the development of customized AMMs, dual investments, and many more unique strategies. Our next exploration involves a Request for Quote (RFQ) system and the potential addition of an auction mechanic. These innovations are designed to allow technically savvy LPs to easily define their strategies off-chain, offering unprecedented flexibility and customization.
Traders
As we mentioned above, Perp v3 uniquely blends various liquidity sources both on- and off-chain, enabling traders to get the best prices. But how does this work in practice?
With so many possible strategies available, you can think of it as having various tools in a toolbox, each one ideal for a specific job. For example, one tool (AMM) is great for stablecoin markets, another tool (oracle maker) is better in a bear market. There’s also a special tool (RFQ) for popular assets and another one (spot hedge) that’s perfect meme coins and other longtails. Each strategy complements each other and contributes to liquidity in their own best way.
The good news is, it all happens in the background, so as a trader, you can access liquidity across numerous venues, including those that are outside of Perp v3, without hunting for prices yourself.
If you’re a pro trader that programs your own trading strategies, Perp v3 is your playground. It allows you to automate your own unique trading strategies fully on-chain, offering a level of flexibility and customization that’s hard to find elsewhere. We will expand on Perp v3’s API in a future post.
Builders
If you are a builder, Perp v3 is a great place for you to work on your projects. It’s designed so you can integrate with a range of liquidity strategies and stay fully on-chain. This means you can build in a way that’s permissionless: just innovate and build. Plus, because of its composability, your projects can easily work together with others, making everything more connected and powerful. Again, we’ll expand on this in future posts.
Perp
Finally, let’s talk about how the Liquidity Framework benefits Perp as a protocol. First, there are two main problems that we’re solving:
Uniswap v3 (Perp v2’s basic liquidity model) was “opinionated”, limiting LPs’ ability to create profitable strategies.
Transitioning between versions (Perp V1→V2) required a full rebuild from scratch, which while thorough, is not optimized for future scalability and agility.
Recognizing these two problems, we’ve designed Perp v3 to break free from the constraints of a single model and to adopt a modular system. This shift not only gives LPs unparalleled flexibility but also future-proofs the protocol. As a result, Perp becomes more adaptable, has higher capacity for rapid iteration, and is better positioned to compete with new entrants in the space. Additionally, it keeps our options open if we want to move to an app chain (just saying) in the future.
Closing
Looking ahead, Perp V3’s modular design sets the foundation for continuous innovation and improvement, ensuring Perp remains at the forefront of the DeFi space. In essence, Perp V3 is more than just an upgrade; it’s a forward-thinking move that sets Perp’s course for the coming years, ensuring that whether you’re trading today or planning for tomorrow, you’re in good hands.
In our last update, we unveiled Perp V3, tackling some of the most pressing challenges in the DeFi world. To recap, we’re addressing three key issues: a) enhancing user experience for both seasoned and newcomers in DeFi, b) simplifying liquidity provision, and c) ensuring our protocol is future-ready. With Perp V3, we introduce the innovative Smart Liquidity Framework, poised to be a game-changer in on-chain derivatives trading — think of it as the Uniswap X for on-chain perps.
In this deep dive, we’ll delve into the technical aspects of the Framework and how it’s set to lay the groundwork for the future of on-chain derivatives.
The Architecture Unpack
First, let’s take a closer look at the architecture stack of the Framework. At a high level, it consists of the following: Router, Strategy (Pricing Mechanic), and Clearinghouse (Settlement Layer).
Router
The Router, similar to familiar platforms like 1inch or Uniswap, ensures that users get the best prices for their orders by automatically choosing the strategy that will get the trader the best available price. Everyone can run their own router. Don’t like our router? You can spin up your own!
Strategy (Pricing Mechanic)
Diverse Strategies are at the heart of Perp V3. They determine how liquidity is provided and at what price. Think of them as different ways of offering programmable liquidity. A strategy comprises two main components: Pricing and Hooks.
Pricing: This core element provides liquidity by quoting prices e.g. using an oracle to price, or using an onchain pricing curve (AMM). It doesn’t handle settlement or accounting, leaving that to the clearinghouse.
Hooks: While optional, strategies can have other logic baked into it. An example could be similar to Uni V4’s pre and post hooks (e.g. once an order has been filled, go and hedge it on venue a).
At the beta launch of Perp V3, we’re introducing two initial pricing mechanic strategies for users to dive into — Oracle based and Spot Hedge, as well as setting the stage for future Strategy developments. We’ll dive into more of the examples below.
The Clearinghouse
The clearinghouse is where everything is settled. Its primary functions include:
Positions: It records who holds which positions and at what prices
Collateral: It securely holds all the collateral
Liquidations: It gatekeeps liquidations that ensure the system remains stable and solvent
The Flow
The streamlined trading mechanism works as follows:
A trader places an order.
The Router finds the best price among available strategies.
The order is filled using the selected strategy.
The clearinghouse updates the positions for both the taker and maker(s).
Note that, if you’re a programmatic trader, you can easily skip the router and choose a specific strategy for your order.
Benefits of the Framework
Now we have the idea of how the Framework works, let’s have a look at what benefits the Framework brings to each player: LPs, traders, builders and lastly, Perp.
LPs
LPing was never easy, and Perp V2 (and Uniswap V3 as the underlying tech) didn’t make it easier. The main problem we see for LPs in Perp v2 is that they are restricted to a strategy based on Uni v3 range orders, making successful LPing a highly technical challenge. So far no one has a silver bullet for providing liquidity on-chain.
Perp V3 tackles this by implementing a modular system, letting us use different liquidity strategies for different assets while allowing new strategies to be added easily. This is great for users of all types: easy options can be built for new and passive users, and there’s no limit to what pro users can build. Some examples include:
Strategy A — Oracle based: This is an unhedged approach that looks a bit like Synthetix. At a high level, LPs are simply the counterparty to all taker trades that come in. Price is set by the oracle, plus a spread based on the ratio of longs to shorts (a simple Stoikov model). Simply put, if there are more longs than shorts, then shorts will have less spread than longs, with the goal of reaching a balance of longs and shorts. This strategy takes the opposite position to takers, and earns maker fees as well as positive PnL when takers have negative PnL (in general) .
Strategy B — Spot hedge: The Spot Hedge Strategy operates in a manner similar to Hot Tub vaults, with comparable logic. Here’s how it works: It takes the spot price and provides quotes based on it; When a taker comes in, the strategy automatically buys or sells on the spot DEX to hedge the trade.
Strategy C to Z: R&D is ongoing to create more strategies, and we hope to open this to 3rd party builders as well.
More on Strategy B: Similar to Hot Tub, users can deposit either volatile or non-volatile assets (e.g., ETH or USDC) to Spot Hedge as the liquidity provider. Spot Hedge essentially functions as a single-sided staking yield pool where users deposit an asset, and earn yield in that same asset.
Future strategies can theoretically include the development of customized AMMs, dual investments, and many more unique strategies. Our next exploration involves a Request for Quote (RFQ) system and the potential addition of an auction mechanic. These innovations are designed to allow technically savvy LPs to easily define their strategies off-chain, offering unprecedented flexibility and customization.
Traders
As we mentioned above, Perp v3 uniquely blends various liquidity sources both on- and off-chain, enabling traders to get the best prices. But how does this work in practice?
With so many possible strategies available, you can think of it as having various tools in a toolbox, each one ideal for a specific job. For example, one tool (AMM) is great for stablecoin markets, another tool (oracle maker) is better in a bear market. There’s also a special tool (RFQ) for popular assets and another one (spot hedge) that’s perfect meme coins and other longtails. Each strategy complements each other and contributes to liquidity in their own best way.
The good news is, it all happens in the background, so as a trader, you can access liquidity across numerous venues, including those that are outside of Perp v3, without hunting for prices yourself.
If you’re a pro trader that programs your own trading strategies, Perp v3 is your playground. It allows you to automate your own unique trading strategies fully on-chain, offering a level of flexibility and customization that’s hard to find elsewhere. We will expand on Perp v3’s API in a future post.
Builders
If you are a builder, Perp v3 is a great place for you to work on your projects. It’s designed so you can integrate with a range of liquidity strategies and stay fully on-chain. This means you can build in a way that’s permissionless: just innovate and build. Plus, because of its composability, your projects can easily work together with others, making everything more connected and powerful. Again, we’ll expand on this in future posts.
Perp
Finally, let’s talk about how the Liquidity Framework benefits Perp as a protocol. First, there are two main problems that we’re solving:
Uniswap v3 (Perp v2’s basic liquidity model) was “opinionated”, limiting LPs’ ability to create profitable strategies.
Transitioning between versions (Perp V1→V2) required a full rebuild from scratch, which while thorough, is not optimized for future scalability and agility.
Recognizing these two problems, we’ve designed Perp v3 to break free from the constraints of a single model and to adopt a modular system. This shift not only gives LPs unparalleled flexibility but also future-proofs the protocol. As a result, Perp becomes more adaptable, has higher capacity for rapid iteration, and is better positioned to compete with new entrants in the space. Additionally, it keeps our options open if we want to move to an app chain (just saying) in the future.
Closing
Looking ahead, Perp V3’s modular design sets the foundation for continuous innovation and improvement, ensuring Perp remains at the forefront of the DeFi space. In essence, Perp V3 is more than just an upgrade; it’s a forward-thinking move that sets Perp’s course for the coming years, ensuring that whether you’re trading today or planning for tomorrow, you’re in good hands.