The fall of FTX and rise of GMX set up a perfect storm for decentralized perps and has led to a wave of second movers entering the market.
With a seemingly new perp DEX every week, is the narrative just hype, or have the pseudo-forks achieved PMF?
A megathread+predictions
🧵
This thread will break down the current landscape of synthetic, P2Pool perps.
We will discuss:
1️⃣ The current landscape of perpetual exchanges
2️⃣ Rising perpetual DEXes (alpha)
3️⃣ Upcoming catalysts and risks
Diving in! 👇
1️⃣
Although the collapse of FTX created widespread fear within the industry and the narrative for traders to start favoring DeFi alternatives over their centralized counterparts, data by @theblock suggests that this hasn't amounted to perp DEXes gaining meaningful market share.
I’d argue that the main reason is that other than self-custody, perp DEXes do not offer significant competitive advantages (yet) over CEXes. Trading perps on a CEX still has:
1. Better UX
2. Lower fees
3. More assets
4. A mechanism for price discovery (CLOB)
5. Deeper liquidity
@gametheorizing explains this very well from a trader’s perspective:
h/t @milesdeutscher
twitter.com/milesdeutscher/status/1605213283706757120
However, that is not to say synthetic perp DEXes do not have a place in the market. Volumes across major perp DEXes have remained resilient as the preferred trading venue for DeFi native degens
Additionally, innovations and improvements in tokenomics have led to the #realyield movement, leading to greater interest from investors and yield farmers.
Price go up > free marketing > new users > more fees > price go up
My thoughts in a nutshell:
In the short term, the perp DEX market will be PvP as protocols target a similar userbase.
Projects with strong differentiators and good marketing will gain mkt share.
Social trading remains a strong use case not fully figured out by teams.
In the long term, synthetic perp DEXes will bleed market share % wise, but adoption will increase in absolute terms (positive sum game)
New primitives will be introduced to challenge the synthetic model (@infpools)
There remains room for innovation for aggregators to improve capital inefficiencies of current models
An on-chain, CLOB DEX that can solve tokenomic issues will ultimately win (@dydx v4?)
2️⃣
First, the category I am bearish about is GMX forks. GMX had the first mover advantage, deepest liquidity, and a dedicated community.
But the protocol is not as scalable, and second movers can't offer much more
Despite 21 forks, all GMX forks only combine for 42M TVL.
Now for some strong projects.
First up: @vela_exchange
Vela is an arbitrum native perp DEX that was formerly known as DXP.
Vela has been on the rise in terms of both volume and TVL, and I think this can be attributed to:
1. Market timing
2. GTM and bootstrapping
3. Innovative features + positioning
Explained eloquently by @LouisCooper_:
twitter.com/LouisCooper_/status/1633803286439665665?s=20
1. Market timing
Vela launched at the peak of Arbitrum hype, where mindshare and liquidity were at all time highs.
This doesn't matter as much for 0-1 DeFi primitives, but for a saturated sector like perps, timing 100% matters.
2. GTM and bootstrapping
Vela had a great answer to the coldstart problem for a two-sided perp market with HyperVLP, airdrop tease, and incentivized trading competitions.
HyperVLP was able to bootstrap $10M liquidity very quickly, and since then VLP deposits have been up only due to the attractive, single-sided APR.
They saw a sharp dip during the USDC depeg but is now close to ATH again.
3. Innovative features + positioning
Vela recently released multichain swaps+deposits, which allows users from other chains to deposit+swap to USDC on arbitrum, significantly improving the onboarding experience for non-arbitrum native users
twitter.com/vela_exchange/status/1631366504385249280
Vela also offers a broader asset list, and while it can't really compete for ETH or BTC volume share with GMX, over 50% of its volume is generated from FX pairs, with 33% alone in EUR
@GainsNetwork_io
Gains is an OG project that has been around for a while. I used to be skeptical of its model as it was prone to a death spiral risk with $GNS as the final backstop for LPs.
We saw this happen in May 22' when LUNA crashed and DAI vault became undercollateralized
However, since then GNS has introduced a number of changes which has led to them safely securing the #2 spot behind GMX:
1. Improved protocol risk management
2. Expanding into different asset classes (FX, stocks, commodities, indices)
3. Deploying on Arbitrum
1. Protocol Risk Management
GNS implemented a number of risk measures to better protect DAI holders and resemble a CEX:
✅ Funding rates to balance L/S
✅ Price impact + Spread to prevent market manipulation
✅ Rollover fee to simulate cost of borrowing
medium.com/gains-network/gtrade-v6-1-in-depth-b06c0b93fad1
2. Asset class expansion
Similar to Vela, an advantage of the synthetic model (as opposed to margin trading GMX offers) is the scalability for asset listings.
Roughly ~30% of GNS volume is made of non-crypto assets, predominantly FX.
They've also listed many blue chip stocks, commodities, and US indices.
These do not have significant usage as of yet, but when the demand comes @GainsNetwork_io will be the first place to go.
3. @arbitrum
After deploying in Jan 2023, gTrade saw:
2x Daily OI
~1.5x daily users
3x gDAI TVL
70% of platform volume comes from Arbitrum
Need I say more?
@muxprotocol
MUX is a multichain leveraged trading aggregator on @arbitrum
@avalancheavax, @BNBCHAIN, @FantomFDN, and @optimismFND
MUX has its own crosschain LP, but also aggregates liquidity from other perps like @GMX_IO and @GainsNetwork_io via its aggregator:
In terms of performance, MUX's growth hasn't been as explosive as the likes of @vela_exchange, but their marketing also isn't as aggressive
Though they recently hit 3B c. volume, and efficiency of their aggregator is seen as trades are routed through other protocols
twitter.com/muxprotocol/status/1636475234164285440
They also recently received 250K $OP from @optimismFND which will be used as rebates.
Potential catalyst for growth as Optimism doesn't have a clear perp winner yet.
twitter.com/muxprotocol/status/1633203404662243328
They've also announced an integration with @synthetix_io perps V2, could be a huge catalyst for them in the Optimism ecosystem.
As an aggregator, I believe MUX has the highest ceiling of all three of these protocols.
3️⃣ Upcoming catalysts and risks
For degens, there will be plenty of opportunities for quick flips/farm and dumps as forks with no value props continue to pop-up.
Though we should see some consolidation over time as over-pumped forks die out.
DYOR, don't get rugged.
Developments I am paying attention to:
1. GMX synthetics
2. Adoption of non crypto/FX pairs on @GainsNetwork_io
3. Any perp DEX that can capture the @BNBCHAIN ecosystem
4. Social features, either protocol-native or built on top of protocols (e.g. @PerpyFinance)
H/t to these Dune Wizards for data:
@0xpurif
@unionepro
@JamesCliffyz
Chads who might be interested:
@ipor_intern
@defi_mochi
@DeFiMinty
@TheDeFinvestor
@0xCrypto_doctor
@rektdiomedes
@crypto_linn
@Slappjakke
@crypto_condom
@DegenCamp
@Chinchillah_
@cryptoshiro