Futureswap – Decentralized Perpetual Futures with up to 10x Leverage
Recent events have made it all too clear to the average user why decentralization has a key role to play in having a fair and efficient market. Futureswap aims to disrupt the multi-billion dollar perpetual futures trading market currently dominated by centralized services. Futureswap takes a different approach with a hybrid between Uniswap and a perpetual futures exchange platform governed by the community. You may remember Futureswap from their successful Alpha in April 2020 which ultimately ended early after DeFi users flocked to the platform in overwhelming numbers. In less than 3 days, Futureswap’s Alpha 24hr trading volume grew to $17M and liquidity passed $1M. Erring on the side of caution, the Futureswap team decided to end the Alpha earlier than initially planned.
Now they’re back with something even better, the Futureswap V2 Beta is already launched on mainnet. The Futureswap V2 Beta includes upgrades like live pricing and higher capital efficiency which aim to provide a perpetual futures trading experience that outperforms centralized exchanges.
What makes Futureswap V2 Beta special?
Futureswap is a decentralized exchange platform with an automatic market maker (AMM) design that enables traders to enter leveraged perpetual futures with low slippage. Its automatic market maker (AMM) design provides higher capital efficiency offering up to 10x leverage. According to Futureswap: after $50m in liquidity, Futureswap should have better price execution for a $1m trade than any other decentralized exchange and after $300m it has the lowest slippage compared to centralized exchanges based on the current slippage parameters.
Additionally, Futureswap pools can be very efficient with their use of capital resulting in more stability and potentially high returns for liquidity providers compared to traditional AMM exchanges. Futureswap utilizes what’s called a Dynamic Funding Rate or DFR for short. The DFR is a borrowing fee based on the total trade size designed to maintain the volume balance between open longs and shorts. During times of disproportionate demand, liquidity providers’ pooled assets are used to take up the opposite side of any unmatched trades. So if there were tons of unmatched ETH longs, LPs cover the ETH essentially opening a short.
Long and short volumes are pooled and then the more popular pool is charged the dynamic funding rate and it’s paid to the pool in low demand. This mechanism limits extreme volatility and properly rewards liquidity providers for their exposure to risk. The DFR keeps increasing as the disparity grows to disincentivize trades on the popular side. In other words, the longs pay the shorts or vice versa until the sides become balanced. This also means that liquidity providers have the potential to earn more thanks to the DFR.
Oracle Relayer Network (ORN)
One of the biggest improvements Futureswap V2 brings is the new Oracle Relayer Network (ORN) which enables instant pricing and real-time trading. ORN has been described as a mesh between a price oracle and a meta-transaction processor node. Futureswap users are able to trade in real-time by signing a message including their order and submitting them to ORN. Then, ORN verifies the signed message and finalizes the trade on-chain at the current price. Transactions will fail if outside accurate price bounds set by ORN to protect users. The Futureswap team is taking further steps to improve the Oracle Relayer Network’s security with audits by Trail of Bits and plans to add more nodes to the network.
How Futureswap works
As we’ve covered, traders on Futureswap can open long or short perpetual future positions with up to 10x leverage in real-time with instant pricing. Perpetual futures on Futureswap have no time limits and can remain open as long as the trader has enough collateral. Traders will either pay or earn the dynamic funding rate when opening longs or shorts depending on whether they are on the popular side of the trade or not. Traders also earn FST token rewards each epoch based on their percentage of close trade volume that distribution period.
Liquidity Providers add liquidity to Futureswap pools in equal parts to earn trading fees and FST token rewards. For example, if you wanted to add liquidity to Futureswap’s ETH/USDC pool, you would need $100 worth of ETH and 100 USDC. Once deposited, LP tokens are minted representing your share of the pool. These LP tokens can be redeemed at any time if their liquidity is not in a trade. Liquidity providers earn trading fees for allowing traders to use their liquidity. Liquidity providers also earn FST token rewards as an incentive to further grow Futureswap’s available liquidity.
Liquidators monitor the platform for positions that are close to violating margin requirements and send liquidation transactions to close at-risk positions for a liquidator fee. It’s vital to the health and stability of the platform for positions to be reliably closed once they reach their liquidation price. It’s worth mentioning that submitting these transactions does not require the liquidator to provide any value or to take over the trade. They simply close the trade on behalf of the protocol and are rewarded for doing so. Currently, the percentage that liquidators receive is 30% of the remaining collateral up to a maximum (currently set to 500 USDC).
Futureswap is governed by the community
FST is Futureswap’s non-transferable governance token which is rewarded to traders, liquidity providers, and referrers each day. FST allows the Futureswap community to propose and vote on changes to the protocol, enabling it to evolve and improve over time. We’ve already mentioned FST tokens a few times covering Futureswap’s various incentives designed to incentivize user participation. FST is used to reward the Futureswap users contributing to the growth and adoption of the platform. And since Futureswap is governed by the community, this gives the most active users influence over the future of the platform. In other words, users who participate sooner rather than later after the community grows even larger are more likely to have a larger impact with their contributions and receive more FST rewards.
Potentially disrupting such a big market like perpetual futures presents an opportunity for Futureswap. Futureswap is designed with the expectations of serious trades in mind. Futureswap’s design with its high capital efficiency and low slippage lends itself well to larger trades for whales and industry traders. Its instant pricing and real-time trading ORN system provides a better trading experience with built-in protections against front running attacks. Futureswap may also continue to provide even lower slippage as liquidity grows over time. FST rewards increase the likelihood of this occurring by incentivizing adoption.
Disclosure: This post is part of our paid promotional DeFi Pulse Drop series; We’ve partnered with Futureswap to help educate and inform the community about the launch of Futureswap V2 Beta. DeFi Pulse received FST tokens as part of its payment. As always, we’re committed to providing the entire community with quality, objective information, and any opinions we express are our own.