New Age of CLOB-Based Perps Unifying Liquidity

The Central Limit Order Book (CLOB) has become the gold standard for modern digital asset trading. By pooling all bids and offers for a given asset into a single, transparent venue, CLOBs maximize matching efficiency, price discovery, and market depth. This liquidity unification is a cornerstone of DeFi’s rapid evolution, enabling traders to enter and exit positions with minimal slippage and ensuring that even large trades can be executed without dramatically moving the market.

CLOBs have powered the rise of perpetual futures (“perps”), which have grown to dominate trading volumes on both centralized and decentralized exchanges. The appeal is clear: perps provide continuous, leveraged exposure to asset prices, with deep liquidity and tight spreads. The unified order book structure means that all participants: speculators, hedgers, market makers are competing in the same transparent marketplace, driving efficiency and robust price signals.

Yet, as the market matures and the needs of sophisticated users grow, cracks in the foundation of CLOB-based perps are becoming visible, specially when it comes to what is actually being traded.

CLOB-Based Perps for Distributed Markets

Despite their technical prowess, most CLOB-based perps are fundamentally designed for discrete outcome markets. In these systems, you can only take positions on a specific price, a binary event (above/below a strike), or a simple directional bet (long/short). This works well for straightforward speculation, but it’s a blunt tool for the complex, multi-dimensional risks that define real-world markets.

Key limitations:

• Expressiveness is low: Traders are restricted to simple price or direction bets. There’s no way to directly express nuanced views on volatility, skew, or the probability of extreme events.

• Hedging is crude: Risk management is limited to basic scenarios. If you want to hedge against a specific risk such as a sudden spike in Ethereum gas fees or the risk of a tail event and you’re forced to cobble together imperfect proxies.

• Liquidity is concentrated, but only for standard bets: The unified liquidity of the CLOB is powerful, but it only applies to the narrow set of standardized contracts. More sophisticated or niche exposures are left out in the cold.

This “one-size-fits-all” approach leaves a massive gap for anyone seeking to manage or speculate on the shape of the future, not just its average.

Analyzing Paradigm’s take on Distributed Markets

Paradigm’s December 2024 Distribution Markets article by Dave White highlights a profound shift in how we can think about trading and risk: distributional markets. Instead of betting on a single outcome, distribution markets let you trade on the entire probability distribution of a future variable, a full range of possible gas prices on Ethereum at a given time for example.

What’s missing in today’s perp markets:

• No direct way to trade volatility, skew, or fat tails: In markets like blockchain gas fees, which are notoriously volatile and non-normal, traditional perps leave most of the risk unaddressed.

• Inability to hedge specific risks: dApps, validators, and investors can’t precisely hedge against the risks that matter most to them, such as only the risk of extreme gas spikes.

• Limited information aggregation: Markets can’t efficiently surface consensus on the likelihood of different outcomes, making it harder for all participants to make informed decisions.

• Missed opportunities for market-neutral strategies: Without the ability to trade on distributional features, sophisticated, delta-neutral, or volatility-arbitrage strategies are largely unavailable.

Paradigm’s insight is clear: the next generation of markets must empower traders to express beliefs about the entire outcome distribution, not just a single point.

Paradigm’s model proposes trading claims on segments (buckets or quantiles) of a future outcome’s probability distribution. For instance, instead of betting “ETH gas will be above 50 gwei,” you can buy exposure to the 80th–100th percentile of possible outcomes. If the realized outcome lands in your bucket, you win.

Example Trade In A Nutshell

1. Market Setup: The market defines a set of buckets (e.g., 0–10, 10–20, 20–50, 50–100 gwei).

2. Order Placement: Traders place bids/offers on each bucket’s CLOB, expressing their views on where the outcome will fall.

3. Matching: The CLOB matches buyers and sellers for each bucket.

4. Settlement: At expiry, the realized outcome determines which bucket pays out.

Advantages:

• Nuanced exposure: Traders can target specific distribution segments, hedging or speculating on volatility, tails, or medians.

• Improved price discovery: The market reveals the implied probability distribution for the outcome.

• Better risk management: More precise tools for hedgers and speculators.

Limitations:

• Liquidity fragmentation: Liquidity is split across many buckets, making some segments illiquid.

• Complexity: Managing multiple buckets is harder for users and market makers.

• Settlement ambiguity: If the realized outcome falls on a bucket boundary, payout rules must be clear and fair.

Bottom line: Paradigm’s model is a leap forward in expressiveness, but it introduces new challenges in liquidity and usability.

Introducing Gradient Positions

Gradient Positions, introduced by EQLZR, is a reward mechanism that lets traders take exposure to arbitrary percentile ranges of an outcome distribution, using customizable weighting functions[1]. Rather than being limited to fixed buckets, traders can express nuanced, probabilistic views by betting on volatility, skew, or any segment of the distribution.

Key features of Gradient Positions:

• Maximum expressiveness: Bet on any percentile segments (e.g., 0–10%, 10–25%, 25–50%, 50–75%, 75–90%, 90–100%) or even custom ranges with bespoke weighting.

• Continuous, accuracy-based rewards: Payouts are proportional to how closely your position aligns with the realized outcome, factoring in timing and principal.

• Market-neutral and volatility strategies: Directly target volatility, skew, or median stability.

Example Trade In A Nutshell

To avoid liquidity fragmentation, EQLZR supports standardized percentile ranges as default templates. Here’s how a gas fee trade works:

1. Market Setup: Defining the Distributional Playground

• **Standardized Percentile Ranges:**EQLZR’s market designates a set of standardized percentile buckets (e.g., 0–10%, 10–25%, 25–50%, 50–75%, 75–90%, 90–100%) for the future distribution of gas fees (e.g., for the next 1-hour period on Ethereum).

• **CLOB Initialization:**Each percentile bucket is represented as a distinct trading venue (order book) within the CLOB, allowing traders to post bids and offers for exposure to that specific segment of the distribution.

• **Gradient Position Templates:**For each bucket, the platform provides default weighting functions (e.g., uniform, tail-heavy, median-focused), but also allows for custom weights if desired, while encouraging standardization to concentrate liquidity.

2. Order Placement: Expressing Nuanced Views

• Trader Intent:

  • Trader A expects a volatile period and wants to hedge against a spike in gas fees, so they target the 90–100% percentile bucket (the right tail).

  • Trader B anticipates stability and prefers exposure to the 25–50% bucket (the median).

• **Order Submission:**Both traders submit limit orders to the CLOB for their chosen percentile buckets, specifying the amount of exposure (principal) and the price they are willing to pay for this risk.

• **Custom vs. Standardized:**While custom percentile ranges and weighting functions are possible, most traders opt for standardized templates to maximize liquidity and minimize slippage.

3. Order Matching and Execution: Unified Liquidity in Action

• **CLOB Matching Engine:**The CLOB matches buy and sell orders within each standardized bucket, ensuring that all participants trading a given risk segment are unified in a single order book.

• **AI-Driven Aggregation:**EQLZR’s autonomous AI agents continuously monitor open interest and order flow. If similar exposures exist across slightly different buckets or weighting functions, the AI aggregates and nets these positions, routing orders to maximize counterparty matching and minimize fragmentation.

• **Liquidity Optimization:**Protocol-owned liquidity via ELP and dynamic incentives are deployed to seed key buckets, further deepening the order book and ensuring tight spreads in the most actively traded percentile ranges.

4. Position Management: Dynamic Trading and Strategy Execution

• **Ongoing Adjustments:**Traders can adjust, close, or roll their positions at any time before expiry, just as in a traditional perp market.

• **Portfolio Construction:**Advanced users may construct market-neutral or volatility-focused portfolios by combining exposures across multiple percentile buckets (e.g., long the tails, short the median).

• **Composability:**Custom positions can be tranchable into standardized ones, allowing even niche bets to be partially matched with broader pools, further unifying liquidity.

5. Funding and Risk Management: Keeping Prices Honest

• **Funding Rates:**Continuous funding payments may be used to keep the price of each Gradient Position aligned with the market’s consensus probability for that outcome, similar to how funding rates keep perp prices in line with spot.

• **Collateral and Margin:**All positions are collateralized, with risk managed by EQLZR’s robust margining and liquidation systems.

6. Settlement: Distributional Payouts at Expiry

• **Outcome Realization:**At the end of the trading period, the realized gas fee (e.g., the median or a volume-weighted average over the period) is observed.

• **Percentile Mapping:**The realized outcome is mapped to its corresponding percentile in the pre-defined distribution.

• **Payout Calculation:**Each Gradient Position receives a payout based on:

  • Accuracy: How close the position’s targeted percentile range was to the realized outcome.

  • Weighting Function: Positions with higher weights near the realized percentile receive proportionally higher rewards.

  • Principal and Timing: Early, larger positions may be rewarded more, reflecting their informational and liquidity value.

• **Unified Payouts:**Because most liquidity is concentrated in standardized buckets, payouts are distributed efficiently, and even custom positions can be settled by decomposing them into standardized tranches.

7. Post-Trade: Data, Insights, and Risk Recycling

• **Market Data Publication:**EQLZR publishes full distributional order book and settlement data, enabling transparent price discovery and analytics.

• **Strategy Refinement:**Traders and protocols analyze outcomes to refine hedging strategies, optimize liquidity provision, or develop new market-neutral products.

• **Risk Recycling:**AI agents and market makers recycle risk across buckets, maintaining deep, unified liquidity for future trading cycles.

Advantages:

• Unified liquidity: Standardization and AI-driven aggregation concentrate order flow.

• Advanced risk management: Traders can hedge or speculate on any segment of the distribution.

• Continuous, fair rewards: No “winner-take-all” or ghost markets.

• Composability: Complex strategies are possible without sacrificing liquidity.

Limitations:

• Higher complexity: More powerful, but requires user education and robust UI/UX.

• Governance and infrastructure: Needs ongoing management of templates, incentives, and aggregation logic.

Gradient Positions Fix Fragmentation and Overfitting

• Standardization: Most liquidity is concentrated in a handful of canonical positions, ensuring unified, deep order books.

• AI aggregation: Orders for similar risk profiles are matched even if the original definitions differ, virtually pooling liquidity.

• Composability: Custom positions can be tranchable into standardized ones, so even niche bets can be partially matched with broader pools.

• Dynamic incentives and governance: The protocol incentivizes and curates which positions are most liquid and useful, keeping markets efficient.

EQLZR: CLOB Perp for US$7B GasFi Markets

EQLZR is the world’s first dedicated GasFi platform, purpose-built to transform gas fee volatility from a barrier into a manageable risk and a source of market-neutral yield[1]. Here’s how EQLZR creates value for every stakeholder:

For dApps, Protocols, and Developers:

• Predictable costs: Hedge against gas spikes, ensuring stable user experiences and reliable operational planning.

• Custom hedging: Protect against specific fee risks (L1, L2, bridge fees), supporting complex cross-chain deployments.

For Validators and Miners:

• Revenue smoothing: Hedge future income, protect against periods of low fees or extreme volatility.

• Optimized operations: Plan infrastructure and payouts with confidence, reducing business risk.

For Investors and Traders:

• New yield streams: Unlock market-neutral, volatility, and distributional arbitrage strategies.

• Uncorrelated returns: GasFi is a new asset class, uncorrelated with broader crypto prices.

For Wallets and End-Users:

• Fee insurance: Offer users protection against high fees, improving retention and satisfaction.

For Market Makers and Liquidity Providers:

• AI-powered efficiency: Autonomous agents aggregate and route liquidity, maximizing capital efficiency and reducing slippage.

EQLZR’s Edge

• Direct gas fee focus: Not just hashrate or proxies but real gas risk, cross-chain.

• Cross-chain capability: Hedge fees across L1s and L2s, including bridges.

• AI-driven infrastructure: Market making, risk management, and strategy execution are automated and optimized for efficiency.

Summary

The future of DeFi risk management is distributional, expressive, standardized and unified. CLOB-based perps have brought us far, but to truly unlock the next wave of growth and resilience, we must move beyond discrete markets. Paradigm’s Distribution Markets show the way, but EQLZR’s Gradient Positions take us further by offering unified liquidity, advanced hedging, and a new DeFi primitive for the volatile world of blockchain gas fees.

**Ready to hedge, speculate, or build in the new era of GasFi?**Explore EQLZR, join the community, and help shape the most sophisticated risk management platform in Web3.

References:

[1] : EQLZR Whitepaper, 2024, https://www.papermark.com/view/cm91ad47h0003jm036siplvri

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