Aggregation on Arbitrum

As Kwenta establishes its presence on Arbitrum with our Perennial integration, we are excited to introduce a groundbreaking advancement in decentralized trading which leverages the rich and diverse DeFi ecosystem on Arbitrum: the launch of our aggregation capabilities for perpetual contracts—a pioneering initiative beginning with this newest deploy.

Why Arbitrum?

While Kwenta has developed a reputation for being a dominating force in derivatives on the OP stack with over $50 Billion in volume across legacy and existing products on Optimism and Base through our partnership with Synthetix, Kwenta’s vision has always been to offer users a multichain product offering a broad suite of tools for onchain derivatives trading. While Kwenta continues to build out our Superchain offerings, we will also begin to explore this vision.

Our expansion to Arbitrum is being driven by the network's vibrant DeFi community, including a varied perpetuals ecosystem with deep liquidity. In collaboration with Perennial, a derivatives liquidity layer providing capital-efficient, AMM based perpetuals trading, Kwenta is set to redefine the trading landscape. This partnership not only brings Kwenta traders access to a groundbreaking perps model through Perennial, but establishes our presence as an aggregator in a landscape which features other key players such as Gains Network and GMX.

Aggregating Perps

Kwenta's aggregation feature is set to transform how traders interact with perpetual contracts. Unlike traditional spot market aggregators, where the end product is a fungible token, perpetual contracts require more nuanced considerations. Each platform has its own funding mechanisms and pricing strategies, which means aggregation in this space must empower traders to actively assess the benefits of each liquidity source. While some attempts at perps aggregation exist, Kwenta is equipped to excel at tackling this complex problem.

Aggregation is a complex juggling act
Aggregation is a complex juggling act

How can Aggregation Work?

Aggregation will allow Kwenta users to not only find liquidity for their desired pairs but also to select the most advantageous conditions for their trades—whether they seek the best rates, minimal costs, or opportunities for arbitrage. This ultimately requires a balance between giving users access to a wealth of well organized data, a simple flow for executing trades, and an advanced margin engine capable of managing user deposits across multiple platforms and performing simple smart contract interactions on behalf of the user.

  • Data: For advanced users, presenting a detailed analysis of each exchange is critical to the aggregation experience. One point of inspiration for Kwenta’s approach to this problem are the layout of LlamaSwap’s Spot Aggregator which provides a detailed view of your routing without compromising simplicity. Perps traders need a few important pieces of information to evaluate their trade. Each piece of information should be sortable to help the trader find the best venue.

    • Execution price: most perps exchanges use oracles for pricing, though pricing may differ from the oracle, or oracles themselves may differ. Traders may look for the best pricing opportunity, especially premiums or discounts.

    • Ongoing costs: Ongoing costs can be positive or negative, and are typically expressed as funding rates. Some exchanges also use borrowing rates or interest rates as part of their mechanism. Traders may consider the sum of these factors, as well as the settlement period when making a trade.

    • Available Markets: While some markets, such as ETH/USD are shared across nearly every perps exchange, other markets may only be available in a few locations, or even a single location. Aggregation should allow users to view the full list of available markets and the supported venues.

    • Available Open Interest: Available liquidity or available open interest will dictate the maximum trade size for each available venue. If you’ve ever deposited to an exchange only to find there is no liquidity for your trade, you understand the frustration and wasted time.

    • Margin Types: While most exchanges accept USDC collateral, exchanges are increasingly allowing users to select alternatives such as DAI, ETH, and will likely continue to expand. Users will need to understand which margin collateral is accepted, and swaps may need to be facilitated.

  • Trade Flow Management: Balancing the above data points with an easy-to-use order entry system which minimizes bloat is critical to attract users to Kwenta over other exchanges. Not only should new users be presented with a quick and easy path to placing their first trade, but even advanced users should be able to easily navigate the UI. In perps trading, seconds count. Kwenta’s challenge will be to make venue comparisons and in-depth data available without adding additional clicks or hassle for our users.

  • Cross Platform Margin Engine: If you’ve followed Kwenta’s progress, you know that one of Kwenta’s most significant value adds is the margin management engines built on top of Synthetix perps. These margin engines turn complex interactions in to simple, 1-click commands for Kwenta users. To upgrade this approach, Kwenta will need to manage margin on behalf of users across multiple exchanges, seamlessly withdrawing, depositing, and opening a position in the appropriate venue in a single action. By using account abstraction, Kwenta can additionally abstract away gas costs and other segregated fees, and implement advanced features such as TWAP orders and shared cross-platform margin.

Critical Partnerships

In addition to finding robust infrastructure providers to ensure that each piece of Kwenta’s product functions as intended, aggregation requires new liquidity sources. While Kwenta is exploring several options across different networks, a few key Arbitrum players have caught our attention.

Forging strong partnerships is the key to success
Forging strong partnerships is the key to success

The Role of Perennial

As Kwenta embarks on the first leg of our journey, Perennial plays a pivotal role as our foundational partner. This partnership leverages Perennial's advanced on-chain derivatives protocol, which is meticulously designed to serve as a crucial DeFi primitive within the ecosystem. Here are the key aspects of Perennial that enhance Kwenta’s aggregation capabilities:

  • Hyper-Efficiency: Perennial introduces a radical improvement in capital utilization. Its model allows $1M in Total Value Locked (TVL) to support up to $10M in Open Interest through a funding rate system aimed toward balancing longs and shorts, and a customizable LP experience offering traditional vaults or leveraged LP strategies.

  • Customizable Markets: Perennial supports the creation of bespoke derivative markets, including exotic offerings like Power Perps and NFT Perps. This flexibility allows Kwenta to aggregate a diverse range of markets, catering to varied trader preferences and needs.

  • Oracle Agnosticism: The protocol’s ability to integrate any price feed quickly enables the rapid deployment of new markets, ensuring that Kwenta can offer the latest and most relevant trading opportunities. While we’re excited to continue working with our oracle partners at Pyth Network, Perennial’s system leaves the door open for future oracle expansions and integrations.

  • Development and Ecosystem Support: Beyond Perennial’s innovative features and strategic approach to derivatives trading, Perennial’s team has committed to working closely with Kwenta on development, marketing, and broader ecosystem integration, including a joint application for an Arbitrum Onboarding Incentive through Arbitrum DAO. This support is critical to maximize Kwenta’s impact during the launch of aggregation.

Additional Potential Partnerships

While there are no formal partnership announcements beyond those with Perennial, Kwenta’s decision to pursue aggregation on Arbitrum is driven by the wealth of liquidity sources available, or expected to be available on the network. Here are some of our favorite protocols, and why they’re at the top of our list for future integrations.

  • Gains Network: A consistent performer in the perps AMM space and an early pioneer in pushing the boundaries of onchain perps, Gains is known for offering fast and reliable order execution on over 170 pairs including forex, commodities, and crypto. Gains’ cutting edge product paired with best-in-class UX would provide Kwenta users with a range of opportunities not available anywhere else.

  • GMX: Long considered both the dominant perps AMM and the flagship of the Arbitrum ecosystem, a partnership with GMX offers a powerful advantage for large traders. With TVL fluctuating as high as $1B+ between GMX v1 and GMX v2, Kwenta’s whale traders would be well served by the undisputed kings of TVL on Arbitrum when it comes to filling large positions.

  • Synthetix: Synthetix on a list of potential Arbitrum integrators? We believe our close partner and the architects of Kwenta’s birth are reaching a point of maturity with the existing v3 system on Base, and have already begun planning their inevitable expansion. As the pioneers of many features touted by other platforms and offering advanced features such as fully onchain cross margin in an AMM, we believe these DeFi OGs will continue to ship unimaginably innovative new approaches to onchain derivatives.

What About Base?

If you’re a fan of our v3 perps on Base, you can rest easy. Aggregation represents an expansion for Kwenta, which means a larger team, a wider vision, and continued work on our existing integrations. Despite a successful Beta launch of our v3 perps platform, our work is far from finished. Work on our Synthetix v3 integration is continuing at this very moment, including the final R&D necessary to implement social login, propose and migrate incentives, optimize tokenomics for a crosschain product, and build essential infrastructure which will add isolated margin support and enhanced infrastructure reliability to our Base deploy.

From the bottom of our hearts, we would like to express our gratitude to the Synthetix and Optimism communities. While Kwenta must grow to realize our ultimate vision of being the default frontend for onchain derivatives, the community can expect a continued push toward enriching the newly emerging Superchain ecosystem from the code to the culture. Kwenta remains Optimistic.

Where the Road Leads

Aggregation for Kwenta has a few key advantages, and paints a picture of Kwenta’s future as the homepage for DeFi derivatives traders. By tying together all of Kwenta’s previous initiatives and experience, onboarding new partners, and expanding our team to handle this monumental task, Kwenta’s single cohesive vision comes together. Let’s explore what this means for the community.

Kwenta's path lies directly ahead
Kwenta's path lies directly ahead
  • Sustainability: While Kwenta began as a well capitalized frontend for Synthetix perps, the path to financial growth and stability seemed unclear in the early days. Now earning 20%-35% of fees generated through our liquidity partners, Kwenta has a rock solid foundation on which to grow the team and promote our product.

  • Native Perps: While Kwenta aims to provide an uncompromising experience to its users first and foremost, Kwenta’s Quanto Perpetuals product currently in development gives the Kwenta DAO ownership over the full stack of its offerings. Not only are we empowered to work with partners to better serve our users, but our smart contract team will explore novel and exclusive mechanisms.

  • A Crosschain DAO: As Kwenta expands in to our 3rd chain, the DAO is looking for new ways to reward users, increase participation, and distribute the value of our shared success. While council works on additional governance reform to increase the direct participation of our community, the first step is a proposed tokenomics change to launch $KSX, a simple solution for crosschain participation in the Kwenta DAO, and a bid to increase other beneficial behaviors in the ecosystem.

The Kwenta community and its contributors are proud to embark on this ambitious journey and provide DeFi users with critical tools to not only match the CEX experience, but surpass it. We thank all our core contributors who are working tirelessly to engineer an absolutely mind blowing experience. To our loyal traders and community members, we appreciate all of your support, your feedback, and your assistance. Kwenta would be nothing without the support of one of the most dedicated communities in DeFi.

Here’s to you. Happy dreaming.

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