Perpetual Futures V2 Alpha Release
0xC065
December 21st, 2022

Perpetual Futures v2 for traders

Kwenta, as the definitive frontend for Synthetix Perpetual Futures, now supports the new v2 upgrade on Optimism, allowing Kwenta traders to take advantage of the most advanced decentralized perpetual Futures AMM on Ethereum.

If you’ve never traded perpetual Futures on a decentralized exchange before, welcome! Kwenta’s decentralized exchange is a unique product combining the flexibility of synthetic assets, the simplicity of trading against an AMM, and the capital efficiency of a leveraged product.

Trade on our alpha release using Perps v2:

Benefits of trading on Kwenta

Those being introduced to Kwenta for the first time or those unfamiliar with DEX trading may be wondering why one might trade on a Perps DEX at all. Although CEX trading venues -- centralized exchanges like Binance or FTX -- have been the most popular places to trade crypto derivatives, users are beginning to look for more secure, more innovative alternatives. Here are a few reasons to trade on Kwenta.

Trade directly from your Ethereum Wallet

Decentralized exchanges built on Ethereum allow users to trade with no sign-ups required.

Keep control of your funds.

With several centralized exchanges becoming insolvent in recent months, more users are looking toward decentralized exchanges. There’s no need to trust auditors or intermediaries since your assets can be viewed directly on the blockchain.

Deep liquidity

By drawing on deep liquidity from Synthetix, Kwenta can accommodate large trades on most assets and guarantee that liquidity is still available when a user goes to close a trade.

A variety of unique assets

Synthetic assets offer user exposure to an asset without needing to purchase the underlying. By using Chainlink and Pyth oracle feeds, Kwenta can offer a variety of digital and traditional asset exposure using only existing AMM liquidity.

A single counterparty

By using an AMM, or automated market maker, Kwenta traders never need to worry if someone will take the other side of their trade. Traders can easily submit an order on any asset at any time with predictable results.

Open source

In addition to Kwenta’s contracts being professionally audited, Kwenta’s code is open source. The community can read, run, or build on the Kwenta code base.

Community governance

Kwenta’s unique community governance model puts Kwenta token holders in control. Community members, token holders, and traders can contribute at every level, including providing product feedback, weighing in on governance decisions, or direct contributions.

Trade to earn

Traders who stake $KWENTA have the opportunity to earn tokens as they trade.

What’s new in Perps v2

With the release of Perps v2, Kwenta and our partners at Synthetix have drastically improved the user experience without relying on centralized infrastructure. Here’s what Perps v2 means for traders.

Lower fees

Perpetual Futures v2 reduces fees by around 80%. Due to the high frequency and low latency of push-based oracles – the system of oracles used by most DeFi protocols where prices are sent to the chain at regular intervals – high fees are needed to prevent frontrunning and manipulation. Some projects get around this by using a custom, centralized oracle, which can be a point of vulnerability.

Using pull-based oracles – an oracle that allows users to request a price when they place a trade – risks for liquidity providers can be significantly reduced, allowing Kwenta to offer competitive fees without sacrificing decentralization.

More granular pricing and more frequent updates

Another advantage of using pull-based oracles is the ability to see and trade price changes in real time. This means prices update faster, and orders fill at rates similar to off-chain order books.

At launch, Perps v2 will use oracles provided by Pyth for up-to-date pricing, with Chainlink oracles providing a backstop in case of price divergences. This feature protects traders if one of the oracles reports an incorrect price. Moving forward, Kwenta will be the first place to use an exciting new oracle solution from Chainlink, allowing traders to stay on the cutting edge of DeFi.

More predictable funding rates

Perps v2 includes an improved funding rate model. Rather than making funding rates a direct result of market skew, which can cause funding to fluctuate wildly and provide little opportunity for funding rate arbitrage or basis trading, Perps v2 enables a smooth transition in funding rates. Rather than changing instantly with the skew, funding rates under Perps v2 “drift” from one direction to the other depending on the skew, freezing when the skew is balanced. This model means traders have more incentive to collect funding through advanced trading strategies and are less likely to be surprised by sudden changes in funding.

Higher open interest limits

Another advantage to the improved funding rate model is that traders are incentivized to keep the market skew in balance. Traders can open more significant positions with less risk to the liquidity providers. Perps v2 is a new system that will need to be monitored and adjusted over time but should allow markets to scale to a degree unmatched in DeFi.

A more comprehensive range of assets

Perps v2 will launch with only a single market (ETH-PERP), but over time the Perps v2 system will be able to accommodate assets not possible under the v1 design. In addition to funding rate improvements that accommodate assets with strong directional bias, Perps v2 uses simulated liquidity, a system where asset prices move in relation to demand.

Although price impact may not immediately seem beneficial to traders, most traders should experience minimal price impact while significantly improving the system’s ability to protect liquidity providers from market manipulation. This means that Kwenta can offer traders a broad array of assets, large and small, whether digital or traditional.

More trading strategies and more use cases

Perps v2 improvements open doors for both traders and builders, providing opportunities for delta-neutral strategies such as funding rate arbitrage or basis trading and price arbitrage due to simulated liquidity temporarily causing price divergence from other exchanges. Lower fees mean low-cost hedging and enable positions that require frequent re-balancing, such as maintaining fixed leverage or simulating exposure to custom pairs.

Perps v2 brings these benefits to builders, as well. Tokenized strategies such as leveraged tokens can be built and listed on the Kwenta exchange; vaults can be made available for automated systems; protocols like Lyra can improve the capital efficiency of delta hedges, and much more.

The Road Ahead for Perps v2 at Kwenta

These benefits are just a tiny taste of what’s to come as Kwenta builds additional tools, including cross-margin functionality and advanced order types. The launch of Perps v2 marks the beginning of this journey at Kwenta, and users can expect to see rapid iteration, new partnerships, and new opportunities.

Join the Kwenta Community

If you haven't already, join the Kwenta community on Discord.

To be the first to learn about new updates to Kwenta, follow us on Twitter.

To trade synthetic assets and futures, visit Kwenta.

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