What is Perpetual Protocol (PERP)?

Perpetual Protocol is a DeFi protocol that allows you to operate in a decentralized way with perpetual contracts through the Ethereum blockchain and the xDai sidechain. 

Uno of the protocols DeFi most important in Ethereum is Perpetual Protocol, a project dedicated to creating a decentralized exchange (DEX) which works on the basis of vAMM (acronym for Virtual Automated Market Makers). Thanks to this technology, Perpetual Protocol can guarantee liquidity to carry out its operations, always having predictable prices for the different assets.

To achieve all this, Perpetual Protocol uses a system of stake pool, for which they can receive PERP tokens as rewards that can also be reused within the participation system. Thus we have a new DeFi protocol, which although it may have many similarities with Uniswap o Sushi Swap, shows us another way to create fully functional and secure DEXs.

Origin of Perpetual Protocol

The history of Perpetual Protocol takes us back to 2019, when Strike was created, a DeFi protocol inspired by the functions of Synthetix and Uniswap. Strike, sought to unite the capabilities of these two projects to create a new protocol that would allow the creation and negotiation of perpetual contracts. Additionally, the system was capable of offering leverage capabilities, short positions and a slippage lower, compared to other protocols.

However, in August de 2020, the Strike developers decided to rename the project for two reasons:

1. The name Strike was confused with that of the Strike wallet by LN for BTC.
2. Strike Protocols, was also the name of a fintech based in New York.

So they decided to change the name from Strike to Perpetual Protocol, and the Strike (SKE) token changed its name to PERP. The change did not affect the project beyond being an identifying arrangement, but it was enough to make it stand out even more.

Objective and vision of the project

Part of the spirit that led to the creation of Perpetual Protocol is clearly identified in your community. In fact, we can synthesize them in four very clear points that explain the objective and vision of Perpetual Protocol, which are:

1. Democratize powerful tools of commerce and expand economic inclusion around the world. This is thanks to the fact that Perpetual Protocol is able to offer access to perpetuals, one of the most complex and centralized financial tools that exist in the traditional financial world and that now, thanks to Perpetual Protocol, are available to anyone.
2. Generate an AMM suitable for low liquidity futures due to built-in liquidity, allowing long-tail asset trading. This is possible thanks to the vAMMs, which are an improvement to the AMMs that we usually find in other projects.
3. Reduce impermanent losses for participants in the protocol's liquidity pools. In this way, the investment of liquidity providers would be protected from the fluctuation of cryptocurrency prices.
4. A system that minimizes the risks of price manipulation. This thanks to a mixed system of oracles and internal algorithms, which guarantees the correct information and formation of asset prices in the market.

How does Perpetual Protocol work?

Basically, Perpetual Protocol seeks to create a DEX in which users are able to operate with perpetual contracts in a completely decentralized way. To achieve this, Perpetual Protocol has designed a whole series of smart contracts on the Ethereum network that allow you to offer this service. Also, in order to avoid Ethereum scalability issues, Perpetual Protocol uses scalability technology from x Come on, in order to offer speed of operation and low commissions to its users, without having to leave the Ethereum ecosystem.

A highlight of Perpetual Protocol is that the operations of its perpetuals are settled through the use of the stablecoin USDC. This is because the Perpetual Protocol guarantee system is based on this stablecoin, an essential part of the system that minimizes the risks of impermanent loss within the protocol.

Because Perpetual Protocol is a Web3-type dApp, users can interact with the protocol through wallets such as Dappradar or compatible. If you want more security, you can interact with the protocol through a hardware wallet like Trezor or Ledger.

Additionally, Perpetual Protocol uses a simplified system to allow traders to reap the scaling benefits of xDai without having to configure their wallet. Simply use your wallet to “deposit” USDC through the interface and you will be able to trade on Perpetual Protocol. At all times, you would maintain control of your funds, which will be reflected in your wallet. In this way, you can trade or stake the LP of the protocol in order to earn commissions and rewards for your contributions.

What are virtual MMAs (vAMMs)?

The fundamental part of the operation of Perpetual Protocol falls on the vAMM or Virtual Automated Market Makers. vAMMs in Perpetual Protocol use the same constant product formula x*y=k, which we can see in Uniswap (which uses the AMM model). As the "virtual" part of vAMM implies, there is no set of real assets (k) stored within the vAMM itself. Instead, the actual asset is stored in a smart contract vault that manages all the collateral supporting the vAMM. Unlike traditional AMMs, the Perpetual Protocol uses a vAMM as a price discovery mechanism, but not for spot trading.

Here's an example showing how a vAMM works:

First, before creating a vAMM on the blockchain, the creator sets the number of virtual assets stored within the vAMM. Suppose the ETH price is trading at 4.000 DAI, the creator can set an initial amount of ETH and DAI on the vAMM with a ratio of 1 to 4.000. For simplicity, we assume that the creator sets the initial state on that vAMM as 100 vETH and 400.000 vDAI.

Second, Alicia wants to leverage 10x long ETH with 100 DAI as collateral. So, Alice deposits 100 DAIs in the Perpetual Protocol vault, which, as mentioned above, is a smart contract. Consequently, Perpetual Protocol credits Alice's 1.000 vDAI (10x leverage over 100 DAI) to vAMM, which in return calculates the amount of vETH Alice will receive based on a constant function (x * y = k). Thus, Alice has 0,25 vETH registered and the status within this vAMM becomes 99,75 vETH and 401.000 vDAI.

How you can see the system is very similar to the AMM, with the difference that liquidity is virtualized when carrying out operations, with the advantages of minimizing the risk of impermanent loss and price slippage or slippage.

Perpetual Contract Operation

Perpetual Protocol is used to operate perpetuals, which are basically futures contracts, but with the particularity that they do not have an expiration or settlement date. Basically, a perpetual takes advantage of the benefits of futures, while it imitates the behavior of the spot market of an asset, allowing an operation as if it were a spot asset.

In addition, Perpetual Protocol provides great advantages, among which are:

1. That an order book is not used thanks to the vAMM system. This means that all trades are completed immediately and there is no need to wait for a counterparty or pay an acceptance commission.
2. Trades settle somewhat slower than on centralized exchanges, especially during high volume. Because this creates a risk of slippage or price slippage, Perpetual Protocol provides adjustments for maximum slippage and trades are performed on xDai, to provide greater speed of operation.

PERP token, the protocol's native token

The native token of the protocol is the PERP token, built on the basis of the Ethereum ERC-20 standard and that you can check on-chain through this link. The goal of this token is quite simple:

1. Serve as a token for rewards to all those who participate in the protocol as liquidity providers.
2. Allow governance system in Perpetual Protocol DAO.

The PERP incentive system can be observed in the following structure:

Being a utility token, PERP guarantees the following use cases within the platform:

1. Governance, allowing PERP token holders to make decisions that affect the development of the protocol. This is possible through PERP token staking, which gives stakers voting power.
2. Staking, since PERP token holders can use them within the protocol, thereby receiving rewards for their contribution.
3. Exchange backupIn extreme cases (such as a platform hack), Perpetual Protocol may resort to the exchange insurance fund. This fund is made up of PERP tokens that can be sold on the market to offset any losses.

Another important point within the PERP token tokenomics is its maximum issuance which is limited to 150 million tokens. This amount of tokens is distributed as shown in the following graph:

Conclusions

Perpetual Protocol is undoubtedly an excellent tool for harnessing the power of perpetual contracts in the world of decentralized finance. Its ability to allow users to enjoy this type of operation, together with the reduction of the risks of impermanent loss and price slippage, helps it to position itself in a better way. In addition, the fact that your operations are carried out on xDai also helps to make your transactions cheap and fast, leaving behind the problem of high Ethereum commissions.

On the other hand, its token and its utility also invites holders to seek to benefit from its possibilities. In fact, since its launch, the PERP token has performed well in the markets, offering an ROI of more than 400%, which shows the good economic performance of the project.

Links of interest