Today we are witnessing the expansion of digital currency markets. This industry is growing and developing day by day and increasing the number of available cryptocurrencies. This article will introduce one of the digital currencies called Perpetual Protocol.
To better understand what Perpetual Protocol is and how it works, it is necessary to mention some points and features of these tokens.
The Perpetual Protocol, formerly known as Strike, was created in 2019 by emerging DeFi protocols such as Synthetix and Uniswap.
It is a decentralized finance (DeFi) project to create the most accessible and secure decentralized exchange for Perpetual futures trading. It is a decentralized perpetual contract trading protocol on Ethereum. The protocol can support 20x leverage, short positions, and lower slippage compared to other AMMs, thanks to its virtual AMM (vAMM) design. It is powered by a Virtual Automated Market Maker (vAMM). Unlike well-known automated marketers who use both token exchange and price detection, VAMM is used only for price detection to manage leverage and short positions.
What is Perpetual Protocol?
A perpetual protocol is software that motivates a distributed network of computers to set up an exchange where users can buy and sell derivative contracts.
This decentralized financial project (DeFi) enables this service through written code without financial intermediaries. In addition, the Perpetual Protocol is simply a set of applications (smart contracts) based on the Ethereum blockchain designed to communicate and replicate services provided in derivatives markets.
It means that perpetual protocol users do not need to trust a particular institution or group of people to trade; they need to trust the code executed in writing.
The protocol uses a process that includes a virtually automated market maker (vAMM) and a collateral fund. These structures are designed to settle transactions and allow anyone to access complex financial instruments such as perpetual contracts.
A perpetual contract is a derivative similar to a futures contract without an expiration date. In conventional markets, a futures contract enables individuals to speculate on the price of an underlying asset at a specific date in the future when the investment is delivered.
How does Perpetual Protocol work?
PERP” aims to facilitate the buying and selling of perpetual contracts to reflect the traditional exchange. It works by creating a new version of the Automated Marketplace (AMM). This technique uses a mathematical function to determine asset prices and facilitate Uses the exchange of two or more assets.
The Perpetual Protocol reflects traditional exchanges in perpetual contract transactions through two AMM mechanisms and an insurance fund.
Automated Market Maker (AMM)
Users deposit encrypted assets into liquidity pools representing specific trading pairs in the most common AMM settings. Users who trade in the pool assets then pay a fee distributed proportionally to all liquidity providers based on their pool share.
In this setup, DeFi protocol providers and traders both set the price of each pair and facilitate the actual exchange of assets.
In contrast, the VAMM Perpetual Protocol is designed for price discovery only, not for point exchange. While it uses the same math function as other DeFi projects such as Uniswap to set prices, no real cryptographic assets are stored in vAMM. That’s why it’s called a “virtual” automated marketer.
Liquidation or unexpected events carry significant risks and prevent traders from financing their leverage positions. When this happens, an insurance fund enters the game. Half of the trading fees are rewarded with staking.
You may be wondering where the other half is going. The insurance fund is the other half of the transaction fee. The more people use the network, the more the insurance fund grows.
The benefit of Perpetual Protocol
There are several benefits to using a perpetual protocol. The network acts as a perpetual decentralized contract platform that is flexible enough to represent any asset. Anyone can buy and sell these assets securely using the network vAMM protocol.
Benefits of Perpetual Protocol (PERP)
There are several benefits that Perpetual Protocol brings to the table. The network operates as a decentralized perpetual contract platform that is flexible enough to represent every asset. Anyone can buy and sell these assets using the network’s vAMM protocol in a secure manner.
The developers of Perpetual Protocol were careful to make sure that the platform was secure and free of coding errors. For example, the network is open source, so anyone can check the platform processes to ensure no funny business.
In addition, the platform has conducted several third-party audits by two reputable companies in the market – Consensys and Peckshield. The company also guaranteed insurance coverage provided by Unslashed Finance and Nexus Mutual.
· Low Fees
Another major attraction of the Perpetual Protocol is its low fee structure. The network integrates L2 scaling solutions to provide fast transactions with a minimum fee. This feature is a significant concern for investors due to the recent increase in costs in the Ethereum network.