Equation, The Next Generation of Decentralized Perpetual Exchange. Find out more about the project’s objectives and features, and go directly to their website.
Equation: Balance Rate-Based AMM for Perpetual Contracts.
A few words from the team:
Since 2020, the rise of AMMs in the spot market, represented by Uniswap, has driven the rapid development of decentralized finance (DeFi). However, while the trading volume in centralized exchanges for perpetual contracts is much larger than that of spot markets, there still hasn’t been an equivalent surge of AMMs for perpetuals.
We believe the core reason is the fundamental difference between the perpetual contract market and the spot market, and directly applying the current “Constant Function Market Maker (CFMM)” mechanism from spot to perpetual contract has inherent mechanism flaws.
Here, we propose a new AMM model based on the liquidity pool balance rate, which can effectively serve the price discovery function of perpetual contracts, while also creating a wealth of market-making opportunities for liquidity providers (LPs). LPs can share the platform’s trading fee income by bearing the risk of temporary imbalances in the liquidity pool. We define this new mechanism as the Balance Rate Market Maker (BRMM).
Leverage Boosts LP Returns
LPs can provide liquidity with leverage of up to 200x and enjoy liquidity mining rewards plus a share of the trading fees.
Based on our novel BRMM model, LPs can significantly improve their capital efficiency by providing liquidity with leverage.
Equation, Pricing Mechanism
The pricing of perpetual contract is determined by the construction of the liquidity pool.
Here’s what you need to remember:
- When users open, close, or get liquidated, LPs always passively open positions with the same size and at the same price as the user, but in the opposite direction.
- The Liquidity Pool Balance Rate (BR) is calculated using the formula: BR = Short Positions Value Held by LPs / Total liquidity of LPs. If the LPs hold no positions, then BR is zero, indicating that the liquidity pool is in a fully balanced state. When the LPs hold long positions, BR becomes negative.
- The Perpetual Contract Price Premium Rate (PR) is the premium rate of the price (P) of the perpetual contract liquidity pool relative to the index price (Pi). PR = f(BR), i.e., PR is a function of BR. This function is jointly determined by the current state of the liquidity pool and the system parameters. Specifically, when BR = 0, f(BR) = 0, meaning that the premium rate is zero when the LPs are in a fully balanced state.
Funding rate is the key to maintain the perpetual contract price in balance with the spot price. The underlying principle is: when the contract price is higher than the index price, long position holders compensate short position holders; conversely, when the contract price is lower than the index price, short position holders compensate long position holders. To find out more,
In traditional Tokenomics models, the complex interests between community users, the founding team, and early investors often lead to disagreements and divergent consensus during the operation and governance of the protocol. This greatly hampers the sustainable development of the protocol.
Equation adopts an innovative hybrid Tokenomics model that combines Fungible Tokens (FT) and Non-Fungible Tokens (NFT). This hybrid model establishes exclusive incentive channels for different roles in the ecosystem, aiming to unify the long-term development goals of Equation while safeguarding the interests of liquidity providers and community users.