Understanding Perpetual Protocol (PERP): About its uniqueness
Perpetual Protocol (PERP) is a decentralized protocol designed as a trustless ecosystem for trading derivative contracts, eliminating the need for traditional financial intermediaries. One of the key distinguishing features of PERP is its commitment to trustlessness. It accomplishes this by operating solely through a meticulously written code, housed within a collection of smart contracts initially deployed on the Ethereum blockchain. These smart contracts are engineered to seamlessly communicate and replicate the essential services found in traditional derivatives markets. Due to large gas fees, the protocol later transitioned to xDAI (Gnosis Chain) in 2020. Furthermore, in 2021, the network launched Perp v2 on Optimism, ultimately closing the v1 protocol on xDAI. The PERP token is an ERC-20 asset and resides on the Ethereum blockchain.
What sets PERP apart is the profound shift in trust dynamics. In a world where traditional financial systems often require users to place their trust in specific institutions or individuals, PERP champions a different approach. Users of Perpetual Protocol need only trust in the smart contracts’ code itself. The code serves as the ultimate arbiter of trades, ensuring that each transaction executes precisely as specified without any external influence or manipulation.
PERP draws inspiration from the success stories of prominent decentralized exchanges like Uniswap and innovative synthetic asset platforms like Synthetix. However, it ventures into a different realm of financial markets. Unlike platforms tailored for spot trading or real-world asset exposure, PERP is crafted for leverage trading, enabling users to take short positions, all while maintaining minimal levels of slippage.
How does Perpetual Protocol (PERP) work?
Perpetual Protocol (PERP) stands at the intersection of DeFi and blockchain technology, offering users a decentralized, trustless, and efficient environment for trading perpetual contracts. By leveraging smart contracts and an automated market maker model, PERP empowers traders to speculate on asset prices and manage risk in a secure and transparent manner. To comprehend how PERP works, let's delve into its core mechanics:
Decentralized Infrastructure: At its foundation, PERP leverages the power of blockchain technology, specifically the Layer 2 Optimism network. It operates as a collection of smart contracts that facilitate the creation and execution of derivative contracts, eliminating the need for intermediaries.
Automated Market Maker (AMM) Model: PERP adopts the AMM model, pioneered by platforms like Uniswap. In this system, instead of relying on traditional order books, users trade against liquidity pools. Liquidity providers contribute assets to these pools, allowing traders to buy or sell derivatives directly against the pool's liquidity. This approach enhances efficiency and minimizes the reliance on centralized order-matching systems.
Perpetual Contracts: PERP specializes in perpetual contracts, a type of derivative that doesn't have an expiration date. These contracts enable traders to speculate on the future price of assets, allowing both long and short positions. This flexibility makes PERP particularly suitable for leverage trading.
Funding Rate Mechanism: PERP employs a funding rate mechanism to ensure that the perpetual contracts align with the prices of their underlying assets. This mechanism automatically adjusts the funding rate based on market conditions, helping to prevent significant price discrepancies.
Liquidity Pools: Liquidity providers play a pivotal role in PERP's ecosystem by adding assets to liquidity pools. They are incentivized with fees generated from trading activity. The ample liquidity in these pools helps to maintain tight spreads and reduces slippage for traders.
Exploring the PERP token: Utilities and unique features
The PERP token boasts a fixed supply of 150 million and is a fundamental component of the Perpetual Protocol (PERP) ecosystem, offering a range of utilities and unique attributes that contribute to the platform's functionality and value. Let's delve into the particulars:
Governance: One of the primary utilities of the PERP token is its role in governance. PERP holders have the power to propose and vote on changes, upgrades, and decisions related to the protocol. This decentralized governance model ensures that the community has a say in the platform's evolution, making it more adaptable to changing market conditions and user needs.
Fee Payment: PERP tokens serve as a means of payment for various fees within the PERP ecosystem. Traders and liquidity providers can use PERP to pay trading fees, which are generated when trading perpetual contracts or providing liquidity to the platform's pools. This utility streamlines transactions and reduces friction in the trading process.
Incentives: PERP tokens also play a crucial role in incentivizing participation within the platform. Liquidity providers are rewarded with PERP tokens in proportion to their contribution, encouraging them to provide liquidity to the pools and enhance the overall trading experience. This incentivization mechanism helps maintain robust liquidity and stability.
Staking: PERP token holders have the opportunity to stake their tokens to earn rewards. Stakers receive a portion of the trading fees generated on the platform, further incentivizing long-term participation and support for the ecosystem.
A quick glance at PERP’s history
Perpetual Protocol, originally known as Strike, began its journey in December 2020, drawing inspiration from trailblazing DeFi projects like Synthetix and Uniswap. Notably, it secured $1.8 million in seed funding during August 2020, from influential backers including Multicoin Capital, Alameda Research, CMS Holdings, Three Arrows Capital, and Zee Prime Capital. The PERP token's initial distribution also occurred through an innovative Liquidity Bootstrapping Pool via Balancer.
PERP's distinctive approach involved building upon Uniswap's Automated Market Maker (AMM) model. While initially slated for an Ethereum mainnet launch in September 2020, the project had to adapt due to surging Ethereum gas fees during DeFi Summer 2020. Consequently, it made the strategic decision to deploy on xDai, now Gnosis Chain, leading to its official launch in December 2020.
As PERP v1 gained traction, it faced challenges, including the gradual depletion of its insurance fund. This issue stemmed from the long-short skew, an inherent challenge in a pure vAMM system where liquidity is static. The prolonged bullish market conditions following the v1 launch exacerbated this issue.
In response to these challenges, PERP embarked on a significant transformation. The team developed PERP v2 Curie, shifting from a pure vAMM model to an LP-driven derivatives AMM (dAMM) solution. This transition promised to resolve v1's issues while enhancing composability and performance. PERP v2 was successfully launched on Optimism in November 2021, marking a pivotal moment in PERP's journey.
Throughout this transition, PERP v1 continued to operate under reduced maintenance and active monitoring. However, the challenges resurfaced in April 2022 amid market downturns, prompting an emergency halt in trading and discussions on fund distribution. Ultimately, a governance vote determined that remaining funds would be distributed to cover users based on their margin and PnL, with the distribution completed on June 1, 2022.
Join the Coinmetro community on Discord and Telegram, where forward-thinking traders and investors gather to share insights, explore new opportunities, and dive deep into the world of cryptocurrencies. Should you need any help, feel free to reach out to our world-class Customer Support Team via 24/7 live chat or email at email@example.com.