After the success of the Automated Market Maker (AMM) model for setting up decentralized spot exchanges, several projects are now competing to bring this concept into the world of derivatives. One of them is Futureswap, an AMM-based futures market specially designed for large trades.
Futureswap recently released version 2 of its platform, which features a unique oracle design that enables greater capital efficiency for large companies.. Benji Richards, co-founder of Futureswap, explained the idea to Cointelegraph:
“When you think of AMM, people think of a consistent product like Uniswap. The main difference from ours is that we are taking the MMA and not using the same formula. We designed it around the thesis that big trades shouldn’t be penalized as big trades, which then creates a better ecosystem for what we call whale traders or mass arbitrageurs. “
AMM platforms use special formulas called “linkage curves” to determine how each trade changes the price of an asset.. The Uniswap formula is the simplest as it tries to keep the product of the two sides of the pools constant. Graphically, such a formula defines a hyperbola, a shape that approaches both infinity and zero on both sides without actually reaching them. While this is great for general purpose AMMs, this curve is inefficient for large operations because the slip increases exponentially on large jobs.
However, in order to use a more efficient curve, one more constraint needs to be added to ensure that it is effective. In the case of Curve Finance, for example, the peg curve can be made significantly more efficient if the platform is limited to tied assets – multiple iterations of US dollars or packaged cryptocurrencies.. With futureswap, custom oracles offer a similar limitation.
Richards said this was necessary to avoid problems with out-of-the-box solutions. “Most oracles on the chain have a lag, so if you use them on something with leverage, it probably won’t work.”said. Bancor tried an Oracle-based design for its non-permanent loss protection system, but it did not appear to be successful due to initial implementation issues.
Futureswap oracles are unique in that they allow the capture of small price fluctuations between two Ethereum blocks that are 15 seconds apart.. It’s a similar mechanism to metatransactions that allow others to pay someone’s gas fee, explained Derek Alia, co-founder of Futureswap:
“The idea is that you sign some parameters and say, ‘I want to do this action with this information.’ You sign this with your private key. It’s basically like a ball that someone is passing on the Ethereum blockchain. “
With futures swap operations, Users will essentially embed the price data from the oracle they used to create this transaction and the system guarantees that the value was valid when the transaction was createdn. Using the Oracle Price as an anchor allows the rig to use much more aggressive connection curves with less slippage. Alia added:
“We need less capital to be more competitive with someone like Binance. Binance may need $ 6 billion on its order book. We’d need $ 300 million or something to have the same slip. “
Like other AMMs, Futureswap has passive liquidity providers who receive a fee for every trade that goes through the platform. Traders interact with these liquidity pools, with the ability to enter both long and short positions with up to 10x leverage. Although this can be considered low by cryptocurrency standards, that limit will increase over time, Richards said.
Futureswap is still in the early stages of its launch, which is also reflected in its token model. Users and liquidity providers are currently receiving a non-transferable token that they can use to participate in the control of the platform and generate profits through discounts. The team had a total volume of over $ 500 million to date with no direct incentives. Alia concluded:
“I think what is really cool is that a lot of people who are a little ‘degenerate’ come in and ask if the token is transferable and how they can buy and sell it. They realize they can’t and then they leave. “