What you need to know about Perpetual Protocol [$PERP]

By T0xicPotato | Prince of Perpsia | 7 Jun 2022

Price, price, price…

The $PERP price has fallen by -88% since January 2022 and I see many people posting messages like the one below in the speculation channel on Discord.

Everybody looks at the price of the token, tries to find a reason why he/she shouldn’t sell $PERP, and tries to find a “reason to hold”, but does anybody look at Perp’s metrics on Dune? I don’t think so.

In this article, I will try to illustrate the fundamentals of Perpetual Protocol.

Cash Flow

During 2022, Perpetual Protocol generated an average of $1.8M+ in trading fees per month and the protocol’s total revenue was $9.3M+ (meanwhile the $PERP price fell from $6 to $1).

And you can say to me “wtf bro, if I buy $PERP I can’t earn a part of fees from the trading volume, it’s bulls**t”. And you’re right, you can’t earn a part of the fees by staking the $PERP token (...yet). Let me introduce you to the new $PERP tokenomics (spoiler: the team is already working on it!).

vePERP

The current tokenomics has a big problem: the $PERP token doesn’t allow you to acquire a part of protocol fees (cash flow). The main revenue of $PERP stakers is the $PERP token (i.e., the classic staking model).

Some time ago, the team introduced new tokenomics where $PERP stakers are able to acquire some of the trading fees.

tl;dr: $PERP stakers will earn a part of protocol revenue when the insurance fund balance is more than the insurance fund threshold (10% of open in. When the insurance fund threshold is less than the target balance, all fees go to the market makers and insurance fund.

Detailed information about new tokenomics here.

An Underestimated Metric: Perp’s TVL

Perp’s TVL grew by 4.2x since January 2022 and from my perspective, this is one of the most underestimated metrics.

Perp has an LP role (maker) - users who provide liquidity into Perp Uniswap v3 pools to earn fees when traders open/close positions. The main motivation for market making on Perp v2 is earning fees.

Any LP (maker) can use 10x leverage. What does it mean? Let’s say you deposit 10,000 USDC into Perpetual to earn money (fees) as LP, with 10x leverage you can earn 10x more fees (10,000 USDC x 10 = 100,000 USDC). This means you can split your liquidity into different price ranges to increase your chance to be in range (the more your LP position within in-range then more fees you’re earning).

Can we say that the current theoretical Perp’s TVL is $320,000,000 ($32M x 10x leverage = $320,000,000)?

WARNING! IF YOU’RE USING LEVERAGE YOU TAKE RISK OF LIQUIDATION AND YOU CAN LOSE ALL YOUR MONEY. THIS IS NOT INVESTMENT ADVICE. I’M DUMB!

Multi-collateral

Some time ago you were able to deposit only USDC to make a trade or provide liquidity on Perp. If you were bullish on ETH and you’d like to long this ultrasound coin, you should sell ETH for USDC to open a position on Perp.

Now you’re able to deposit ETH and use ETH as collateral to open a position.

Example:

Using ETH + USDC as collateral gives you an extra +41% profit.

This is the magic of multi-collateral.

In the future, you’ll be able to use more assets as collateral. I.e you’ll be able you ETH + USDC + *name your coin here* to open positions.

More info about multi-collateral here.

Conclusion

Perp’s has solid fundamentals:

$1.8M+ in average monthly cash flow from fees
$2M+ average monthly trading volume
+4,200% growth in total value locked

Perp has a great product / tokenomics:

vePerp tokenomics → you’ll get part of the protocol cash flow
10x leverage for LP → deeper liquidity for traders and capital efficiency model for market makers
Multi-collateral → killer feature for traders to maintain full exposure to ETH / *name you coin*
Limit orders (work in progress)