​​Introduction

In 2021 Perpetual Protocol released its improved version - Curie. The main innovation was the integration with Uniswap v3 pools. By using Uniswap v3 as the execution layer, this integration allows LP to deploy its liquidity within a specific price range and with up to 10x leverage.

For example, if you deposited 10,000 USDC into Perpetual Protocol, you can create an LP position of up to 100,000 USDC (10x leverage). It’s 1337x more capital efficient than a classical LP on Uniswap. It’s composability babyyyyy.

Specific price range + 10x leverage = ultra-sound strategy for LPs.

But at the same time, it can be risky because you may face greater impermanent loss. In case you’re a professional market maker, it’s a great instrument to deploy your liquidity effectively.

Uniswap Market Depth > CEX Market Depth

In case you didn’t know, Uniswap v3 pools have more depth liquidity than Binance, Coinbase, Kraken & Gemini. (Source)

It’s because Uniswap v3 reduces the technical barriers to market-making. You don’t need to ask anybody to provide liquidity into pools and start earning fees. In the picture below you can see the comparison of +2%/-2% market depth for ETH/USD stables.

“AMMs unlock a much larger set of more passive capital that was previously sitting on the sidelines. This is because general institutional and retail users have risk-and-return profiles that differ from those of specialized market makers on centralized exchanges.”
Source.

In the picture above we can see that 68% of all LPs do not change their price range for more than 1 day → 68% of all LPs on Uniswap are retail users → DeFi has more market depth than any CEX with professional market makers.

The reason Uniswap v3 has more market depth is because Uniswap can attract more capital from different sources as compared to CEXes. Uniswap is a standard tool for market-making. Their innovation created a new type of project: strategy providers like Gamma, Visor, and Teahouse (shout out to NightLotus from Teahouse). Anybody can provide liquidity to Gamma / Visor or Teahouse and they will market-make on your behalf → deeper market-depth. We already see this on dYdX where users provide liquidity (USDC) as a loan to the professional market-makers and it’s working.

“Perp maker” - the undervalued product of Perpetual Protocol

Perp-maker is an open-source market-making template for Perpetual Protocol v2. Anybody in the world can use it and create a custom market-making bot for Perpetual Protocol. Any professional market-maker (or just a degen) can clone the repo, modify the code base (market-making algorithm) and start earning fees. You don’t need to ask Perp’s team for permission. Just clone the repo → modify the code base → run the bot → collect the fees!

What do I most like about Perpetual Protocol? The capital efficiency:

• 10x leverage: you can deploy 10x more capital than you have,
• Multi-collateral: you can use USDC + ETH + FRAX as collateral.

I’m not a professional market-maker but I think these two features are the most important because they need more capital than they have (they need risk-management and to hedge) and maybe they’d like to hold a base asset in some cases (ETH & FRAX available now and more assets will be added in the future).

Conclusion

Uniswap v3 has a more market depth than other CEX in crypto, the reason is Uniswap attracts capital from different sources (worldwide), users don’t need to ask the Uniswap team for permission to engage in market-making → just deploy on any existing pool or create their own and select the price range.

Perpetual Protocol created a perpetual exchange on the Uniswap v3 pool with 10x leverage and multi-collateral features. These features allow users to effectively deploy liquidity within different price ranges with the open-source Perp-Maker bot.

We have a standard for spot market-making (Uniswap model) and now we see how Perp’s team is developing standards for perpetual market-making.

NOTICE: USING LEVERAGE IS RISKY. YOU CAN LOSE ALL YOUR MONEY. I’M NOT A PROFESSIONAL TRADER OR INVESTOR. I AM NOT RESPONSIBLE FOR YOUR INVESTMENT DECISIONS. BE CAREFUL WHEN YOU’RE PLAYING WITH FINANCIAL PRODUCTS.