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Publish0x Interview: Perpetual Protocol


We had a chance to interview Yenwen Feng, co-founder of Perpetual Protocol, the derivatives platform that is offering users a host of striking features, including significantly lower slippage, 20x leverage, and a robust set of assets, including major crypto assets, fiat currencies, and precious metals.

We asked him about how the platform would bolster the burgeoning DeFi market, the inspiration behind it, their take on the current state of the market, as well as its technical aspects and upcoming features. 

What is Perpetual Protocol?

Describing its goal as wanting to "democratize Futures and other derivatives", Perpetual Protocol offers several key features missing in even decentralized platforms like Synthetix (SNX).

Among these features are the absence of exposure to impermanent loss, built-in liquidity, and Virtual Automated Market Makers (vAMMs) unique to each contract. Additionally, the native PERP token can be used as a backstop in the protocol.

In roughly 6 months, Perpetual Protocol has managed to capture a market cap of $150+ million, led by the market's increasing interest in derivative products.

1. What was your ‘aha’ moment that made you realize that the market needed a more robust decentralized derivatives platform?

I have been interested in crypto derivatives for some time. We created one of the first crypto derivatives protocols in 2018, but it was too early to get any traction.

But after seeing the growth of Uniswap and Synthetix in 2019, I felt that the timing was right for decentralized derivatives protocol to enter the market.

2. The derivatives market on DeFi is far from fully tapped. What hinders most the growth of this sector?

I think the UX, high gas fees, and the lack of differentiator against CEXs are the main hindering factors. You can probably come to the same conclusion after checking the prominent DEXs - Uniswap provides a gas-efficient way to get tokens in its nascency, and Curve offers unbeatable rates between stablecoins.

I believe Perpetual Protocol has the right combination to crack the code.

3. How are fees allocated between the insurance and transaction fee pool? What rewards do users earn for staking?

Currently, 100% of the transaction fees go to the Insurance Fund since the staking function isn’t live yet. Once the staking function launches, stakers can earn staking rewards (in PERP) and get a cut of the transaction fees (in USDC).

As for the specific cut of the transaction fees, we are still researching the best balance between fees for stakers and for the insurance fund. We probably will start with a low number just to be safe, and after a trial period, we may consider opening this issue to a vote by token holders.

4. Besides staking and governance, the PERP token serves as a backstop for the system. In simple terms, what does that mean?

The system will create new PERP tokens and sell them to repay the debt if the Insurance Fund is empty. But I want to emphasize this kind of situation should be very rare and we constantly monitor the system to ensure it’s healthy.

5. What assets are most popular with users on Perpetual Protocol?

ETH perpetual market is the most popular pair in terms of the number of traders and the daily trading volume. There are also increasingly more traders trading new pairs such as AAVE and DOT.

6. Do you have a dashboard where users can get a comprehensive view of your growth and performance?

Yeah, you can check the protocol’s metrics on Dune Analytics, our internal dashboard, or our subgraph.

We’re also on some third-party dashboards like Token Terminal and OkLink.

7. Perpetual Protocol hasn’t yet been listed on DeFi info aggregators like defipulse or defillama. Any particular reason for that and could this change?

We are not on these sites because we don’t think the metric of TVL is a one-size-fits-all metric to compare different types of DeFi Dapps.

On Perpetual Protocol, the ‘locked’ assets are the collateral from traders and funds in both the Insurance Fund and the Transaction Fees Pool. As such, the TVL is low compared to other DeFi Dapps despite the protocol generating over $3 billion USD in trading volume.

8. In light of rising gas fees, what layer 2 solutions is Perpetual Protocol exploring?

Depending on the definition of the L2 here - currently, the protocol’s main smart contracts are on the xDai Chain, which is an EVM-compatible chain with super low gas fees and fast finality.

The fees on xDai Chain are so low that if you’re trading at perp.exchange, the team will cover the gas fees for all your trades.

Having said that, we have been keeping a close eye on the developments of roll-ups, so if some of them gain traction or are mature enough, we can migrate the whole infrastructure over there.

9. One of the more interesting features is the virtual AMM, which is used for price discovery but not for spot trading. Can vAMM coexist with regular AMMs or is it the next-gen you think others will want to implement?

Yes, vAMMs and AMMs can co-exist because each one has a specialty - vAMMs are better when applied to synthetic asset trading, while on the other hand, AMMs are superior for token trading.

10. Multiple projects, including Synthetix, UMA and Opium Network, are working on derivatives offerings. How do you distinguish yourself from them?

First of all, I want to say the market is big enough to accommodate multiple players, as we see the same thing in the CEX space.

As for how we differentiate ourselves from other protocols and CEXs, we do it with the unique attributes of the vAMMs:

1. Not bound by liquidity pools

Since the “assets” in a vAMM are virtual, the system doesn’t need any LPs to function, which significantly shortens the time it takes to launch a market and ensures there is always liquidity available for traders.

2. Asset agnostic

If an asset has a price feed on-chain, no matter if it’s a stock, commodity, or forex, the protocol can create a perpetual market using that price feed.

3. Dynamic liquidity

Compared to traditional AMMs requiring LPs to provide liquidity, the liquidity (K) on a vAMM can be adjusted algorithmically. One can imagine in the future that the liquidity of a market will increase or decrease automatically to respond to the market demand.

4. Fully on-chain

Many derivative platforms in the space use a hybrid model with off-chain processes, such as an off-chain orderbook. Perpetual Protocol is fully on-chain.

Last but not least, we're 100% focusing on the perpetual contract. Others also offer different types of derivatives products.

11. Could you tell us about some of the assets that you plan to offer in the near future?

These days we run community votes around once per week to determine the next pairs to be listed. The upcoming ones will be DeFi blue chip tokens.

12. In the time of high eth fees, how do you achieve feeless trades on your exchange?

Yes, the developers behind the protocol subsidize the gas fees for users trading on perp.exchange thanks to the low gas fees on the xDai Chain.

However, I want to point out that although we use xDai Chain as an “L2”, users can use the protocol without changing any settings in Metamask thanks to meta transactions, which creates a smooth UX for traders.

13. How did you design the Virtual AMM to track an underlying index?

The vAMM is just a price discovery tool for individual trades, so it can’t track the underlying index price by itself.

What aligns the index price and the price on a vAMM (“mark price”) are 1) arbitrageurs and 2) funding payments: the former closes the price gap between a vAMM and a CEX while the latter incentivizes traders to take the less popular side on the platform.

To further reduce the price discrepancy, we’ve released our arbitrageur bot and published a guide on how to earn funding payments using market-neutral strategies so that anyone can join in to help “correct” the price and profit at the same time.

14. Alameda Research, Binance Labs, CMS, Three Arrows Capital - you have some of the biggest funds as your investors. How are they helping your development, besides capital provision?

I would say each investor has brought different values to the table, and I check with them from time to time.

To name a few, Multicoin Capital has helped us design tokenomics and transaction mining, Alameda Research, and Zee Prime Capital have helped with the overall system design, and 3AC and CMS Holding provide us feedback based on their experience as leading crypto traders in the space.

15. What new features does Perpetual Protocol have in store for 2021?

There are four prominent features that we plan to release this year:

1. Advanced Order Types:

We’ll support limit orders, stop-loss/take-profit orders, and trailing orders in the following weeks, making it easier for existing traders to manage their risks and attract more traders to trade to the platform.

2. Leveraged Tokens on Ethereum:

We’re building leveraged tokens, enabling traders to obtain a tokenized leveraged position on Ethereum. Once this product is out, on-chain strategy makers like Yearn can use leveraged tokens to create strategies that aren’t possible today.

3. Dynamic Liquidity (K):

In the current iteration, the liquidity (K) in a vAMM is set and adjusted manually by the team. I’m confident that the liquidity in vAMMs can be adjusted automatically in response to the market conditions in the following months.

4. Private Market Creation:

We’re still in the early stage for this, but I expect this year, token holders will be able to create new markets permissionlessly and get a cut on the transaction fees, akin to LPs on Uniswap.


For more information on Perpetual Protocol, check out their various channels here:

The Publish0x team will publish more interviews with up and coming DeFi projects in the weeks to come. Stay tuned for these! 

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Abhimanyu Krishnan
Abhimanyu Krishnan

Technophile, cryptocurrency enthusiast and journalist.


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