Derivable

1st decentralized derivatives liquidity pool

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Inspiration

Many projects proposed to build decentralized applications for derivative trading, for example, dYdX, Deri protocol, Openleverage. However, they've built their models based on order booking method and position concept. Order book is very expensive and impractical to implement onchain. NFTs representing perpetual future positions, in nature, have ill liquidity and composability. Manual liquidation is required for those NFTs, which is expensive, easily to be congressed or manipulated. Autonomous mechanisms are almost impossible to apply. How can we solve that problem? Can we build a protocol to offer derivative trading as a fungible token spot?

What it does

Derivable provides the 1st decentralized derivative liquidity protocol, allowing trader to tokenized any perpetual contracts into fungible tokens and trade it easily like swaption.

Derivable provides a novel protocol for derivative liquidity and trading in a completely decentralized manner. It’s optimized for L1 cost and throughput with characterizations

  • Financial fungibility and composability in DeFi space
  • A better liquidity model

Derivable wants to bring benefits to

Market makers:

  • Create decentralized derivative markets, in particularly, fungible-tokenized perpetual contracts.

Liquidity providers:

  • Earn conversion fee and C/V opportunity
  • Earn share of protocol fee (given awareness of exposure risk)

Traders:

  • Have opportunity to mint and trade derivative tokens (tokenized perpetual contracts) in a decentralized and secure manner.
  • Use derivative tokens for various DeFi applications (e.g. lending, farming).

How we built it

Motivated by Uniswap's AMM model and several decentralized derivative trading protocols, we’ve investigated an AMM for derivative trading. Let's revisit the DAI stablecoin model. Basically, MakerDAO protocol aims to track USD index via DAI token, which is collateralized by ETH and possibly other assets. DAI, thus, can be considered as a derivative of USD. Synthetix, on the other hand, is a financial primitive enabling the creation of synthetic assets (i.e. derivatives) to track real-world assets’ indexes on the blockchain.
Let’s imagine that we index ETH derivatives (e.g. 1/ETH, ETH^2, etc). Then we modify the DAI model to generate derivative fungible tokens, hence swappable on Uniswap. The derivatives, in addition, are equivalent to a form of perpetual contracts with certain leverage levels.

We use Polygon as an EVM platform to build Derivable, use its popular swap pool (Uniswap) to get price feeding for Derivable liquidation mechanism.

Challenges we ran into

  • Risk management in the protocol

Accomplishments that we're proud of

What we learned

  • Derivative tokenization protocol
  • Polygon blockchain and its ecosystem ## What's next for Derivable
  • Build a MVP

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