After the successful establishment of a model automatic market maker (AMM) for a decentralized spot exchange, many projects are now scrambling to bring this concept into the field of derivatives. One of them is Futureswap, which is an AMM-based futures exchange designed specifically for large-scale transactions.
Futureswap recently launched version 2 of its platform, which has a unique design that can improve the capital efficiency of large transactions. Benji Richards, the co-founder of Futureswap, explained this idea to Cointelegraph:
“When you think of AMM, people think of static products like Uniswap. The main difference between us is that we use AMM instead of using the same formula. We design around the argument that we should not be right because of big deals. Punishment for big trades will create a better ecosystem for what we call whale traders or huge critics.”
The AMM platform uses a special formula called “correlation curve” to determine how each transaction changes the asset price. The Uniswap formula is the simplest formula because it tries to keep the product on the side of the compound. Graphically, this formula defines a hyperbola-a shape whose both ends are close to infinity and zero, but not reached. Although this is an ideal choice for a general-purpose AMM, for large transactions, this curve is not efficient because the slippage of large orders will increase sharply.
However, using more effective curves requires additional restrictions to ensure its efficiency. For example, in the case of Curve Finance, if the platform is limited to indexing assets (various iterations of the dollar or encapsulated cryptocurrencies), the correlation curve can become more efficient. Using Futureswap, a specially designed Oracle provides similar input.
Richards said this is essential to avoid problems with existing solutions. He said: “Most of the monsters in the show are behind, so if you want to use it to make an impact, it may not work.” Bancor tried an Oracle-based design due to its permanent loss protection system. However, due to early operational problems, the design did not seem to be successful.
Oracle Futureswap is unique in that it captures tiny price fluctuations (15 seconds apart) between two Ethereum blocks. Derek Alia, the co-founder of Futureswap, explained that this is a mechanism similar to a descriptive transaction that allows others to pay someone’s gasoline.
“Our idea is to predict certain parameters, say,’I want to use this information to perform this operation. You can use the private key to make predictions. It’s basically like someone goes through the Ethereum blockchain. ”
For Futureswap transactions, users will essentially include the predicted price data they used to create this transaction, and the system will ensure that this value is valid at the time the transaction is created. By using the Oracle price as an anchor point, the rig can use a more robust hook curve and reduce slippage. She said loudly:
“We need less capital to improve our competitiveness with companies like Binance. Binance may need a backlog of $6 billion. We will need $300 million (or other expenses) to get the same benefits.”
Like other AMMs, Futureswap also has negative liquidity providers, and they charge a fee for every transaction they conduct through the platform. Traders interact with these liquidity pools and can enter long and short positions with up to 10 times leverage. Richards said that although this may be considered low by cryptocurrency standards, this ceiling will increase over time.
Futureswap is still in the early stages of launch and this is also reflected in its token model. Users and liquidity providers currently receive non-transferable tokens that allow participation in the management of the platform and earn interest through discounts. So far, the team has boasted more than $500 million without any direct motives. Alia concluded:
“I think the really cool thing is that many’downhill’ people will come to ask if the tokens can be transferred and how to buy and sell tokens. They find that they can’t do it, and then leave.