Research Summary
The report discusses the potential of on-chain perpetual contracts, or perps, to drive the next wave of speculation and trading activity in the crypto market. It highlights the growth of the perps category, the emergence of innovative perp exchanges, and the opportunities they present for trading activity. The report also notes the challenges of liquidity and credibility in perp markets and the potential for decentralized perp exchanges to enable fast speculation and leverage across crypto assets.
Key Takeaways
Perps as Potential Market Drivers
- Emergence of Perps: The report identifies on-chain perpetual contracts, or perps, as a potential driver of speculation and trading activity in the crypto market. Perps allow traders to speculate on the future price of an asset without expiry dates and have become popular on Centralized Exchanges (CEXs) for leverage on long and short positions.
- Growth of Perps: The perps category has grown by nearly $1B in the last 30 days, reaching a total Total Value Locked (TVL) of $3.1B. The top three protocols that grew the most in this period are TradeVoodoo, KiloEx_perp, and jojo_exchange.
Innovative Perp Exchanges
- Emergence of Innovative Exchanges: Despite technical constraints and liquidity fragmentation, innovative perp exchanges like dYdX, perpprotocol, and HyperliquidX are emerging. These exchanges are bringing deep on-chain liquidity and novel product designs like index perps and pre-launch perp markets.
- Pre-Launch Perps: Pre-launch perps allow speculation on tokens before they are live, enabling on-chain perp markets to front-run both CEX listings and Automated Market Maker (AMM) launches.
Opportunities and Challenges
- New Possibilities: Decentralized perp exchanges unlock new possibilities, including competing with CEXs by offering fast-moving markets with leverage, trading exotic assets like metaverse land and NFT indices, and integrating with DeFi through vaults, lending, and derivative products.
- Risks and Challenges: While on-chain perps represent a promising avenue for trading activity, risks around liquidation and oracle manipulation remain. The exchange that can build up liquidity and credibility in perp markets early has a chance to garner significant traction and volume.
Actionable Insights
- Monitor Perp Metrics: As perps could potentially lead the way into a bull market, it’s crucial to keep a close tab on its metrics as they could serve as a good leading indicator.
- Watch Decentralized Perp Exchanges: Given their ability to enable fast speculation and leverage across both new and established crypto assets, decentralized perp exchanges are a compelling sector to watch.
- Identify Potential Breakouts: The next Binance or Uniswap-level breakout could very well come from the perp corner of DeFi, making it important to stay tuned to emerging perp projects.
