Futureswap recently announced the figures for the three day long alpha test of a decentralized futures exchange. US$17 million worth of Ethereum (ETH) tokens were traded on the platform and US$1.3 million was provided in liquidity.
Futureswap provides a decentralized perpetual swap platform that utilizes shared liquidity pool contracts to facilitate leveraged trading. It is already being described as a combination of two well known digital asset trading platforms, Bitmex and Uniswap.
Bitmex is known for being a leading platform for trading perpetual swap-based Bitcoin derivatives. While a Futures Contract is an agreement to buy or sell an asset at a predetermined price at a specified time in the future, a Perpetual Contract does not have an expiry, so traders can hold a position for as long as they like.
BitMEX also offers leverage on all of its products. Leverage is the use of debt, or borrowed capital, to undertake further investment activities. The result is to multiply the potential returns from a project. BitMEX offers is up to 100x leverage on its Perpetual Bitcoin / USD Perpetual Contract, where US$1 dollar of margin can be leveraged 100 times.
Uniswap a platform used by many Defi protocols, and is built on Ethereum. The Uniswap protocol provides a platform for Ethereum ERC20 token conversions, enabling anyone to create new markets, provide liquidity, and build financial applications.
Futureswap enters the market with an alpha product where the user can trade any ERC20 token with up to 20x leverage, using a decentralized automated market maker (AMM). Uniswap pools everyone’s liquidity together and creates markets according to a deterministic algorithm, the AMM.
Futureswap is built by design to have no slippage, and 100% of the capital in the decentralized can be utilized for leverage. Liquidity providers get to keep all of their trading and borrowing fees based on individual deposit sizes.
Futureswap’s alpha picked up steam as it progressed, trade volume reached US$2.1 million on the firs tday, while liquidity offered for leverage was US$500,000. By the end of the third day, 24hour trading volume had hit US$7.1 million and liquidity offered had passed US$1.1 million.
Futureswap’s post-event update states that the alpha was closed earlier than planned because the platform’s operators “decided to err on the sides of caution.” The alpha test was ended with an announcement to users Fees were increased to an unsustainable level, new positions were disabled, and the exchange was turned off.
The platform can still be viewed, along with information on how it works and further documentation. The is also has an open referral link program, that generates a link once an Ethereum wallet is linked to Futureswap.
Payments to referrers, liquidity providers, and traders are paid in the platform’s native token Futureswap token’s (FST). These token are non-transferrable and are designed to incentive user participation and platform activity. FST will also be used to participate in a planned community-run Governance group. FST tokens are distributed every week, based on an individual users’ portion of the total trade volume, the liquidity provided, and referrals.
As with Bitmex and Deribit, Futureswap contracts are fully peer-to-peer and always rollover, with the only requirement being to pay an interest rate. Futureswap uses a ‘Dynamic funding rate’ or DFR, a model that resembles perpetual swap contracts that are frequently on popular centralized crypto derivatives exchanges like Bitmex and Deribit.
The incentives in these marketplaces are designed to keep a relative balance between the volume of long and short positions. Stability is important in preventing situations where one side of the market cannot fund the other, creating a liquidity crisis.
The DFR on Futureswap adjusts every 8 hours, however, it is calculated and charged on a per-second basis. Every time a user opens a trade on Futureswap they are charged based on the liquidity requirements of the other side, and, a fee is also charged based on the time left before the next window.
The DFR adds a layer of balancing to the traditional perpetual swap model by having the more in demand side, short or long, pay a ‘time’ fee to the other side. The DFR for contracts like the 8 hours ETH/USD are calculated using Chainlink(LINK) oracles.
Chainlinks Defi oracles collect their price feeds from data providers like Brave New Coin. Brave New Coin, in turn, creates its Ethereum liquid price index , the ELX, using multiple exchanges’ spot prices like Coinbase and Kraken, while also focusing high-frequency updating and robust weighting factors to ensure a fair price is reported across Ethereum’s liquid markets.