dFuture V1 Beta Version is officially launched!

1. Overview

In the traditional trading market, centralized exchanges have long been suspected of foul-play through their control of transaction data and non-transparent operations, including artificial price manipulation and creating fake coins. The recent situation where OKEX froze all withdrawals has intensified traders’ concerns about the security of their assets deposited on centralized exchanges.

Decentralized spot exchanges like Uniswap have solved the problems of spot trading to a certain extent, but there is still a lack of a sufficiently robust decentralized futures (perpetual contract) exchange similar to Uniswap in the market.

dFuture is a decentralized derivatives exchange. Traders can complete long/short transactions through leverage safely and efficiently without slippage and also at a trading depth far exceeding that of centralized exchanges. The LP (liquidity provider) only needs to add liquidity in a single settlement currency (currently USDT), and can obtain stable, risk-free, and high-returns without impermanent losses.

After a month of testing its Alpha version, dFuture has officially launched its Beta version for all users.

The official version of dFuture will be officially released within two weeks after the completion of the security audit.

Testnet: www.dFuture.com

2. How does dFuture Work

dFuture is developed based on the QCAMM protocol (Quoted Price and Constant Sum Based Automated Market Maker). The first phase of the protocol aims to establish a financial derivatives transaction protocol based on external price quotations and dynamic trading fees based on constant sum formulas.

The QCAMM protocol obtains a live and weighted average price quotation of each trading pair through multiple external oracles and decentralized exchanges. The trader directly completes the long or short transaction at the quotation price. There is no slippage, and the transaction depth is proportional to the LP. LP only needs to add a single coin to the liquidity pool and there is no impermanent loss.

The main features of the QCAMM protocol include:

· External price feed: The transaction price is not determined by an algorithm like AMM, but is obtained from multiple external decentralized data sources, including oracles and decentralized exchanges.

· 0 slippage: the trader directly trades at the current quotation within the allowed open position amount on the platform, and there is no price slippage.

· Deep trading depth: The trading depth of the trader only depends on the LP amount and the size of the platform’s naked position.

· No impermanent loss: An LP only needs to add liquidity in a single coin, which currently is USDT in dFuture. By only collateralizing the stable coin USDT, there is no impermanent loss in QCAMM. The design of QCAMM ensures that the LP can earn risk-free profit from a long investment cycle.

3. How to ensure that traders have a fair trade with no slippage and a deep trading depth

In the QCAMM protocol, after the platform integrates multiple external quotations to form the platform price, the trader can directly complete the long or short transaction with the counterparty at that price with no slippage. The trading depth at this time depends on the counterparty’s trading depth. The trader’s counterparty is divided into the reverse trader and the LP. If the current reverse trader’s total position is more, the trader will be equivalent to forming a counterparty with the reverse trader; if the reverse trader’s total position is smaller, then the trader will be equivalent to forming a counterparty with the LP, where the LP acts as the liquidity provider.

Therefore, the trader’s trading depth is calculated by the total amount of LP pool and the platform’s naked position (naked position = ABS (total platform long order position — total platform short order position)). When the platform’s naked position is consistent with the trader’s trading direction, the trading depth = total LP pool — naked position on the platform. When the naked position on the platform is opposite to the trading direction, the trading depth = total LP pool + naked position on the platform. In most cases, this trading depth is much better than that of a centralized exchange.

4. How to ensure that the LP can earn risk-free profit

Under the QCAMM agreement, an LP only needs to add liquidity in a single settlement currency, which is currently USDT, so there is no risk of impermanent loss.

The main risk LP faces is that when the platform’s naked position is not zero, LPs and the traders are the counterparties, and the naked position is the LP’s risk exposure. The QCAMM protocol introduces the role of arbitrageur to actively trade on the platform through the mechanism of “dynamic trading fee/dynamic position fee”. This forms a dynamic balance on the platform by controlling the LPs risk at a low risk of fluctuation, so as to realize a risk-free profit for the LP. The specific principle is as follows:

· If the sum of the long position and short position of the platform is equal, (the long position and the short position are offset), and the naked position is 0, then the LP will not have any risk and can continue to obtain the trader’s trading fees and interest to achieve a risk-free profit. Therefore, the problem of controlling LP risk is transformed into how to make naked position zero.

· The QCAMM protocol uses the mechanism of “dynamic trading fee/dynamic position fee based on constant sum formula” to control the naked position to 0. Taking dynamic trading fee as an example, the constant sum formula means “trading fee for long orders + trading fee for short orders = constant value.” When the naked position is small, the platform charges both long and short trading fees at the same time, and the fee rate is lower than that of centralized exchanges. If the naked position is large towards a long position, you need to pay higher trading fees when opening another long order. On the contrary, the platform will refund you trading fees if you were to open a short order. The change of the trading fee is proportional to the deviation between the naked position and the LP pool amount.

· By returning trading fees to the user, there is arbitrage room on the platform, which will attract arbitrageurs to enter the transaction. For example, if the naked position is long, the arbitrageur can place a short order on the platform and place a long order on a Centralized Exchange, such as Huobi, to offset the risk of the position, and at the same time get the platform’s trading fee refund to realize a risk-free arbitrage; due to the arbitrageur’s transaction, the naked position of this platform will return to zero, and the LP risk exposure will decrease accordingly.

In short, the risk control of the QCAMM protocol will be in a process of dynamic equilibrium for a long time. From a long-term perspective, the risk exposure of the LP will always be maintained at a relatively low level, so as to achieve long-term risk-free profit for the LP.

5. Dynamic Trading Fees

Traders are required to pay trading fees when trading on the dFuture platform. Unlike traditional trading platforms, in order to control platform trading risks, trading fees will dynamically change based on the ratio between the platform’s current naked position to the LP pool. At present, the platform sets a maximum of 1:1 for naked position and LP pool, so the ratio of naked position to LP pool is in the range of [-1,1], where a negative value means naked position is in shorting direction; a positive value means naked position is in long direction. As the ratio of the naked position to the LP pool slides between -1 and +1, the long and short trading fees will also change. What remains unchanged is that the sum of long and short fees are a constant sum value.

The calculation formulas of trading fees are as follows:

D=(Total Long Position-Total Short Position) / Total Amount of LP Pool

Long order trading fee X1 = N1 + M1 * D;

Short order trading fee Y1 = N1 — M1 * D;

Long order trading fee X1 + Short order trading fee Y1 = 2*N1 (a constant value);

M1 * D = Fee offset from constant value;

Where M1 =1%; N1 = 0.03%;

List of trading fees change with D values:

Summarizing the above data, it can be clearly found that when a naked position (total long positions-total short positions) accounts for 0%-3% of the total LP pool, the platform charges trading fees from both long and short orders, and the trading fee is slightly higher towards the direction of naked position. When the naked position accounts for more than 3% of the total LP pool, new open positions in the positive direction of the naked position will need to pay a trading fee, and new positions in the opposite direction of the naked position will be refunded.

Similarly, the position interest has the same dynamic logic as trading fees.

Therefore, the system always encourages trading to tilt in the direction of reducing naked positions, and traders can make additional profits by trading against the direction of naked positions. At the same time, in an active trading market, arbitrage with other exchanges will ensure that traders who do reverse naked positions can obtain stable arbitrage returns and hedge their risks.

6. Data analysis of trading competition in dFuture internal beta

During the internal test phase, dFuture launched an internal trading competition that lasted for 20 days with nearly 50 participants. Each participant received 100,000 USDT test tokens that can be used for LPs to add liquidity or for trading. In the actual competition, the LP pool has been maintained at about 2 million USDT, and the system open position is maintained between 6 million and 8 million USDT; the system naked position has been fluctuating between 0%-15%, and constant sum formula has reached the expected goal during the testing phase.

Most of the platform’s trading fees and position interest are credited toward the LP. At the end of the competition, LP’s achieved annualized USDT profit of about 90% to 100%.

7. Summary of dFuture Features

7.1 A fully decentralized perpetual contracts trading platform

The dFuture platform is a fully decentralized derivatives trading platform developed based on the Ethereum protocol:

Transparent Trading rules: All transaction rules and fees are recorded on the Ethereum chain and visible to everyone.

Transparent Trading data: All transaction data is recorded on the Ethereum chain and visible to everyone.

Transparent asset protection: LP’s assets are locked in smart contracts and can only be operated through public smart contracts; traders will only put the opening margin into the smart contract when opening a position.

No KYC: A decentralized trading platform based on smart contracts, without KYC, only track users through wallet addresses.

7.2 External Price Quotation System

dFuture uses Chainlink and Uniswap prices to form a weighted average price to guide its platform transactions. The price is updated with every block of Ethereum so it is updated approximately every 15 seconds. Therefore, the dFuture platform rarely experiences sudden price drops and pull backs, and won’t be able to manipulate pricing like centralized exchanges do to force liquidations.

7.3 Low Dynamic Trading Fees and Dynamic Position Interest

In order to allow traders to have a better trading experience, the trading fees and dynamic position interest on the dFuture platform are extremely low. The benchmark trading fee is 0.03% and the benchmark dynamic position interest is 0.05%, which is much lower than the fees charged by centralized exchanges.

In the case of small naked positions, traders can enjoy far lower fees than centralized exchanges; and when the naked positions are large, traders have the opportunity to earn the platform’s trading fees and a return of dynamic position interest.

7.4 LP Pools with Different Volatility Rates

The dFuture platform can support multiple LP pools with different risk volatility rates composed of different trading pairs and leverage ratios. The naked positions of each trading pair are shared and participate in the dynamic position fee of each trading pair as well as the calculation of dynamic position interest.

Supporting different trading pairs through one LP pool, compared with only one trading pair supported by the LP pool, can flexibly increase the maximum open positions of different trading pairs. This increases the fund utilization rate of the LP pool, which thereby increase the LP rate of return of the pool. At the same time, by integrating low-risk and medium-risk trading pairs in a pool, the risk of the pool is reduced through the low-risk trading pairs, and the trading returns are further improved through the medium-risk trading pairs.

When an LP adds liquidity to the pool, it can choose whether to add to a low-risk pool or a high-risk pool according to its own risk preference, so as to choose to obtain a risk-free stable return or choose a riskier higher return.

8. Next Steps

dFutureV1 is only the first step of exploring based on the QCAMM protocol. The QCAMM protocol itself has huge room for expansion. We hope to add the following in the future:

. A liquidity pool with ETH and wBTC as a single settlement currency.

. Within the LP reserve ratio, portfolio loans and reinvestments can further increase the LP yield;

. Dynamically adjustment platform income distribution based on algorithm .

. Dynamically optimize and adjust trading pairs based on algorithm for the same liquidity pool.

l Based on fair external quotations, forming a trading platform for stocks, futures and foreign exchange currencies.

dFuture is a small member of the entire DeFi ecosystem. We hope that our continued exploration of decentralized perpetual contracts can make more contributions to the prosperity of the DeFi industry.

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