DUBAI, UNITED ARAB, September 25, 2023 (GLOBE NEWSWIRE) –
Abstract
L7 DEX initiates a paradigm shift in the decentralized futures markets by introducing the PvP AMM model.
A novel liquidity trading model is being developed within the L7 DEX ecosystem, focused on Liquidity-as-a-Service.
Given the higher risks associated with futures trading, L7 DEX has also introduced an order insurance mechanism (stop-loss insurance).
In the future, L7 DEX aims to provide the market with even simpler and more efficient investment solutions by combining liquidity and IEO.
What is L7 DEX?
Compared to centralized exchanges, decentralized exchanges (DEXs) initially had a smaller share of the futures trading market due to on-chain performance limitations. However, recent advances in mainstream blockchains and Layer 2 solutions have brought the decentralized perpetual futures exchange sector into the spotlight as high-frequency trading becomes increasingly profitable.
L7 DEX is a decentralized contract trading platform based on Web3 with the key innovations of PvP AMM protocol, Liquidity-as-a-Service (LaaS) and more. The innovative PvP AMM protocol, coupled with optimized smart contracts, provides users with a seamless futures trading experience while addressing issues such as high slippage, front running, poor liquidity and inability to place orders, making futures trading safer, more stable and safer becomes cost-effective.
How does L7 DEX work?
In the DeFi sector, most protocols use automated algorithms like AMMs to balance supply and demand of tokens in liquidity pools. However, L7 DEX introduces the PvP AMM mechanism, bringing a paradigm shift to the decentralized futures markets.
In the L7 DEX ecosystem, LP (Liquidity Provider) tokens act as intermediaries in the PvP AMM model and are minted by depositing USDC, BTC or ETH. These tokens can be used as collateral for perpetual futures trading or to provide liquidity to the market for a share of the protocol revenue. Specifically, LP tokens will be launched to represent the overall profit and loss of business as well as the income and expenses of the insurance business. Here is an example to illustrate:
Suppose Alice mints 1,000 LP tokens by depositing 1,000 USDC and opens a $10,000 long ETH position, while Bob mints 2,000 LP tokens by depositing 2,000 USDC and opens a $20,000 short ETH position. Now there are 3,000 USDC in the LP pool and 3,000 LP tokens, where 1 LP token = $1. If ETH rises by 5% and both Alice and Bob close their positions, Alice’s balance will be 1,500 LP tokens and Bob will have 1,000 LP tokens left. Then there are 3,000 USDC in the LP pool and only 2,500 LP tokens, where 1 LP token = $1.2.
The specific calculation is as follows:
Alice: 1,000 + $10,000 * 5% / $1 = 1,500 LP tokens; Bob: $2,000 – $20,000 * 5% / $1 = 1,000 LP tokens
New LP Offer = Alice’s LP Tokens + Bob’s LP Tokens = 2,500 LP Tokens
New LP price = 3,000 USDC / 2,500 LP tokens = $1.2
In this example, we can see that the total deposits in the pool remain constant and traders’ profits and losses are reflected in the LP token supply, which inversely affects LP token prices. This means that PvP traders are considered as a group, and when the group profits, this increases the LP token supply and reduces token prices. Traders need to earn relatively higher profits compared to the group level to make money trading USDT margin futures.
Further analysis shows that in the PvP AMM model, the crucial factor that influences profit and loss is the ratio of long positions and short positions. This allows PvP AMM to address issues related to one-sided market conditions. It is pure alpha trading, less influenced by market trends and does not require additional liquidity providers as traders can execute their trades independently. Additionally, this model provides a combined arbitrage opportunity for API and SmartMoney by attracting new minority orders and automatically balancing the long and short ratio.
In addition to serving as initial margin in futures trading, LP tokens also have multiple use cases: 1) Users purchase LP tokens (i.e. Mint LP tokens) at the current price using USDC, BTC or ETH assets deposited in the log vaults. 2) Users sell LP tokens (i.e. burn LP tokens) at the current price by withdrawing USDC, BTC or ETH assets from the protocol vaults. 3) After purchasing (minting), the LP tokens enter the staking earn area.
Note: The PvP AMM model gained attention in the industry primarily due to GMX’s X4 plan in 2022. However, the X4 plan was put on hold as GMX later shifted its focus to synthetic assets.
What are the benefits of the L7 DEX ecosystem?
A new liquidity trading model around LaaS has been established within the L7 DEX ecosystem. In this context, sourcing liquidity means sourcing liquidity from the market through a combination of “token incentives” and “transaction fee rewards.” Liquidity distribution (often through paid means) involves making the acquired liquidity available to other entities, including institutions, project teams or users who need liquidity. In addition, liquidity management includes providing liquidity management tools to project teams that have purchased liquidity so that they can effectively plan their cash expenditures. L7 DEX’s liquidity provision mechanism generates revenue for the platform by efficiently managing the liquidity received while maintaining synergies between trading and liquidity markets. This integrated approach ensures long-term financial stability and sustainable operations.
Given the higher risks associated with futures trading, L7 DEX has also introduced an order insurance mechanism (stop-loss insurance). This mechanism significantly increases the threshold for potential losses, although some profit may be lost. Therefore, it is more suitable for long-term investors and traders with a higher risk tolerance. Traders can create different insurance strategies for the same trade value. Different insurance ratios used in trades create several different positions, while trades with the same insurance ratio are merged with existing positions. The PnL and insurance fees are then calculated. Regarding the PvP AMM protocol, traders have the option to insure long-term trade orders and add an additional insurance rate, which can range from 10% to 50% of the trading range. If an order is settled or liquidated, traders who suffer losses may receive compensation up to a maximum of the trading margin. Additionally, the L7 DEX PvP AMM protocol calculates the PnL percentage of trade orders using an index price (derived from ChainLink and the average weighted prices of multiple CEXs). This approach helps mitigate potential issues related to Oracle latency arbitrage.
In the future, L7 DEX aims to provide the market with even purer and more efficient investment solutions by combining liquidity and IEO. The goal is to establish an asset management and allocation system focused on LSD (the native token of L7 DEX) and other platform assets. This comprehensive system aims to remove barriers that have previously prevented ordinary users from participating in the primary market.
L7 DEX differs from other DeFi protocols with its innovative design mechanism, which provides liquidity providers with a higher income ratio while strengthening overall system stability. Additionally, it reduces the volatility of the platform tokens and improves the user experience within the protocol. Participants, including institutions, project teams and individual users, who provide liquidity within the L7 DEX ecosystem benefit not only from the trading fees and insurance fees generated by L7 DEX, but also from the potential upside that comes with the growth of other blue-chip companies is connected to project tokens within the ecosystem.
What is the token mechanism of L7 DEX?
In its early stages of development, L7 DEX has successfully cultivated synchronized growth in both its incremental and existing user base by building a global community and a foundational NFT economic model. Owning an NFT as part of the project is akin to actively participating in its construction. Users have the opportunity to stake their NFTs and earn long-term profits while becoming early-stage investors who benefit from the project’s growth. NFT holders can also enjoy benefits such as reduced trading fees and higher liquidity rewards. In addition, these users actively contribute to shaping the community and influence the direction of product development through voting.
LSD is the native governance token of the L7 DEX platform and offers users a variety of useful and value-oriented interactions. The total supply of LSD is 210 million tokens. In addition to its governance functionality, holding LSD offers several benefits within the ecosystem:
(1) Provide users with reduced or waived trading fees for futures trades on L7 DEX.
(2) Participate in LP mining for blue-chip projects within the L7 DEX ecosystem.
(3) Enjoy priority access to all upcoming airdrop benefits released by L7 DEX, along with priority participation and early access to the platform’s future innovative products.
(4) They have the right to vote on important proposals within the ecosystem, with governance rights commensurate with their shares.
(5) Get early investment opportunities in a variety of outstanding projects.
Summary
In the long term, decentralized derivatives trading offers significant opportunities. L7 DEX ushers in a paradigm shift in decentralized futures markets by introducing the PvP AMM model and is poised to accelerate its growth. In addition, L7 DEX is characterized by unique features such as an innovative liquidity trading model, an order insurance mechanism and the “liquidity + IEO” development approach. These features increase the efficiency and security of the protocol, make decentralized contracts more accessible, and improve the user experience. Additionally, they act as compelling incentives and attract a broader user base to participate in the ecosystem.
Website: https://www.l7dex.finance/
Twitter: https://twitter.com/L7_DEX
Telegram: https://t.me/L7DEX_Official
Discord: https://discord.gg/l7dex
Disclaimer:
The information provided in this press release does not constitute a solicitation of investment and is not intended as investment advice, financial advice or trading advice. It is strongly recommended that you exercise due diligence (including consulting a professional financial advisor) before investing or trading in securities and cryptocurrencies.
Lucas Wang L7 Labs bd@ at 7dex.finance
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
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