Even though the days of grocery coins are long behind us, the selling point of the average DeFi platform seems a bit overdone, if not entirely generic. And with good reason: the best DeFi strategists appear to have maxed out their playbooks. The same tactics that worked like a finely tuned tool in the golden days of DeFi in 2020 and 2021 were barely able to make a difference in 2022 and completely ground to a halt in 2023.
Standard liquidity extraction was once all the rage in Web3 — now it’s about as mundane and daring as incentives get. Likewise, vampire liquidity tricks through the early issuance of governance tokens are barely able to circulate on Crypto Twitter, let alone make headlines in its leading publications à la SushiSwap around 2020.
The reality is that DeFi has both matured and evolved. Building a user base isn’t quite as easy as it used to be. Nonetheless, DeFi continues to present ample opportunities for new entrants to disrupt and compete with incumbent operators. The key is to target DeFi users where their biggest exposures lie, no longer in the realm of spot markets and yield farming, but in the wild world of abusers.
Perpetual Contracts: DeFi’s Next Big Battleground
Perpetual contracts — or “perps,” as they’re aptly shortened on crypto-Twitter — are essentially modified futures contracts with no expiration date. Like traditional futures contracts, perpetual contracts allow traders to raise capital and open leveraged positions on specific assets. Because perpetual bonds never expire, they are always cash-settled and can be held indefinitely.
Due to their usefulness in placing hedging trades and high-stakes investments, the perpetrators have grown in popularity and have amassed enormous capital and interest from crypto traders. According to CoinGecko, the combined market cap of perpetual exchange tokens currently tops $1.1 billion, and it’s not uncommon for 24-hour trailing trade volume in perpetual contracts to exceed $100 million.
Currently there are no signs of a slowdown in the long-running favorites.
The story goes on
Proving the perpetrators right: The entry point into the DeFi scene in 2023
Today, a small group of elite DeFi protocols dominate swaps, credit markets, order routing, and liquidity aggregation. Their volume is staggering, their liquidity is unrivaled and their user base is loyal, immense and growing. It’s no secret: trying to break into the DeFi scene in 2023 by targeting spot markets and swaps is a futile endeavor.
But in a lukewarm market that has been flat and changing at best over the past two years, perpetual contracts have become a favorite among traders who love to play it safe. Notorious for their insatiable risk-taking, crypto traders are becoming increasingly active on perpetual exchanges. Regardless of what the market moves next, offenders give traders the freedom to make long or short bets and the leverage to up the ante and capitalize when they’re right.
In high-risk environments, every little detail counts. Perpetual contracts are nuanced, complicated products, as are the perpetual exchanges on which they are based. Margin traders are constantly looking for new features, a better experience and interface, support for new assets, and of course, more leverage.
Existing DeFi providers have nailed the spot market experience. Their interest rates, depth of liquidity, and routing capabilities are hard to beat, let alone disruptive. But in the perennial scene, the door is wide open to win users over. Solving pain points for perpetual traders by simplifying process flows, providing a more intuitive user interface, and offering a simple, honest fee structure is a golden ticket to introduce existing traders not just to a new perpetual exchange, but to a whole new DeFi – Engage the ecosystem.
The recipe for the perfect criminal
When it comes to capturing the interest of permanent traders, there are three key factors in developing the perfect offenders.
The first is to choose the right chain. Crypto-native perpetuals were first launched by BitMEX after its launch in 2014, and it wasn’t long ago that CEXs dominated the perpetuals market with their sophisticated liquidation engines and well-resourced market makers. In 2023, it is crucial to select a chain that properly supports a full-featured perpetual exchange, ensures high performance, and keeps trading fees under control.
Second, it must have the big features that users expect. That means support for the most popular cryptocurrency blue-chip assets and stablecoins, significant double-digit leverage, and strong incentives for providing liquidity. These are fundamental components of a successful eternal exchange and there is no substitute for them.
Last but not least, it is imperative to provide free educational content to existing and potential users. Open-ended contracts are both extremely fair and extremely dangerous. Helping users interpret a platform’s analytics dashboard, develop a nuanced understanding of its liquidation capabilities, and properly assess collateral requirements goes a long way. Such content not only helps users become familiar with the platform, but also shows them that the development team cares about their community. There is nothing better than doing whatever it takes to please users. Everyone wants to see more of that in Web3.
Satisfied resellers become loyal community members
Once perpetual traders are happy with their experience on a perpetual exchange, they become interested in exploring what else the native DeFi ecosystem has to offer. Because if a decentralized platform can offer high leverage, perform fast liquidations, and provide multi-asset liquidity incentives, setting up a V3 decentralized exchange (DEX) and supporting active liquidity management must be a no-brainer.
This is the way to attract new users to the DeFi scene in 2023. Users look forward to the next DeFi giant settling on zero and building the next DeFi empire. The secret is to start with the perpetrators – not the exchangers.
Alexi Atlas is the founder of the Kinetix DeFi hub.
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