Market Opportunity for PepperDEX
Perpetuals are futures contracts that never expire. For a perpetual futures contract holder to maintain their position, they are required to either pay or receive some sort of fee. This fee is called the "funding rate." A negative funding rate means you have to pay to be short (you get paid to be long), and a positive funding rate means you pay to be long (you get paid to be short). If the contract price is higher than the index price (which is an index of the underlying spot price), then funding will be positive, and if the contract price is lower than the spot index price, funding will be negative.
During 2021, collective perp volumes on centralized exchanges exceeded more than $2 trillion per month. In comparison, decentralized derivative platforms were doing close to $100B/month. However, trading volumes declined throughout 2022 and the first half of 2023, resulting in centralized exchanges averaging ~$1 trillion per month between BTC and ETH futures over the second half of 2022 and the first half of 2023. In comparison, the top 10 decentralized exchanges by volume have averaged ~$55 billion in total monthly trading volume. However, despite the current bear market, the gap between CEX and DEX perp volumes has begun to narrow thanks to projects that maintain similar mechanics to PepperDEX (GMX, DYDX, etc.); some of the reasons for this are:
Regulatory limits on centralized exchanges make those products too difficult to use.
Market participants using similar products in DeFi are rewarded more for the same trading activities through incentives and staking.
Historically a hindrance to DeFi derivatives like perpetuals has been due to blockchain scaling. However, thanks to layer-2 networks, they help solve scalability issues.
New and innovative DeFi flywheels create a positive feedback loop and help drive adoption.
The Scalability Issue
Despite the advent of Layer-2s, decentralized environments are still too slow and fragile to entertain wider usability. Comparing Layer-2 execution layers with traditional and centralized execution environments, Layer-2s are not only 100-1000x slower but also extremely costly to use during peak demand. This hinders the development of a truly on-chain NASDAQ or CME.
PepperDEX is inherently scalable as it's built on the Solana blockchain. Solana is arguably the fastest and cheapest L1 option available out there. With a flourishing ecosystem of applications and users, PepperDEX is poised to become an avenue for sleek and instant trading.
Low-Liquidity and Capital Inefficiency
Although there is heightened demand for decentralized alternatives to CEXs, many DEXs still suffer from thin liquidity and high slippage. Also, most DEXs have shown near-zero innovation with leverage and margin, delivering extreme capital inefficiency to users. To attract and retain user demand, DEXs have to look at ways to bootstrap liquidity and build up capital efficiency.
PepperDEX is built with deep liquidity and increased capital efficiency in mind. Hxro Network's innovation enables improved capital efficiency through a shared liquidity model, enabling PepperDEX to tap into liquidity sourced by Hxro Network, eliminating the need for PepperDEX to source its own liquidity for the futures products offered on the platform, a liquidity methodology used by many competitors which often results in stagnant liquidity sitting in vaults that still receives a portion of protocol revenue even when not actively being used. Through PepperDEX's integration of Hxro Network's liquidity, PepperDEX can offer perpetual futures on major assets like BTC, ETH, SOL, etc., and expiring futures products through Hxro Network's Zero-Day-Futures giving users access to many trading pairs instead of only the pairs other DEXs can source their own liquidity for.
Advanced and Incentivized Trading Environment
PepperDEX not only provides access to Hxro Network's liquidity but also incentivizes its use. PepperDEX boasts an innovative tokenomic flywheel that rewards traders for trading on PepperDEX, strengthens the PepperDEX treasury through oPEP redemptions, incentivizes the staking of PEP to earn a share of protocol revenue, and enables loyal PEP stakers to direct the direction of the protocol through governance. PepperDEX's unique tokenomic model creates a flywheel that is designed to reward traders and promote the long-term growth and development of the protocol, enabling PepperDEX to become the premier futures DEX on Solana, all powered by Hxro Network.
Secondly, the PepperDEX trading UI will combine a blend of simplistic, yet advanced trading features, taking into consideration new and pro traders. Alongside speculating on price action of the underlying assets, users can also execute advanced strategies with the help of capital-efficient spread trading on Perpetuals and Zero-Day Futures, UI-based advanced order types, and a robust API interface to interact with the exchange algorithmically. Some major use cases are efficient SOL-LST arbitrage, order execution improvements via advanced order types, and deep and efficient markets via algorithmic trading.
Users can also access and participate in democratized market-making initiatives taken by the exchange and custom trading strategies by individual traders via trading vaults. What does this mean? Users can deposit into an advanced market-making strategy operated by the protocol to capture any alpha generated by the strategy. Similarly, individual users on the exchange can operate vaults for their proprietary strategies, which users will be able to deposit into as they can into protocol-operated vaults. Some common ideas for trader-operated vaults are market-making strategies, liquidation strategies, and funding-rate arbitrage. Operated vaults always carry a possibility of loss. Please understand the risk before depositing.
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