What are Perpetual Pools and How to earn 200% APY by staking in Tracer

good morning it is thursday which is unusual because normally do we first look on a wednesday if you don't know what first look at it's our unboxing series today we're taking a look at tracer's perpetual pools not to be confused with perpetual swaps what is that all about why could you possibly use it we'll get into all of that after these messages from our sponsors don't let high gas costs keep you out of ethereum a balance of the gas optimized vault architecture makes trading cheaper than anywhere else liquidity providers can optimize their fee earnings using the dynamic fee system that automatically adjusts to market conditions you can also use asset managers to lend out idle assets dramatically increasing your capital efficiency and because balancer is an open platform for flexible automated markets you can choose some stable pools or weighted pools and in the future more designs will be created that they don't even know about yet check it out at balancer.5 other or is it ava i think it's arvo fun fact that name is taken from the finnish word for ghost but there's nothing mysterious and weird about other it is in fact a decentralized open source and non-custodial liquidity protocol on ethereum depositors earn interest by providing liquidity to lending pools while borrowers can obtain loans by tapping into these pools with variable and stable interest rate options deposit in other protocol and receive a tokens which accrue interest every second right in your wallet seriously you can watch your balance just going every second swap any of your deposited assets at any time to get the best yields on the market and for the devs out there other features access to d5 building blocks like flashlights and credit delegation other protocol liquidity pools are now available on ethereum and the sidechain polygon so here we go we're taking a look at tracer's perpetual pools and to start with we should look at what tracer actually is well tracer is a dao and it's a dao whose main purpose is to create financial products particularly derivatives products that leverage blockchain blockchain technology to provide censorship resistant market connectivity powering the next generation of finance so it's an ecosystem of different financial products you've got mms you've got futures you've got perpetual swaps you've got prediction markets and there's just a bunch of people connected to that who are experts in one particular part of it could be designing smart contracts it could be working with oracle feeds it could be just you know d5 traders who are very very very advanced at what they do they can all plug into the tracer down contribute to contracts and to products that the dao is putting out and once the contract has been deployed it's completely permissionless unless it's been designed not to be but fundamentally you can't change it and anyone can interact with it that's kind of profound that's what tracer is all about so one of the fun things that i discovered with tracer is their perpetual swaps contract was audited by sigma prime now that may not mean anything to you but sigma is probably the most noteworthy auditor anywhere in the blockchain space if you get your contracts ordered by sigma prime not only does it take a very very very very long time and not only is it very very very very expensive but they're the best that doesn't mean that they're bulletproof by any means but if you see sigma prime it's a pretty good sign that whoever's behind the project knows what they're doing and is prepared to pay for the best people in the business to audit their contracts one of the fun things about the contract as well is that they are they executed the service agreement with a digital signature that was encoded into an ethereum hash i believe that's the first time that's ever been done so the perpetual pool it's just a way of going long or short on an underlying asset so it could be bitcoin it could be ethereum and you can use leverage as well here's the thing you can't be liquidated and how is that possible but we'll get into that in a bit it is somewhat complicated it's also fully collateralized so whatever's behind the contract is fully collateralized so it's usdc in this case so the uscc is in the pool it's there it's fully fungible so you can create tokens long or short tokens and then you can take those and interchange them one for another and you can also stake them and swap them on unit swap and trade them on the secondary market and it's perpetual so this contract never expires it just continues for as long as you want it to continue which is up to you so here's how it works you have essentially a financial contract between those who want to go long and those who want to go short and that financial contract determines the transfer of value between the longs and the shorts and this is based on an underlying price fee we'll get into where that price free comes from later on so you have a long side which is represented by an l token you have a short side which is represented by an s token and the value of these particular tokens is determined not by a price feed no but by the proportion of the collateral held in each side of the pool so you can imagine the market right now is bullish so people are going to want to go long so they'll be more collateral in the long side that means there's less collateral in the short side that is what determines the price of these tokens so if there's more collateral on the long side the price of the token goes up and and if there's less collateral on the short side the prize the token goes down now periodically the value is rebalanced between the two sides of the pool and that's usually i think at the moment it's every 60 minutes and that basically mimics leveraged exposure and that transfer is determined by something they call power leverage or p so that's how that works so let's say for instance you have the btc usdc pool so the btc price goes up the short side then has to pay out their collateral to the long side to represent that price increase and so that token price appreciation acts basically like traditional leverage so that's how that works then the power leverage itself this is the really clever part the amount of site gets from the other side is known as the value transfer and power leverage is how they calculate that value transfer so power leverage basically amplifies a pool's value transfer relative to the price change and this is different from uh traditional leverage where it's linear so the when the value um the value transfer is a multiple of the price change and it's linear here let me get this right the transfer is 1 minus the inverse of the price change to the power of a set leverage which means that a side can never lose 100 or more of its collateral so if you imagine in um a traditional perpetual swap you can be completely liquidated if um the leverage exceeds how much you've actually got in the contract itself that can't happen here and how does that work exactly well it all comes down to the rebalancing rate so you might be familiar with funding rate on bitmex if you if the btc contract is trading above the spot price then it's determined as positive and longs pay shores and the inverse is true um if the price is trading below the spot price and that's designed to bring the price back in line and it creates profits for one side or another and is designed to gamify the system and make it all work so here's how it works in tracer in the case where long and short collateral is a parity so you've got an equal amount of longs and equal out of shorts an x percent transfer from one side will equate to an x percent gain for the other side so that's when everything is completely perfectly balanced which never happens so in the case where that isn't the case and where long and short collateral is not equal an x percent transfer from one side will not result in an x percent gain for the other side so it's not a zero sum game this is really important so for instance um if the pools are in balance and the price goes up by x the short side let's say the long side goes up the short side doesn't automatically pay instantly into the long side there is a rebalancing rate and this is essentially saying for instance if you if the short side of the pool is has less clash of the long side then they get a favorable rebalancing rate which means that they're not penalized as heavily for being under collateralized as they would be under normal market conditions under a linear market so you can see in the in the graph here what happens in a linear market this green dotted line would be um where the price goes up and where you would expect if you have long exposure to see those gains go up but what happens is that the rebalancing rate pushes the curve on that profit line down and pays it off to the short side see where i'm going with this so it means that if the so as as the um the line goes up and as it goes steeper and steeper the price deviates from where you went in then this will actually flatten off to a point where it no longer goes up as the rebouncing rate goes up to compensate which means that the short side can never be liquidated it can never be fully taken out of the game so that's a fairly profound i mean you can still lose a lot but you're not going to get completely annihilated which is you know one of the worst things about trading leverage on bit makes having your whole stake just liquidated so what's the difference with potential perpetual swaps which you might be familiar with from bitmex well those are instruments that aim to track exactly the price feed at all times forever and the mechanism that ensures the instrument is tracking the price feed is the funding rate so the funding rates penalize the side which has the highest demand so as demand goes up on one side that funding rate then incentivizes the other side of the market see where it's going but in contrast perpetual pools are instruments that that magnify exposure to an asset based on the change in its price feed so they don't aim to track the price instead they have this power leverage returns so you get this instance like this where um as the market deviates further and further from where you went in it heavily incentivizes the other side of the market to come in and play so everything balances out and it the whole system doesn't collapse under its own weight price feeds well that's chain link by now i think everyone should be fairly comfortable with chaining what they do who they are and how trustworthy they are it's probably the most used price feed and price oracle anywhere in crypto and then the rebalancing process well um at the end of 60 minutes the pool has to be rebalanced and this means that uh if you know the price of bitcoin has gone up then long this needs to be paid for that and that's done via keepers so they have to actually interact with the contract to trigger the rebalancing and this is done by keeper bots if you're familiar with bots from liquidations in makeup same kind of thing they just look at the price feeds and determine whether it's worth creating a a keeper event a rebalancing event and then they jump in and therefore obviously they get paid for it so that's how that works so let's have a quick jump in and have a look at the perpetual pools themselves in operation one thing to bear in mind is this is all running on arbitrarium so if you want to take a position in the perpetual pool you're gonna have to bridge assets over from ethereum to arbitrary it's pretty straightforward the documentation on tracer is actually pretty good they have some nice blogs here that you can find but let's just jump into the pools themselves i actually loaded this up earlier there we go so here's the mint and burn page so if you have ustc you can mint for instance into the ethe usdc contract so you get at the moment one degree of power leverage or three degrees of power leverage but there will be two three five and ten and you can see here the token that you would be buying is one l which means uh one power leverage long on the usdc a usd contract and you can see here that it's there's a counter which is going down and it says if you buy this now you will receive it in five minutes and you literally the moment that happened it jumped to one hour and four minutes the the rebalancing period is 60 minutes but there's also a front running period so five minutes before that rebalancing period starts you are no longer able to buy a contract and we literally saw it happen right there um so that's to avoid people piling in at the last minute and swamping everything and knocking everything out of balance so we literally saw that happen right there if we wanted to go short we can also go short so you see the symbol changes to red and it becomes a 1s and that's minting a token so you drop uscc in you mint the token that you want and we can look at where the price is for instance you can also redeem those tokens for the underlying usdc so you do that on the burn side of the market that would take them off the market and here a one s etheusd token would cost you 97 cents and you that's what you would receive back if we look at the browse side of things hopefully it'll load up we can see what's going on here which will give us an idea of the balancing rate and where the market is currently sitting so if we look at the 1ls that's the leverage of 1 on the btc long we can see that the rebalancing rate is 0.188 and it's heavily favoring the short side which means everybody is long total value locked up in it is 5.3 million dollars and you can mint or you can burn here you can also get an idea of the price of the individual tokens so um one long each is one dollar and one cent which means the ethan the the ether market is pretty well balanced i think people are more bullish on bitcoin at the moment by the looks of it so you can see that the bitcoin price is .85 on the short side if everything was in balance both of these tokens would cost a dollar that's just the way it works so you can see how that all works out and uh one final thing is these tokens can be staked for rewards uh i can't actually go ahead and show you how that works at the moment but one strategy you could use for instance if you wanted to just take the staking awards you could say um you could say for instance take five thousand dollars on the short side five thousand dollars on the long side take those tokens out stake them and then you would get the staking rewards and because your long and short exposure is net zero you're just taking out the staking rewards and off you go um otherwise you know you can hedge your exposure you could also take advantage of arbitrage opportunities if you're sophisticated enough to to set up some bots to do that but one other thing up here which i didn't do which i should have done because you know as a d5 power user this is the first thing you must do dark mode i mean who doesn't like dark mode so that's tracer perpetual pools one other thing i noticed there's a position accounting spreadsheet that you can go ahead and discover you know just try out some positions on a spreadsheet and see how they would pay out for you i will leave a description a link to that in the description below but that's basically it for today that was first look at tracer perpetual pools as always don't forget to check out the define dot io for more information of the written word sort do check out the other tutorials and coming up friday we've got pack part three and that's it for today any suggestions you have for things we should take a look at first look drop them in the comments i will see you on the next one peace

Channel: The Defiant

Views: 3,204

Rating: 4.9523811 out of 5

Keywords: blockchain, technology, decentralized, sharding, crypto, cryptocurrency, scalability, proofofstake, defi, decentralized finance, economy, bitcoin, ethereum, one, money, blockchain technology, blockchain explained, what is blockchain, blockchain tutorial for beginners, peer to peer, daps, dapps, btc, coding, cryptography, proofofwork, pow, pos, trade coin, valuecreation, cryptocurrency news, crypto news, cryptocurrency explained, new technology, finance, banks, fintech, nft

Id: FL1zZL1zaSU

Length: 16min 18sec (978 seconds)

Published: Thu Oct 07 2021