MCDEX V3 uses the “index price + complex AMM” method to price decentralized perpetual contracts, and its liquidity provision adopts a centralized AMM model similar to Uniswap V3.
Written by: Ether Boy
With the vote of Uniswap V3 deployed to the second-tier network of Ethereum, Arbitrum, the competition for DEX in the second-tier network has also entered a fierce stage. At the same time, the DeFi derivatives track is limited by Ethereum’s high fees, high latency, and poor liquidity of the traditional AMM model. It is still in its infancy, and the market value of major products on the track is generally low. However, coins like dYdX have not yet been issued. However, with the gradual implementation of Ethereum’s Layer 2 solutions, the problems of high gas fees and high latency will be solved. Derivatives, as the most imaginative type of product in the financial market, may become a new flashpoint in the DeFi market.
MCDEX V3 (MCB) is a decentralized perpetual contract that uses the “index price + complex AMM” method for pricing. Its liquidity provision adopts a centralized AMM model similar to Uniswap V3, which automatically concentrates liquidity in a range. There are three benefits: one is centralized liquidity, the liquidity of V3 AMM is 1000 times higher than the liquidity of constant product formula AMM; the second is that it can reduce slippage, which is very conducive to contract transactions; third, LP does not have to bear impermanent losses.
On the second level track, MCDEX, as the first officially recognized project to officially migrate to Arbitrum, has been supporting Arbitrum since the third quarter of last year and has successfully deployed the Arbitrum mainnet. As Uniswap V3 is about to deploy Arbitrum, Arbitrum has now taken the lead in the second-tier competition. The MCDEX team stated that it will consider using Uniswap V3 directly as the Oracle source of MCDEX V3. This means that for the first time, DEX will completely get rid of the shackles of centralized exchanges and achieve decentralization in both spot and futures products. Pricing. To a certain extent, it can be regarded as fulfilling Vitalik’s prediction that UNI should become an oracle token .
The trading slippage of V3 AMM has been significantly reduced
Handicap liquidity on the V3 testnet is very concentrated
Market Maker Risks and Ways of Response
V3 AMM brings very concentrated liquidity, but when the market is unbalanced, the biggest risk lies in the market maker risk. Assuming that there is a surge in Ethereum short orders in the market, the LP part will act as the counterparty of the difference part and bear great risks.
MCDEX V3 responds to market maker risks by charging the counterparty for funds, automatically adjusting the quotation (premium discount) and setting the spread of the handicap. When shorts occupy the majority in the market, the system will levy capital fees on shorts, and part of the capital taxes paid at this time will be given to LP.
In AMM design, the principle of quotation adjustment is to inhibit transactions that further increase AMM risk and encourage transactions that reduce AMM risk. Assuming that there is a surge in short orders in the market, the automatic quotation mechanism will lower the price at this time, encouraging arbitrageurs in the market to do more on MCDEX, forming a dynamic balance. In other words, AMM is selling its position at a discount, encouraging traders to take the position, so that the risk of AMM is reduced.
In addition, LP can earn spread profit through handicap spreads and give back to LP. Secondly, it can avoid the problems caused by inaccurate quotes of oracles, and it is also a way to balance risks. Compared with CEX, the nature of handicap spreads is also the source of income for automatic market makers.
These risk parameters are dynamically controlled by the role of Operator. Operator can dynamically adjust these risk parameters according to market conditions within a range at any time under the authorization of LP, which can form a better balance.
Operator settings: Allow anyone to create contracts without permission
- Operators can freely create perpetual contracts and set the initial parameters of the perpetual contracts (such as margin rate, AMM risk parameters, etc.). Adjust AMM’s market-making risk, trading depth, slippage, market spreads, etc.
- Operator purchases (or directly provides) Oracle services for the contract. The protocol defines an Oracle interface, and various existing Oracle services can be easily connected to the protocol. Operators can also provide Oracle data for perpetual contracts.
- Operator can dynamically adjust the settings of risk parameters within the effective range according to market conditions.
- When the Operator wants to adjust the parameter range, it can initiate a governance proposal.
Operato can profit from operating fees and thus profit from every transaction.
MCDEX V3 allows users to create contracts without permission, much like Uniswap can freely create various trading pairs. It can greatly enrich the types of contract markets and quickly add many long-tail assets. As you can see, this is a very free market.
In addition to Operator, there are 5 roles in MCDEX, Liquidity Provider, Trader, Keeper, and Delegator. Maintain a decentralized operation.
Deployed to the Arbitrum mainnet, scheduled to be officially available to users before July
After MCDEX went through the V2 version, V3 used Arbitrum Rollup in the choice of Layer2 solution. Arbitrum is highly compatible and compatible with Ethereum EVM. After testing, Optimistic’s Gas consumption is 10 times that of Arbitrum, and there is a limit on the contract size. So use Arbitrum Rollup.
MCDEX V3 was successfully tested on Arbitrum testnet 5 on May 17, and the results were relatively smooth: fast speed and low gas. A testnet for users has also been opened, and users can experience it on their own. Arbitrum opened its mainnet to developers on May 28, and MCDEX V3 was subsequently deployed to the Arbitrum mainnet. The team said: The MCDEX V3 mainnet will be officially available to users before July.
Community Voting: Token Burning and USD 7 Million Fundraising
On April 16, the proposal initiated by the MCDEX community to raise US$7 million for DAO was passed, raising US$6 million from institutional investors such as Multicoin Capital, Fenbushi Capital, DeFiance, and giving MCB holders US$1 million for follow-up investment Quota. The financing price is $10/MCB, and a strict lock-up plan is set to release based on performance. All funds obtained from financing will enter the MCDEX DAO treasury, which will be jointly managed by all MCB holders. After V3 is released, this part of the funds will be mainly used to add liquidity to V3 AMM.
Release MCB based on performance to encourage long-term development
In addition, a few months ago, MCB realized the destruction of tokens through community voting. 90 million MCB tokens have been destroyed, and the total amount of MCB has been reduced from 100 million to 10 million, protecting existing MCB holders. 75% of the newly issued MCB is used for community incentives, and strict additional issuance rules have been established.
It can be seen that the team upholds the free market theory, where the team or active contributors in the community propose governance proposals, and then vote for decisions after full discussion in the community to find a balance between democracy and centralization.
In terms of the composability of DeFi, since any ERC20 token can establish its own contract in V3, it has sufficient scalability. On the other hand, the team is considering using MCDEX perpetual contract products as the underlying assets of other projects. For example, MCDEX LP Token, as the underlying asset of projects such as BarnBridge and Saffron, realizes full composability, expands capital utilization and influence, and builds Lego blocks in DeFi.
Competitor
dYdX
It is one of the few decentralized exchanges that insist on using the order book model, adopting the transaction method of off-chain order book and on-chain settlement, and has not yet launched a governance token. Its Layer 2 version has been officially launched, and you can see that its spread is lower, but the depth is not as concentrated as MCDEX in the market. The reason is that MCDEX’s AMM has higher financial efficiency.
Perpetual
Perpetual is a futures Dex that uses a virtual AMM (vAMM) mechanism for pricing. The vAMM mechanism uses AMM’s x*y=k method for pricing, but does not actually exchange the two currencies. Instead, after the price is provided by the AMM formula, funds are entered and exited from the Vault instead of directly entering and exiting funds from the AMM pool. Long/short positions in a single currency are opened and closed in the Vault. The advantage of the vAMM mechanism is that traders can play games with each other without LP as the counterparty. Both traders in the same direction or traders with long and short counterparties can play games with each other, avoiding LP’s free loss/ Counterparty risk.
Its essence is similar to Synthetix’s dynamic debt design, which is a bet between traders. However, the mechanism of vAMM cannot effectively concentrate capital efficiency, which may cause greater slippage.
Write at the end
MCDEX V3 uses a centralized AMM mechanism to concentrate funds on the market. The trading depth is increased, and the slippage problem is also resolved, which can effectively enhance the trading experience. By using discounted prices and arbitrageurs to hedge the risks of market makers, it can be seen that the nature of arbitrageurs, market makers, contract creators, and community governance are delegated to the market. Of course, this also means that the LP provider will take a higher risk.
In the future, ERC20 tokens can create their own perpetual contracts in the V3 version. From this perspective, MCDEX has established a completely free market similar to Uniswap, which can satisfy the perpetual contract transactions of a large number of long-tail assets. On the Arbitrum network, transactions can reduce network fees by at least 90%, and the transaction time is faster, shortening the gap with centralized exchanges in terms of transaction experience, and attracting more fresh blood for decentralized derivatives trading . And the centralized exchange, which once occupied an absolute advantage on the derivatives track, will also formally meet the challenge of the decentralization wave.
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