Why Build on Perp DEX LP

What is Perp DEX LP

Perpetual Decentralized Exchanges often require a substantial amount of liquidity to support users' leveraged positions and ensure the stability of their protocols. Liquidity providers play a pivotal role by offering liquidity to the platform, effectively taking the opposite position to traders. In return, they receive protocol fees as compensation.

The specific method for determining the value of LP tokens can vary between different protocols. For instance, in the case of GMX V1, trading directly involves the assets within the LP, exposing liquidity providers not only to fees and trader PnL but also to fluctuations in the prices of the underlying assets. In contrast, protocols like Vela Exchange and Gains Network utilize synthetic price feeds, thereby limiting liquidity providers to deposits made with designated stablecoins. This approach helps mitigate their exposure to price fluctuations of the underlying assets.

How is it different from DEX LP

Zero Impermanent Loss:

In contrast to liquidity providers (LPs) in AMM DEX platforms who experience impermanent loss on volatile pairs, LPs on Perp DEX do not encounter any impermanent loss thanks to its inherent design. As a result, the impermanent loss has no impact on the overall expected value of LPs on Perp DEX.

Positive Expected Value:

Perp DEX liquidity providers (LPs) anticipate a positive total expected value, which results from a combination of positive EV from trading fees and a net EV of zero on trader PnL. The trading fees inherently contribute positively to the EV, constituting the primary revenue stream for Perp DEX.

While for EV of trader PnL, assuming an equal ratio of profit to loss at 50:50, the expected value (EV) of Trader PnL will average out to zero. However, over the long run, historical data suggests that the EV is likely to be positive, resulting in the accumulation of value for the LP (liquidity providers).

$\small Total EV \tiny Perp DEXLPs \small = EV \tiny TraderPnL \small + EV \tiny Fees$

where:

$\small EV \tiny TraderPnL \small = 0$,since Trader PnL is 0 EV

$\small EV \tiny Fees \small >0$ ,since fees generate positive EV

Relatively Stable Price:

For most of the LP tokens they are exposed to no or much lower price fluctuation exposure, such that LP perfformance is only affected by traders and protocols performance. This significantly reduce the risk of leveraged users compare to traditional leverage trading

LPs and their respective Perp DEX

Perp DEX	LP Token	LP Components
GMX V1	GLP	ETH, BTC, LINK, UNI, USDC, USDT, DAI, FRAX
GMX V2	GM	Depends on the GM Pool (i.e. ETH and USDC for [ETH-USDC] GM Pool)
Gains Network	gDAI	DAI
Vela Exchange	VLP	USDC.e
HMX	HLP	GLP, USDC.e
Level Finance	LLP	BTC, ETH, USDT, USDC.e

To see more information about the price calculation of LP tokens, see here.

Why does Vaultka focus on Perp DEX LP

• Protective leveraged strategies: The relatively stable price of Perp DEX LP provides a protective environment for users to leverage on, while maintaining upside potential with spikes from traders PnL

• Market lacks a Perp DEX focus aggregator: Vaultka firmly believes in the immense potential of the perpetual derivatives market and aspires to serve as the central hub for all Perp DEX platforms. Presently, the trading volume in the Perp DEX market remains a minuscule fraction when compared to the traditional derivatives market. By actively participating in and contributing to the growth of this rapidly expanding market, Vaultka aims to position itself as a foundational cornerstone for the Perp Dex Market

• Complex LP Structure: As various Perp DEX protocols employ diverse LP structures, it can be challenging for users to effectively plan their deposits. Vaultka offers simplified, one-click solutions to empower users to hedge and leverage their positions, thereby optimizing their potential rewards.