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What's next for decentralized derivatives? MCDEX v3 AMA

We sat down with Jean Miao, co-founder of MCDEX to discuss the planned upgrade

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Jan 22, 2021

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Decentralized derivatives are blowing up like DEXs did in 2019-2020. The next few years will be comprised of figuring out how to settle leveraged positions on-chain using liquidity providers.

A lot to take in there.

Basically, you need a counterparty to trade against when you’re using debt.

(There has to be a supplier of the debt to every borrower)

In this AMA, we sit down with Jean from MCDEX, to discuss the recent upgrade to v3.0 and how she is prepping for a full derivative explosion in 2021!

Get ready for the defi takeover.

-Andy

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What's next for decentralized derivatives? MCDEX v3 AMA

What are the important updates from McDEX v2 → v3?

We are moving from Ethereum L1 to L2.

This action will significantly decrease the gas fee，resulting in a smaller amount of transaction fee will be charged.
Much higher settlement speed. Smoother experience.

We are taking out the order book option.
Crowdfunding liquidity is a game changer,
Simpler and smoother user experience
Capital-efficient AMM ,1000 times better than constant product formula
Anyone can create any perpetual market, just like Uniswap.

Are there any incentivization measures for Operators?

There could be MCB token incentive, it needs to be decided through DAO governance. If the Operator’s market has a great potential, then it has more potential to have MCB incentive.

Besides, they can profit from every trade by charging management fee set by themselves.

What is your current model for custom AMM’s and how do you expect them to continue to evolve?

AMM is the counterparty of all trades. Major questions to think about while designing an AMM include how to improve the capital efficiency and the expected profit of LP (Liquidity Provider).

To improve the capital efficiency, AMM should decrease the slippage to attract more traders. Our resolution is the assembling of more funds near the index price. Furthermore, MCDEX involves “shared liquidity pool” which enables multiple AMM with the same collateral can use the same liquidity pool.

The profit of LP has to be maximized in order to attract more LP to providing liquidity. There are two ways to increase LP profit: One is to increase trader’s trading fee, and the other one is to reduce arbitrage opportunities. The MCDEX AMM V3 is more inclined towards the second one. MCDEX AMM V3 also applies other means to increase LP profit, including but not limited to the adjustments of spread

and slippage, and the funding payment which is unique in perpetual swaps.

We’ve introduced another role “Operator”, who are the creator of the perpetual market. They can adjust the market risks by adjusting the risk parametres so that the perpetual market can work better for different assets.

The evolving goal of AMM is to mimic the algorithm of human’s market maker behavior and better capital efficiency. More ideas will be generated during the implementation of the current model.

How can you limit, or completely avoid, liquidation of new operators on illiquid markets?

Operators are the creator of the market, they are not necessarily being the LPs. So there is no concept like liquidations of operators. But the market opened by a new operator could be illiquid. That’s one issue that the operator should consider - how to attract more liquidity. They can apply for MCB reward (governed by MCDEX DAO), collaboration with other projects for token incentivize, etc.

Do you have plans to integrate v3 with other protocols?

Yes, Mai3 protocol is the base protocol that enables decentralized perpetual swaps. It can be integrated with many kinds of protocols, like zapper.fi, wallets, even other DEX.

What can we look forward to from McDEX in future development stages?

Decentralized perpetuals is our first and critical step in the long term road map. Perpetual is a high qualify base assets that many other protocols can build on top of it. For example, structured financial products. Next up, we will involve the community to develop more innovative protocols based on it and expand our products. The goal has never changed - decentralized bitmex.

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⚠️ DISCLAIMER: Investing into cryptocurrency and DeFi platforms comes with inherent risk including technical risk, human error, platform failure and more. At certain points throughout this post, we might get commission for promoting certain projects, if this is the case we will always make sure it is clear. We are strictly an educational content platform, nothing we offer is financial advice. We are not professionals or licensed advisors.

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