Opportunity to reverse PERP DEX from CEX: That’s the moment.

Author: Encryption; Source: X, @thecryptoskanda

In the past two days, many teachers have seen Fomo Perp DEX track because of Aster.

But to be honest, there is no need to rush to get the paper.

The more you study, the more you feel that you should not add drama to yourself and not brainwash yourself.

I will talk about my understanding of the track from the perspective of trying not to offend people, and mainly provide reference for friends who don’t know much about this track before.

TL;DR:

1. Perp is not just Hyperliquid;

2. The Perp track has been around for a long time, and it is time to let the spotlight hit you now;

3. Exchanges of the same type as Hyperliquid may have a conflict of interest with all fundamentals;

4. Avantisfi’s path is the greatest common divisor of the interests of Perp and exchanges on the chain;

5. Reversely refer to whether you should participate in points from the listing currency.

What exactly is the Perp track?

On-chain Perp has been available in 18 years, such as Synthetix, MUX, PERP, etc., which are not new tracks.Due to historical reasons, there were many ways to implement contracts on the chain in the past, but in the end, two major categories were left: AMM Perp and CLOB (Order Book Perp).

AMM Perp(Jupiter, Avantisfi, GMX): Use an oracle to quote the trading pairs, and use the pool to serve as the counterpart of all traders.It’s like depositing a stadium in Macau to get annualized returns, because according to the law of big numbers, as long as there are enough bets, house will definitely win.

CLOB Perp(Hyperliquid, edgeX, Lighter, Orderly, Aster, etc.): Perp Exchange, which is based on order book and matched transactions, is the same as CEX.The specific difference is that Hyperliquid will claim that its entire order book is placed on the chain and some, like Lighter, use ZK circuits to enable verifiable.

But basically, it is all disguised CEX, and once there are more nodes, it will basically affect transaction performance and speed.

There are indeed obvious differences in the cost of use and transaction methods between the two, but in my opinion, there is no logic of “who replaces whoever.”

Perp DEX has an impossible triangle: New asset coverage – liquidity depth – price fairness.

Only 3 choose 2.

Hyperliquid chose new asset coverage and liquidity depth, and sacrificed risk control because it is a product that MM is a product that MM is originally intended. MM is fighting in the jungle. Events like XPL and JellyJelly are not bugs but feature for it.

Jupiter chose liquidity depth and price fairness, but there are only 3 trading pairs so far.

Most CLOBs choose new assets and price fairness, so there will be strong opening restrictions and poor long-tail asset liquidity.

Which option is feasible in specific scenarios.

Why is the Perp track not popular before and now it is popular?

The previous Perp DEX was not bad, it was a matter of timing.It should be the most important DeFi infrastructure in any ecosystem (leverage demand), but the spotlight is not on them.

The order book was in the previous round, SNX became a blue chip in 20 years, DYDX airdrops stunt the entire network, and GMX/GNS saved the bear market in 23 years, but you only remember Hyperliquid. The reason is very simple:

1. After 23 years, there have been a lot of new users, and most of them do not know the story of DeFi summer;

2. Before Luna burst, many CEXs secretly picked up European and American users to use perp;

3. After Luna burst, especially after Kucoin was fisted, European and American users did not use Perp, but the SEC was extremely unfriendly to DeFi, and they would get repurchased and dividends. They even tried to force DeFi to KYC, so they did not invest in DeFi at the first level (Thanks again for saving DeFi).

Perp or DeFi is the revival of its revival, which is just the year after Trump came to power.For Perp DEX, the lack of KYC DeFi perp is already a necessity for Binance users in Europe and the United States, and DeFi coins are not bound by so many compliance historical issues on exchange platform coins, and can be operated with slutty.This creates an asymmetric advantage over CEX.

Break out of the box and look at PERP DEX from the history of CEX development

Think about it first, why a CEX can come from 2018 to 2019, and you will know what Perp DEX can come out.

Regardless of whether it is decentralized or not, the core task of any exchange is to serve its own LP, big players, and capital-salary providers.Only with them can there be trading volume, liquidity, and attract users.

Now we have talked about the so-called first-, second- and third-tier offices. The valuation of the liquidity of the exchange has nothing to do with the project.

This is the so-called listing price right.

Conversely, the pricing power of listed coins is also the first step to gaining big players, because the entire Crypto is an industry that prints money and has no old money.By listing coins, the air becomes real money, thus creating a large group of investors around specific assets, and then obtaining APY opportunities by continuously providing new coins/structured products (see the three functions of each exchange’s major customers, Earns, and institutional sales).

Today’s project party, tomorrow’s hot money dealer.The exchange, the project party and hot money are bound to each other.

Therefore, the core of CEX’s competitiveness is the pricing power of listed coins, which is bound to the exchange’s most important KPI capital sinking.This is why Bybit, Bitget, and BingX that came from pure contracts must be sold in spot stock.

The challenge of “Hyperliquid” – Fighting with the big things

First of all, CLOB has no capital to sink.Due to mechanism issues, at most, it is difficult to invest in capital, and it is even more impossible to increase leverage by using a strategy vault.This leads to the deep dependence of CLOB on market makers.In order to retain market makers, the project party needs to give money and makers to make concessions or even negative numbers.

After TGE, the currency price is cashed, and market makers often withdraw their volume.If CLOB does not bet like JLP, then vault’s returns will be very low. Without TVL, it will be impossible to convert TVL into transaction depth.In other words, it is difficult for a simple CLOB to become a big customer, and its template is 58Coin or Bingbong from 2019.As we all know, the life cycle of a perp user is 1-3 months.Then CLOB will inevitably fall into a “volume war”, and its opponents are all Perp DEX and CEX.

Secondly, it has been said before that CLOB itself is a direct competitor to the CEX contract business and has an asymmetric KYC-free advantage.Then here we look at what Binance or OKX understands CLOB, and is it simply regarded as a DeFi track?Or is it a competitor equivalent to CEX?If it is the latter, does that mean that almost all CLOBs may not be able to reach the big place (the big place is not the other platform coins).

There are only two ways to break the above two games:

1. Without the big so-called coins, it will rush to the top 100 or even 50 in market value, creating capital.Turn all the early MMs and other big chips into their own big asset management players for retention (dividend trading – limit liquidity + push up the total sunk cost);

2. Build your own entire ecosystem and have the ability to issue assets by yourself, so that the local currency and the firm have the right to pricing new assets.Thus, we will continue to attract the group of dealers and project parties, and form our own large customer system (split plate)Doesn’t it look familiar?

Yes, that’s how Bitget -BGB and Hyperliquid – Hype play.

On the other hand, you can understand why BGB is needed, why Hype and Aster are needed to burst (the higher the investment is, the larger the user is), and why Hype needs to choose Native Markets for USDH.

This is like Launchpad’s competition is not in launchpad itself, and the war of CLOB in Perp DEX is not in the product itself. It is not important to use Aster how difficult it is to use it. The point is whether it has resources similar to putting an L1 into the first page of CMC.

With so many CLOB perp, how many have this ability?

AVNT’s “Another Way” – Doing Good with Big

AVNT The narrative that many people see is Base’s Hyperliquid… This statement is completely wrong. It is the order book such as Base’s Jupiter, Hibachi or Synfutures.

The reason why many people are not optimistic about AMM Perp is that its transactions are “slippable”, high costs and slow speed, unlike CLOB Perp, which can be used by market makers and other institutions.

This is not very true.In fact, AMM perp uses oracle quotations, and its transactions are actually slippery.However, because of the adoption of global bets, it is necessary to artificially add a “price shock” to large-scale transactions to prevent tail risks.This part can also be adjusted according to operational needs, such as free of charge for high leverage or above 75XAnd “institutions cannot use” this stereotype comes from traditional market makers who do not know how to use AMMs, which are pricing based on liquidity, just like in the beginning, many MMs in Uniswap did not know how to customize market making strategies.In fact, there are more and more market makers on the chain, and chains other than ETH have basically solved the performance problems.

The real “awesomeness” of the AMM type is in two places:

1. AMM spot has pricing power. Why can Meme/on-chain fair launch become a long-term user growth point in the market? It is because it can be issued at low cost and is not dependent on market makers for pricing. The same is true for AMM contracts, which are the only model that can be completed with low cost and licenseless issuance and market makers for pricing;

2. It does not conflict with CEX, and it will not rob CEX of its order book depth and major customers.On the contrary, since “JLP” and “GLP” are the interest-generating assets with the highest real returns on the chain and have a huge depth capacity, they are even complementary to CEX’s asset management departments (such as Binance’s BTC and SOLV).

If you don’t believe it, you can check out Binance’s listing coins. There are only three Orderbook categories: INJ, DYDX, and Aevo.Among them, Aevo is also a Binance-based currency based on the logic of the pre-market market, and INJ is based on the public chain.

But there are 5 AMM perp (if not counting as JUP): GMX, GNS, AVNT, SNX, PERP.

Considering that the number of CLOBs in Perp projects is much more than AMMs, it is hard for you to say that this has no effect.

If you are interested, you can check out the logic of Avantisfi and the latest GMX. The previous impression that AMM perp could only support 3 coins has long disappeared. It’s like many people say that lending is “very boring”, but I didn’t see that KMNO and Morpho are already two architectures and two species.

How to choose points from Shandong Province

First of all, I think if you have invested in sunk costs, then you should stick to your choice.Aster proves that “continuous investment will pay off” this thing will still happen today.

If you are not invested at all, I suggest you think about the following two questions first:

1. The project you chose has no direct conflict of interest with the leading exchanges. Will it be regarded as a “platform currency” and not given?

2. Does it have the ability to solve the problems of capital sinking and pricing power without large liquidity?

If you choose Orderbook, then the first choice is:

– Obtain investments at the public chain ecological level (such as Sui and Monad);

– Exchange systems, institutions or individuals that have very influential or three parties can verify financial resources are constantly flowing milk in the public domain (CZ to Aster, CL and other big traders KOL to Hype).

If it is an AMM, then the first choice is:

– Chain with asset pricing operation capabilities: those with foundations that clearly support and obtain precedents for high-valuation projects and more than one example, such as Sui, Solana, Base, etc.;

– The current track of this chain, “Longyi” has not yet obtained the results of the Binance contract or above;

– Its “JLP/GLP” asset is the largest: the most important thing about AMM Perp is to invest in the best investment, and then to do a good job in taking the traffic.

I personally say a few are not very popular but I think they are lucky.

– Ethereal by Ethena: A clear background of real money-making cooperation between Dashu, the strategic importance of Binance/Ethena dual system, and its disadvantage is its moji;

– BasedApp: It is a Hyperliqui front end, similar to Axiom to Solana trenches, and also comes with a HypeEVM launch pad.It is unlikely to be on Binance OKX, but it may be an outpost in the Hype pricing power struggle strategy;

– Phantom: MetaMask issuance of coins means that it becomes possible for major wallets to issue coins in this cycle.This is also the best time to issue coins.Phantom’s revenue mainly comes from swap and Hyperliquid front-ends. If Phantom has airdrops, then the possibility of both is the greatest.There is no reason not to majors in fundamentals (see WCT for details), even if there is a Hyperliquid element.