Cryptocurrency derivatives trading has become integral to the crypto space, with perpetual contracts overwhelmingly dominating the derivatives landscape, both on and off-chain. On-chain derivative trading protocols have mainly evolved in two directions: one follows the centralized exchange (CEX) order book model, facing challenges about sacrificing decentralization for a seamless trading experience. The other, exemplified by the GMX-based GLP fund pool model, operates as a lending model where Liquidity Providers (LP) lend funds for user positions, resulting in LP losses if users profit. While this model simplifies the user experience, it limits the trader's position size to the LP fund pool and exposes LPs to significant losses in a one-sided market.
Equation, a decentralized perpetual contract protocol based on Arbitrum, combines the advantages of decentralized, efficient, and transparent features similar to spot Automated Market Makers (AMM). It excels in price discovery for perpetual contract products, significantly enhancing capital efficiency.
Equation, audited by third-party auditor ABDK, utilizes the innovative Balanced Rate Market Maker (BRMM) model. This model allows traders to establish larger and unrestricted positions with lower liquidation risk (MMR = 0.25%), leveraging up to 200x. Simultaneously, liquidity providers can enhance capital efficiency by using leverage on Equation.
Launched on the Arbitrum mainnet on October 28, 2023, Equation swiftly climbed to the 13th position among 162 on-chain derivative exchanges, according to DefiLlama data on the day of writing.
Equation's BRMM model, inspired by the spot market AMM mechanism, calculates the balance rate of the liquidity pool based on the temporary position ratio held by liquidity providers. This rate is then used to determine the contract price's premium relative to the index price, facilitating price discovery. As a genuine perpetual contract mechanism, users' position sizes are not restricted by liquidity pool, depending solely on the counterparty's scale. The liquidity provided by LPs acts only as temporary counterparty liquidity, thus facing temporary position risk.
On the 24th day after the mainnet launch, Equation achieved a leverage liquidity of $596,584,794 within the protocol, with a perpetual contract trading volume of $296 million and an open interest of $76,183,194.
Fair Launch and Burn Mechanism:
Equation's native token is EQU, with a maximum supply of 10 million. The entire supply is generated through position mining, liquidity mining, and referral mining, rewarding the community. Currently, 224,877 EQU tokens have been mined, and they are listed on major decentralized exchanges.
Equation allocates 50% of the tokens to traders through position mining. LPs, benefiting from increased capital utilization through leverage and capturing more trading fees, also find this distribution method favorable.
Equation offers two staking mining modes using EQU: EQU/ETH LP NFT staking mining and EQU single-token mining, both with different lock-up periods. Presently, 159,872 EQU are staked, indicating confidence in the project's development, typically correlating with a positive view and longer token holding periods.
Recently, Equation DAO approved a proposal suggesting proportional burning of a portion of EQU not used for long-term staking, aiming to potentially increase the value of assets held by EQU holders. This strategy further encourages and rewards long-term investments in the ecosystem.
In the decentralized perpetual contract space, factors like trading costs, position limits, liquidity pool depth, and maintenance margin directly influence the trading experience. Equation enhances the trader's perception of cost-effective trading services through measures such as funding rates, fee discounts, and holding mining. For liquidity providers, the variance in capital utilization efficiency offered by DEXs directly determines where they allocate their capital. Equation, by not directly making LPs the counterparties in trades, enables LPs to use less capital to earn more trading fees and token (EQU) rewards, making it an attractive choice for LPs.
BRMM successfully addresses the challenges of low capital utilization and poor trading experience exhibited by the AMM model in the application of decentralized perpetual contract products.
As one of the DeFi protocols advocating for a "fair launch," Equation is actively showcasing how community-driven innovation shapes the future of decentralized finance. Prioritizing security and transparency, it aims to provide traders with a reliable and secure perpetual contract trading environment.