L7 DEX Application Prospects and Mechanism Interpretation

Author: L7 DEX

After experiencing a series of centralized black swan events, the trading volume and attention on decentralized derivatives exchanges have significantly increased. At the infrastructure level, L2 public chains such as Arbitium, Optimism, and Zksyn have gradually become hotspots, and various Appchain open-source architectures are being further improved. Meanwhile, sidechains like BNB Chain and Polygon have made substantial progress in performance, stability, and ecological expansion.

These external conditions have greatly enhanced the reliability and concurrency performance of DEXs. Undoubtedly, the Perp DEX (decentralized perpetual contract exchange) sector has become one of the product categories with the best expected returns for the future. As the industry continues to explore the degree of decentralization, these products may become the most important part of the subsequent development of DeFi.

Data statistics show that in 2022, the daily trading peak of CEX exchanges exceeded 100 billion USD. Currently, the total TVL of Perp DEXs is less than 2 billion USD, with a total treasury value of about 1 billion USD. These solutions have a cumulative market value of about 2 billion USD, and the 30-day trading volume is close to 7 billion USD. Clearly, this only accounts for a small part of the contract trading market, but the continuously growing market value and user attention indicate that the blue ocean of the Perp DEX sector has been opened, and a 100 billion USD market is waiting for new blue chips to rise.

The decentralized perpetual contracts on the market mainly adopt two models: the Orderbook model represented by Dydx and the Pool and Vault model of GMX. This article will focus on the application prospects of Perp DEX through the more innovative L7 DEX.

Analysis of L7 DEX's Innovative Mechanism and Advantages

L7 DEX is a decentralized perpetual contract exchange launched on the BNB Chain. By using the innovative "PvP-AMM" protocol in a "peer-to-peer" manner, combined with automatically deployed smart contracts, L7 DEX further reduces trading costs and brings a more straightforward and user-friendly trading model, creating a more efficient, fair, and secure trading environment for users.

The innovation of L7 DEX also lies in the introduction of new functions that enhance the capital efficiency and security of the protocol, thereby promoting new business increments and valuations. The liquidity ceiling released under innovation allows L7 DEX to have a stronger network effect and is expected to become a new component in the development of Perp DEX.

Innovative Mechanism

Unlike most decentralized perpetual contract exchanges on the market, L7 DEX adopts a more innovative "PvP AMM" mechanism. Under this mechanism, users can avoid issues such as order restrictions, transaction difficulties, and price lags caused by insufficient order books, while also minimizing the impact of market trends. Thanks to the peer-to-peer mechanism of PVP, users do not need additional LPs as counterparties to trade independently, perfectly solving the problem of one-sided market conditions.

The peer-to-peer mechanism naturally grants more profit opportunities to the minority parties opening positions, so under the combination of AMM automated contracts and various arbitrage opportunities, the stock game between long and short parties will become more intense, and the impact of market conditions will be further weakened due to the continuous changes in the identities of minority and majority parties.

Aggregation Oracle Mechanism

Nevertheless, pure oracles and market self-regulation may still face price lag issues, which can severely affect spot and contract trading. Therefore, L7 DEX will further optimize the price oracle mechanism.

Oracle delay arbitrage is one of the significant problems existing on DEX platforms and is also one of the reasons for the difficulty in acquiring users for DEXs. In the past, DEX prices relied on a single oracle, usually Chainlink, to achieve price updates. However, the price updates from oracles often lag behind changes in the spot market (especially during periods of high volatility), providing ample space for arbitrage bots and affecting highly sensitive spot and leveraged trading. Under L7 DEX's low-slippage trading, this drawback may be amplified, potentially causing losses for both users and the platform.

Thus, L7 DEX will adopt a more robust oracle management mechanism, where prices will no longer be fed through a single oracle but will be provided through an aggregation oracle system, including the use of Chainlink, Pyth, and Uniswap's time-weighted average price (TWAP), as well as connecting more CEX price interfaces to achieve a smooth connection between prices and the spot market.

L7 DEX Product Advantages

In addition to the smoother trading experience brought by the aforementioned PvP AMM mechanism and oracle aggregation mechanism, L7 DEX also has many advantages in spot and contract trading.

Compared to the bustling major Layer 2 networks, the advantages of launching on BNB Chain are more apparent. Under more stable and mature conditions: on one hand, after further optimization, BNB Chain's performance has doubled its throughput while reducing GAS to 3 Gwei, ensuring that L7 DEX can provide users with more, faster, smoother, and lower-cost quality spot and contract services. On the other hand, L7 DEX's liquidity construction and IEO strategy will also rely on the unparalleled rich ecosystem of BNB Chain to provide more quality Web3 projects and users with opportunities for participation. The lower entry threshold and higher user awareness will also facilitate the establishment of the L7 DEX global community.

In addition to the aforementioned advantages, L7 DEX will introduce new functions and further optimize aggregation through smart contracts, achieving smoother connections and launches of more trading pairs, fulfilling most trading needs on the same platform. At the same time, all transactions will be executed automatically on-chain, without the need for third-party and custodial access, better ensuring the privacy and transparency of transactions.

Exploration of the Aggregation Revenue Model

The revenue of the L7 DEX protocol comes from several different channels: including transaction fees generated from perpetual contracts and various spot trades, perpetual contract liquidation fees, liquidity construction and potential IEO fees, as well as fees generated from the minting and burning of assets on other platforms. These fees constitute the revenue sources of the L7 DEX protocol and also form the user aggregation revenue model.

In L7 DEX, users will receive additional income from different channels based on their participation methods. Early participants and nodes will directly receive a portion of all transaction fees, sharing in the dividends of project development; holders of the platform token will also enjoy deflationary benefits due to the platform's continuous buying and burning of platform tokens, while token holders will receive more IEO opportunities based on their weight, further participating in the development of the primary market.

Liquidity and farming are one of the most important ways for users to earn income on the platform. Users who engage in liquidity provision and staking will receive transaction fee incentives and high Farm APY incentives. Collaborations between different projects and L7 DEX in farming will also allow participating liquidity builders to gain more dividend opportunities and spaces from various projects and ecosystems.

The IEO strategy is a core element for the platform's assetization development and an important channel for users to participate in the primary and secondary markets. In L7 DEX's IEO strategy, investments and collaborations will be made with 500-1000 quality Web3 projects, forming a trading matrix centered around the platform token LSD, promoting the assetization of platform tokens, including NFTs and LSD, and minimizing the entry threshold for the primary market, providing users with more participation opportunities.

Conclusion

In the long run, the decentralized derivatives trading sector has immense potential. The various innovations made by L7 DEX represent an important development and breakthrough for Perp DEX. It introduces many new functions and improvements that enhance the capital efficiency and security of the protocol, bringing a more portable participation method to decentralized contracts, significantly improving user experience comfort, and attracting more users to participate in L7 DEX. With the new business increments and valuation prospects, DeFi derivatives will usher in broader development space, and L7 DEX will become a unique benchmark in the Perp DEX sector.