If you ask me, the most exciting part of decentralized finance is seeing DeFi’s money legos stacking up over time. Futureswap, launching Monday afternoon PST (April 20th, 2020), is a great example of how decentralized finance iterates on past successes to evolve into something even better.
Futureswap is like a blend of Uniswap and BitMEX
Futureswap is a decentralized automated market maker (AMM) perpetual futures platform where users can trade any ERC20 token with up to 20x leverage. These perpetual futures have no time limits and can remain open as long as the trader has enough collateral.
Similar to Uniswap, users deposit equal parts of token and stablecoin (i.e. ETH/DAI) and are issued ownership shares of the liquidity pool. With Futureswap, users can enter long or short leveraged future positions which are matched by liquidity pools.
But here’s where things get interesting: Futureswap has zero slippage for any size trade and 100% pooled assets can be utilized. Liquidity providers can earn trade trading fees and borrowing fees on up to 100% of their deposits. And so, Futureswap pools can be very efficient with their use of capital resulting in more stability and potentially high returns for liquidity providers compared to traditional AMM exchanges.
Dynamic Funding Rate (DFR)
Futureswap has a unique mechanism called the dynamic funding rate or DFR for short. The DFR is a borrowing fee based on the total trade size designed to maintain the volume balance between open longs and shorts. During times of disproportionate demand, liquidity providers’ pooled assets are used to take up the opposite side of any unmatched trades. So if there were tons of unmatched ETH longs, LPs cover the ETH essentially opening a short.
Long and short volumes are pooled and here’s the kicker: the more popular pool is charged the dynamic funding rate and it’s paid to the pool in low demand. The DFR keeps increasing as the disparity grows to disincentivize trades on the popular side. In other words, the longs pay the shorts or vice versa until the sides become balanced. This mechanism limits extreme volatility and properly rewards liquidity providers for their exposure to risk.
So what are the risks for liquidity providers if worse comes to worst and 100% of the traders are short and the price decreases? Liquidity providers essentially have the same exposure as if they were holding 100% of the token instead of 50% token and 50% stablecoin. While it’s still a risk, the dynamic funding rate lowers the likelihood of such a situation happening.
Incentives designed to benefit all involved
On top of trading and borrowing fees, Futureswap has its own token called Futureswap Tokens (FST) which creates incentives that reward the users that contribute the most to the system.
Futureswap Tokens (FST)
Futureswap Tokens (FST) are non-transferable tokens given out weekly to traders, liquidity providers, and referrers and are used to govern Futureswap as well as incentivize user participation.
FST tokens are distributed weekly according to your portion of the total trade volume, liquidity provided, and/or referrals. Essentially, the more you use Futureswap, the more FST you earn over time.
Trading Fee Discounts
Traders earn FST based on their total weekly trades proportional to the total trade volume for that week. The higher your % of total trading volume, the higher your weekly FST reward.
Traders who hold FST also receive discounts on their trading fees. These discounts are calculated on a logarithmic curve and can reduce trading fees by up to 30%. The cool part is that you aren’t required to burn the tokens to receive the discount.
Earn FST with Referrals
Futureswap has built-in referral rewards for users who drive trading volume to the platform. Referrer FST earnings are based on closed trade volume of users you refer in proportion to total closed trade volume of users from other referrers.
Anyone can create a referral link for their Ethereum address and start earning fees by simply adding to the Futureswap links ?src=[YOU ADDRESS HERE] parameter.
For example, here’s what our referral link looks like https://exchange.futureswap.com/?src=0xDA5167FfCa51e72703DCC2c0F2fEF1bB3A790fa0.
We appreciate any use of our referral link as it helps support DeFi Pulse.
Futureswap is designed to be fully decentralized and community-run as soon as possible. The distribution of FST rewards the most active users for participating. These FST holders then create and vote on new proposals like adding new trading pairs and changing system parameters. Stakeholders must burn FST to create new proposals.
Reflections on Futureswap’s design
As I dug into Futureswap to write this post, I grew to appreciate its design. From the DFR to the distribution of FST, the Futureswap team has paid a particular attention to detail.
For example, Futureswap trading pairs use Chainlink for their price feed oracles. The system also has built-in protections against front running attacks. New position creation timestamps are checked relative to the Chainlink price update. If the new position is opened within a 3 minute window before the price update, the system bumps the user up to the next price on trade close.
The early bird gets the worm
The truth is that being an early adopter comes with its advantages. Futureswap Tokens will be distributed to the platform’s most active users. Futureswap’s design utilizes FST to incentivize users to participate when activity is low.
Early Futureswap adopters are more likely to have larger contributions proportional to the system total thus earning more FST. So it stands to reason that you’ll earn more FST by participating sooner rather than later after the community grows even larger and more active.