Design concept of Predy v5
If someone asks, “What is Predy?”…
The Answer is, “Predy is the most capital-efficient derivative platform based on Uniswap.”
This blog aims to explain what Predy v5 accomplishes. Just as Uniswap revolutionized swap transactions with the use of one specific type of AMM (Auto Market Maker) as CFMM (Constant Function Market Maker), Predy will bring a revolution to derivatives using CFMM, too.
In traditional finance, Derivative including futures and options trading exist, enabling leveraged trades, earning profits when prices don’t move, or when prices fluctuate -this is known as volatility trading. In contrast, Predy, utilizing Uniswap and lending pools, enables trading of perpetual futures that follow the square root of the price (referred to as ‘Squart’). This makes leveraged and volatility trading possible.
Furthermore, Predy functions as a permissionless derivatives exchange, maintaining 24/7 secure trading conditions without needing specific operators.
Now, let’s visually understand Squart!
Squart is made up of a single-range LP position on Uniswap V3. Even with rebalancing of the LP position, a trader’s position maintains 2L√S. Therefore, traders don’t need to consider the range of the LP position. Additionally, traders can hedge at any time by changing their ETH position. (For details regarding L, please refer to the literature mentioned below.)
In Predy, the LP position is rebalanced as follows to maintain √s:
The following diagram visually represents this process.
A group of enthusiasts have created a different representation in the form of this diagram. This figure should also aid your understanding.
From https://twitter.com/kyoronut/status/1648638882408464384?t=WEsrXMT64BwDdl21vI11_Q&s=19
As explained before, Predy has implemented a CFMM (Constant Function Market Maker) that provides √s to users by performing a rebalance. However, this alone does not make it the most capital-efficient.
In reality, Predy provides a Lending Pool. Users can borrow asset positions (creating a liability or negative balance), which allows them to leverage their positions. The following illustration depicts this.
Predy, in this way, takes pride in providing what is currently the most capital-efficient solution. We welcome any questions through our social channels like Discord or Twitter.
Reference:
Clark, Joseph, The Replicating Portfolio of a Constant Product Market with Bounded Liquidity (August 3, 2021). Available at SSRN: https://ssrn.com/abstract=3898384 or http://dx.doi.org/10.2139/ssrn.3898384
