Illuminati Round Table Call Notes: Unleashing The Potential Of On-Chain Leveraged Trading
What alternatives do users have to centralized entities? w/ @0x_jeanm from @muxprotocol
Russian DeFi
February 27, 2023
The collapse of FTX highlighted the problem with centralized entities What alternatives do users have? We sat down with @0x_jeanm from MUX Protocol to discuss ‘unleashing the potential of on-chain leveraged trading’
You can listen to the full audio here
Introduction @0x_jeanm
Jean is a core contributor to the MUX Protocol.
She started crypto in 2019, and MUX is her first commitment to the space.
Before that, she was involved in several start-ups in marketing and operations after studying economics.
She also enjoyed trading in her free time, which is how she gained a fundamental understanding of crypto.
MUX protocol works on leveraged trading, otherwise known as perpetual swaps.
She worked with other contributors to understand how on-chain perpetual swaps would innovate and change the shape of financial transactions with DeFi. Since then, they have been building and shaping.
About perps and perpetual contracts
Jean explains that most people understand perpetual swaps as one way to trade using leverage.
She says that perp swaps utilize less margin to allow traders to trade with the price of an underlying asset.
She mentions that perpetual swaps are a derivative where you don’t need to take hold of the underlying asset but can bet on the price movement going up or down using perpetual swaps as the financial tool.
She emphasizes that using leverage is a crucial feature of perps.
She says this is how it works with TradFi, and it’s different going on-chain, as orderbooks are what CEXs use to trade.
She explains this doesn’t work on-chain because the cost is too high, and therefore, protocols have been exploring AMM models to make on-chain perp swaps work.
This is what MUX Protocol is trying to solve.
Jean says that it is always risky to go for perps because of the high leverage being offered.
She does say, however, that some institutions use perps to hedge positions, which she says is a great way perp swaps have shown utility instead of traditional ways where individuals just bet on the price going up or down.
How to mitigate risk with perps
Jean says that leverage is always a challenging aspect that people need to be aware of and that the liquidation price is what traders need to be wary of.
Additionally, she explains that perp swaps are for well-educated people about the instrument because the cost of it can be high.
She also emphasizes that the market is volatile, and many participants get big-headed over the leverage and margin they can obtain to make money. She says these are risks that need to be fixed.
Issues with the on-chain trading space
Jean says that because the on-chain trading history is very young, there are more than 20 protocols on different chains.
She says that the derivatives market is enormous, and the on-chain market is still pretty small compared to the CEX volume.
Jean says that GMX is dominating the space regarding volume and that newer protocols like MUX have a long way to go to make a difference in the future.
Jean says the bar to explore DeFi is quite complex because of wallet setups and seed phrases.
She emphasizes that market education needs to be enhanced so onboarding new users who are not bothered about wallet setups per se get involved.
About MUX
MUX is an AMM model for perpetual swaps.
Jean says balancing the risks between the traders and the LPs is vital because, as she mentioned, in TradFi, the market maker has a vital role in the orderbooks. Still, with on-chain, they only have the AMM model to liaise back to, so the LPs are the heart of the structure.
She says they have to balance the risks and profits of these two counterparties