Telegram AMA Recap on January 14th, 2022
On Friday, January 14th, we had a Telegram AMA. The following shows a recap of the questions with 0xAlpha’s answers.
Deri Protocol Telegram: https://t.me/DeriProtocol
0xAlpha:
Hello, Dear Deri fellows~AMA time again!
The past week was a huge milestone of Deri Protocol. On Jan 12th, 2022, Deri V3 officially launched!
Among the many innovative features of V3, two are especially significant and amaizng:
“External Custody”: Deri V3 has adopted Venus Protocol to hold liquidity, to therefore achieve a higher scalability of base tokens. Moreover, by adopting Venus protocol as an external custodian, liquidity providers of in-house pools will have additional XVS mining rewards and yields from Venus beside the DERI mining rewards.
V3’s DPMM supports for all fund-fee-based perpetual derivatives. One trading pool of V3 can simultaneously support different derivative types.
All right, let me start to address questions.
Q1: How is the project’s cash runway? Protocol it self is not really generating much revenue, how are the operations being funded?
A1: Thank you for caring about us. Currently the team is run on the fund raised from institutional investors (you can find them from our front page).
But I want to point out: “Protocol itself is not really generating much revenue” has no direct relationship with the team running expense. Deri’s “revenue” will not be allocated to the team. (this is a standard practice of DeFi)
Q2: Deri As an industry benchmark, will V3 continue to lead the industry in 2022？
A2: I agree with you that Deri is an industry benchmark. Many of the things that Deri first came up with then became the standard practice of the industry. Peer-to-Pool AMM is one of them.
“Lead the industry” is a very big word. But I am sure Deri V3 will become a defining project of DeFi 2.0.
Q3: Please fix the UI because DYDX UI is better than Deri, Deri’s UI is not qualified.
A3: I feel bad you don’t like the new website. While this is a kind of personal thing, we still try to make as many people like the UI as possible. Would you mind telling us what specifically you don’t like?
Q4: I agree. However, Deri Protocol development team should promote marketing & have a policy to reduce inflation.
A4: We’ve been doing marketing all the time. But if you have suggestions regarding how we can do it better, please share with us.
As for inflation, currently miners of DERI have a harvest of around 700K per week, and this will be lowered gradually.
I want to point out this is the part where different people have conflicting interests. Obviously you as a token holder are wishing a lower inflation whereas LPs out there are complaining about the too low APY.
The team must balance all the parties of the ecosystem for it to prosper.
Q5: Hi, Is it possible to put a limit order for options? Also, why do we need so much margins for a buy option trade? I’m seeing buy ETHUSD-5000C at 0.005 USD, but we would need 109.71 in margins for 1 ETH… Shouldn’t it just be 0.005?
A5: Regarding limit order, it’s not easy for smart-contract-based platforms (that’s why you don’t see limit order from Uniswap, Curve, Balancer, etc). That being said, we are looking into some infrastructure recently become available that might facilitate limit orders. So we might add this function in the future.
Your number of the 5000-C margin can’t be right. Right now the Initial margin is 0.5% of the notional (ETH price), there is no way it’s 109.71
But if you do see such a number, it might be front-end bug. Please forward your screen shot to the team to debug.
that said, 3000*0.5% = 15, still higher than 0.005. the margin requirement is not based on the mark price, but the possible change of mark price. Even right now mark price is a low as tens of cents, it could easily get 10X or 100X when ETH goes up.
Q6: Btw no matter how much you are striving to make the best protocol , no matter how many use cases you will find for Deri token , the price will constantly bleed combined with some hype moments. This is not FuD , this is math (at least for 5 -6 years). We have at this stage 1/8 of tokens circulating. we will probably have around 5/8 of supply invading in the next 2–5 years. Do you call it sustainable?
A6: This has been talked about many times.
we need to grow the Deri network (not the technology network, but the people network). Liquidity mining (and the occasional trading mining) is part of the network growth. Deri is not a closed game for those who are already here right now (if that’s the case, then it’s failure, no matter what the price is). Instead, Deri is a open game for more and more people to join. I think your problem is that you don’t understand what an open game means and comprehend Deri as a closed game.
Inflation is part of how an open-end ecosystem grows! So the real question is whether the ecosystem (the network) is growing as fast as than the inflation? Inflation is only a problem if the network growth is falling behind. That is why I always call you guys to help grow the Deri network, instead of worrying about the inflation.
Q7: As a holder I suggest to brainstorm and find 2–3 solutions on the tokenomics side and make us vote. I am not the only one concerned about inflation. If we fall into the big pool of Venus, why don’t we avoid incentivizing liquidity providers? They surely incentivize themselves. Is the liquidity mining so important at the stage for Deri if we use Venus or others landing protocols capitals ?
A7: “Incentivizing liquidity providers” is the built-in mechanism of how Deri Protocol works (whether the current incentivizing parameter is the optimal is a separate issue). Are you suggesting we just throw the 600M of the 1B DERI tokens designed in the original tokenomics into the hell?
From your perspective is “inflation”, but from the LP’s perspective, it’s just they get the Deri tokens that are allocated to them by making contribution to the system.
Again your problem is that you only talk about things from your own perspective as a Deri holder. But that’s not the whole ecosystem. While you are complaining about the too high mining APY, the LPs are complaining these numbers are too low. With all due respect to your contribution to the Deri ecosystem, this system cannot work just because of you. We need to balance the different parties.
Q8: Side question : knowing that Venus is well known and used, have you thought of A Venus Derivative dex directly on their Dapp ( which can have their UI but runs on Deri) We have 2 major problem to solve : 1 inflation ( smart investors won’t buy such inflationary token ) , 2 traded volume ( we need brand new ideas and strategies that not necessarily involves incentives)
A8: I don’t what “A Venus Derivative dex directly on their Dapp” is. You might want to elaborate.
Q9: V3 looks more complex. Is it more safe?
A9: Productwise is more complex indeed. But on the smart contract level, we completely redesigned the architecture so the internal structure is even simpler. The fact that the DPMM V3 can generally support all the funding-fee-based perpetual derivatives (including perpetual futures, everlasting options, power perps) is a consequence of the consolidated and simpler architecture. This simplification also enhanced the security.
(you can find more details regarding the architecture simplification in the V3 whitepaper)
Q10: Do options trading losses compensate for futures gains? Currently, the profit and loss of futures and the profit and loss of options are managed separately, so even if there is a profit from futures, the option is liquidated.
A10: Good question. The answer is Not Yet. For the time being, Options and Futures are handled in two pools hence the margins are separate.
However, what you said is possible with Deri V3. We are not doing so yet just because we would like to be conservative. We would like to watch how the options and futures go while having risk isolated, for a while.
But at some point in the future, we might merge the options and the futures-main so that what you said will become true.
Please stay tuned.
Q11: Why is Uniswap the ideal model than ? Why they have no incentives and yet the biggest TVL protocol. Why The Deri boss made that assumption if he made the opposite on Deri ( long term liquidity mining)
A11: Simply because Deri and Uniswap are two different projects! So they need to choose their own mechanisms based on their respective business.
Q12: Who are our opponents, and what can we do to defeat them?
A12: You mean competitors? I think right now derivative is still in an early stage. so more important things is for the (not so many) derivative projects to make this sector prosper, rather than defeating other.
Q13: With 600 million tokens gradually minted, do you have any plans to burn it in the future?
A13: There is already a burning mechanism out there.
Q14(1): 1. may i know why V3 the Option mark price so much higher than V2 ? even though the initial margin has reduced, but the mark price will put the trader in the position of higher chances to lose more money. so why Deri increase the price and what is Deri’s advantage compare to Deribit ( beside it is everlasting ) ?
2. the funding fee will double if the Mark price is -+10% of the EHT/BTC price based the illustration in the V3 funding fee model. however, the option strike available is very limited and almost all strikes available are much more than -+10%. which makes the traders have to pay more funding fee compare to V2.
A14(1): 1. The option mark price in V3 is higher because the funding period is 7 days, instead of the 1 day for V2. You can find more details regarding this change in our article “Changes to Everlasting Options” on medium (Sorry I cannnot send link due to some group limit).
However, it’s not true that “the mark price will put the trader in the position of higher chances to lose more money”.
Please note that the options on Deri and Deribit are traded differently (beside it is everlasting). On Deri, options are traded on a margin basis. That is, when you enter a position, you don’t pay anything up-front (whereas on Deribit, you buy options at the price — that’s what you need to pay out). In other works, you don’t really pay the “mark price” (just like for future trading, you don’t really pay for the future price, do you?).
So the only thing matter is the difference between mark price when you enter and that when you close your position.
There is only little disadvantage of adoption 7-day funding period. As you can see from the figure, in terms of tracking of “intrinsic value”, 7 day is not doing as precisely as 1 day.
The “higher mark price” you observed is because of this. And the only consequence is the imprecision of tracking “intrinsic value”. Other that, it does not cause any negative consequence.
But back to why we switch from 1 day funding period to 7 days, the short answer is: the 7-day funding period has much better financial and mathematical behaviors. This was explained in the medium article:
https://deri-protocol.medium.com/changes-to-everlasting-options-81e446768559
2. You don’t always pay more funding fee. For ATM options you even pay less funding fee. Now with 7-day funding period, the funding fee are not as volatile as before. For the 1 day EOS, funding fee changes across several magnitude when underlying price move from far to near ATM.
Q14(2): I cant agree on that. if V2 the mark price is $10, my maximum lose will be $10 for 1 ETH. however, the price now is $70, my maximum lose will be $70… it make no difference to me whether it is 1 day period or 7 days period. The only thing matters is the Mark price, it determines my maximum lose.
A14(2): “my maximum lose will be $70” — that is the “imprecision” I am talking about. That’s the disadvantage of adopting 7-day funding period indeed.
But we made the choice with many factors taken into account. The final choice of 7 day is a trade-off.
However, 70$ vs 10$, is still a relatively small “imprecision” compared with the hundreds or thousands of dollars’ PnL if ETH move into ITM.
“The only thing matters is the Mark price, it determines my maximum lose.”
that’s “the only thing matters” TO YOU. It’s not the case to everybody. For the whole thing to work, we need to take a lot of things into account.
The change from 1-day funding period to 7-day it not a trivial decision. It evolved a lot of numerical analysis and back-and-forth discussions, including discussions with Dave himself.
You might find the 1day EO perfect for you, but if it’s not a workable model it can’t sustain.
A14(3): But the fact is for most of the time the strikes are far from ATM. that’s why Deri shall provide more strikes, if not, we will always be at the high funding fee.
Q14(3): These are two separate topics. But Deri will provide more strikes very soon. However, if you are talking about always trying to trade ATM options, I am not sure Deri’s strike availability would satisfy your demands.
A14(4): But that makes Deri lost its advantage compare to Deribit, which is way much cheaper.
A14(4): Not true. If you understand options very well, you should get how to measure whether an option is traded cheap or expensive. The only thing determining the option’s cheapness or expensiveness is the implied vol. However, since Deri is adopting Deri’s implied vol (the “DVOL”), so technically, Deri’s and Deribit’s options are same cheap or expensive.
If Deribit is trading an option at 80% implied vol while Deri is trading the corresponding one at 100%, then you could say Deribit’s option is cheaper. But that’s not the case.
Let me add a bit more to this one. I have already talked about the measuring of option’s cheapness or expensiveness.
Options have to be priced at the fair price. This is not a game competing for cheaper. If deribit is trading options at fair prices, and Deri is offering price lower than Deribit’s, that would mean the option sellers on Deri (the liquidity pool in this case) is losing money. It’s obviously not sustainable.
It’s a simple thing that a platform cannot make an advantage by making some participants lose money to keep another group of people happy.
Anything not sustainable is not an advantage
Q15: What is our goal for this year, team?
A15: We will publish the roadmap of 2022 soon.
Short answer: While bring more innovative stuffs in the product, in 2022 we will work more on the community and the governance.
Q16: Hi Alpha, does Deri has any plan to be listed on Binance
A16: I can only talk about facts and my personal opinion. As for listing on Binance, that’s Binance’s decision.
Q17: Can I know what is the difference between future inno vault vs option and future?
A17: For difference between futures and options, please refer to our FAQ.
For difference bteween futures-main and futures-Inno, the former is for top cryptocurrencies like BTC/ETH, and the latter is for innovative underlying assets like AXS, and also innovative derivatives like Power Perps.
Q18: If the pool liquidity get larger, do rewards drop in tandem?
A18: Assume the price stays unchanged, a large TVL would mean a lower APY.
Q19: In downtrend, will Deri have enough resources to continue or quit the project?
A19: Are you asking whether the team can survive if the market goes down. I am pretty confident we can.
Q20: When will the ranking reward BNB for the second and third phases of the trade to earn be issued?
A20: Hey, sorry for the delay for this. But this is being deployed already, so will be distributed very soon. ETA is next Wed. Again, apologies for the delay of this. We’ve been so packed by the V3 upgrading.
A21: DYDX project turns into a decentralized project. In this case, it largely closes the gap with #DeriProtocol. They announced this innovation to the whole world. Do you have any work done or incoming so that the Deri protocol is not overshadowed by such new developments of DYDX?
Q21: First of all, DYDX has been there as a “DEX” for many years. I bet it’s not the first time they wanted to become “decentralized”. Why, after this many years, they are still not decentralized yet?
(But at least now they admit they are not so decentralized.) I think the primary reason they made the recent announcement was the AWS outage.
But anyway, back to the competition issue:
1. first of all, like mentioned, the derivative market is emerging and will be huge. I think it’s still the time that the derivative projects together make a bigger cake rather than competing for each other’s part.
2. It is DYDX moving to Deri’s approach, why do we need to worry about being “overshadowed by such new developments of DYDX”?
A22: Does the team consider any strategic partnerships other than Venus?
Q22: Yes, of course. Partnership is an open thing.
A23: What are your plans on Global adoption? What is the next goal you want to achieve? Where will your main development market be?
Q23: Deri has been running as a global project from Day 1. Just check out how many local-languages tg groups out there and figure the Deri community distribution.
A24: Nearly 80% of investors only focus on short-term token price instead of understanding the real value of the project. Can you tell us the motivations and benefits for investors to hold your tokens in the long term?
Q24: There were quite some discussions regarding the value basis of DERI token recently. Many of them are criticism. I am gonna address the long-term value issue separately.
A25: I suggested that Deri voting is required before Deri listing
Q25: What Deri listing are you referring to here? are you talking about the trading symbol offer by deri? right now Deri Protocol is more for the top currencies like BTC.
0xAlpha:
At the end of this AMA, i want to talk a bit more about the recent community discussions regarding the value basis of the DERI token.
Adding more value basis to the DERI token (or token-empowering in some of the terminology) is one of the most important items in Deri’s agenda. I can’t say I am an expert of tokenomics but the fact is I personally started to research this from 2018. I believe making the project driven by the token is a defining feature of Web 3. In that sense, empowering DERI tokens (or making Deri Protocol a token-driven project) is one of the ultimate missions that we’ve been working for.
And we have already started some early attempts on this. For example, the token burning program is for the token holders to benefit from the transaction fee income.
Another example is the DERI-staking-based boosting factors in the Trade-to-Earn program, which was a successful experiment (and we tried different boosting factor algorithms in Epoch1 and Epoch2). So we will apply similar DERI-staking-based privilege mechanisms to more and more scenarios within the Deri trading business so that DERI holders will have more and more benefits.
That being said, I want to point out that. adding value basis to DERI token is essentially a matter of value capturing: to capture part of the value created (e.g. transaction fee income) from the trading business and allocate it to the token holders. Any value capturing has to be based on the value created. Without value creating, value capturing would become zero-sum game, or even a Ponzi. (As a matter of fact, there are many Ponzi games in the crypto world. That’s probably why some of you heard about “value capturing” and similar phrases from this industry all the time.) So as an investor you might want to sort your logic very clear. Lay out what you want from an investment and make sure you are not really looking for a Ponzi game (but if you are, then I am sorry DERI is definitely not your cup of tea).
So the logical priority here is very obivous and straightforward:
1. create value
2. capture value (for DERI holders)
And we can’t skip step 1.
Some of you mentioned Curve as an example doing excellent in step 2. But let’s not make mistake. The reason Curve is doing so great in step 2 is that it is doing even better in step 1. Curve is one of the most successful DEX (one of my favorite AMM models) and it is creating huge value overall. That is the foundation of its whole sophisticated value-capturing game. Without a huge success in step 1, who would care the CRV/CVX mechanism (or whatever fancy games) that curve has rolled out?
With this logic explained, it’s very easy to understand that so far what we have been busy with is mostly on step 1: building a great product to create value, which is to be captured in step 2 later on. With V3 rolled out, we are getting better and better in terms of step 1. So in 2022, our priority will move more toward step 2. And you are all welcome to send your suggestions — let’s build the system together.
About Deri Protocol
Deri Protocol = (Perpetual Futures + Everlasting Options) x Decentralized.
Deri is the DeFi way to trade derivatives: to hedge, to speculate, to arbitrage, all on chain. With Deri Protocol, trades are executed under AMM paradigm and positions are tokenized as NFTs, highly composable with other DeFi projects. Having provided an on-chain mechanism to exchange risk exposures precisely and capital-efficiently, Deri Protocol has minted one of the most important blocks of the DeFi infrastructure.
