Fenix EON — Trade with Intent — A new era for perpetuals trading on Blast

Fenix is shaping up to be the most performant decentralised exchange on Blast. Users will be able to access the best spot trading and liquidity infrastructure and now, we’re taking another huge step forwards through EON — a revolution for on-chain perpetuals trading.

To achieve this vision, we’re delighted to share a strategic partnership with IntentX who will provide their Meta Front-End for Fenix EON.

The intent to scale on-chain perpetuals

EON represents a technological revolution for decentralised on-chain derivatives trading. By using an intent-based architecture we can bring deep liquidity on-chain and will solve the current gap in capability that restrains traders who are forced to seek centralised exchanges (CEXs) that can offer low slippage, high leverage, wide pairs and low fees. Fenix EON is the missing link that can bring the best of CEX trading to Blast in a trustless and completely secure way.

Accelerating profound growth for DeFi

Perpetuals futures are the most popular derivative product in crypto. Users speculate on token price movements by going long (expecting the price to increase) or short (expecting the price to decrease) without owning the assets (read more here). Coingecko reported ~2,460 billion in derivatives trading volume during March 2023 alone. This puts into perspective the potential gain for DeFi that would come from taking real market share.

In growth terms, the current volume for on-chain perpetuals currently lies at around 1–2% of the volume seen on CEXs. Additionally, much of this volume is somewhat artificial given the incentives that are required to incentivise trading on-chain given that current exchanges are limited when compared to CEXs.

We believe that through an architecture that brings a comparable CEX-like experience, with low fees and a wide asset range, we can be the catalyst for 20x in growth for the on-chain perpetuals market. To put this is in a real DEX to CEX context, Uniswap V2 was the catalyst that sparked on-chain spot volumes to grow from 1% in 2020 to around 15–20% in 2023. In this light, we finally have the right tools to realise a significant step forward for the most popular product in crypto.

What’s the problem and how does EON solve it?

Traders will go where liquidity is deepest to get the best price execution. CEXs provide the best liquidity, so it does not make sense to trade on a platform that has less liquidity, more slippage and higher fees. Until this changes the status quo will remain.

Different models have been deployed on-chain to bring the security that comes with decentralisation, with the performance of trading perpetuals on CEXs. To achieve this, scalability, decentralisation and capital efficiency are required, but so far can only offer optimised solutions for 2/3; termed the “Exchange Trilemma”.

Here are some of the limitations that the two most widely adopted types of on-chain derivatives platforms currently face:

Central Limit Order Book (CLOB) Model:

CLOB architecture is the “gold-standard” approach for crypto exchanges (like Binance). This works exceptionally well off-chain, where the centralised entity maintains an order book that records all buy and sell orders and also executes trades on a peer-to-peer basis. This provides a reliable platform that can offer efficient order matching, price discovery, high efficiency for fees and liquidity and ultimately optimal execution that brings the best price for traders at speed.

However, this approach relies on complete trust for the entity to operate fairly, transparently and to keep your assets secure. The risk for manipulation and the loss of user funds on CEXs is very real which is further compounded by the uncertainty that comes from ever changing regulatory pressures. This suggests that an on-chain CLOB exchange would be an excellent alternative, however when the model is brought on-chain, it currently suffers from drawbacks that limits functionality.

1. Lower throughput — Order books must work at high speed to process orders at high volume. However, as orders go through the blockchain, most can’t provide the speed needed to allow the architecture to work at a fast enough rate.
2. Market-Making and Liquidity — Market makers must provide liquidity at any given price and must commit their liquidity to the order book. The on-chain market is in a situation where there are an ever increasing number of exchanges, which fragments available liquidity. This limits the capacity to achieve deep liquidity across a wide variety of assets. So far, no on-chain CLOB exchange has been able to build liquidity depth that is high enough across a wide range of trading pairs to compete with a CEX.
3. Centralisation — Due to technological constraints in blockchain throughput, order books typically use off-chain matching engines. So we are back to square one, as the entity could manipulate and front-run the order flow to profit against traders. Lastly, the order flow itself must also be maintained by trusted validators further centralising the architecture.

Virtual Automatic Market Maker (vAMM) Model:

Decentralised vAMM-based exchanges (like GMX) have been able to bring a real alternative to on-chain CLOB exchanges and have gained great traction. Instead of placing limit orders at a specific price, traders trade against a liquidity pool that has the same x*y=k constant product formula as Uniswap. The difference here is that unlike a traditional liquidity provider pool, the assets sit in a smart contract that manages all the collateral backing the vAMM (hence virtual). However, this brings a significant constraint on capital efficiency as they need to reserve large amounts of liquidity for overcollateralisation.

As the model is based on a liquidity pool where traders borrow assets and trade against the liquidity pool (LP), this introduces extra counterparty and platform insolvency risk as when traders win the entire LP loses. The consequence of this is that liquidity becomes expensive as it has risk and is inefficient, which makes it impractical to trade derivatives on-chain with meaningful volume.

1. Low Capital Efficiency — Assets must remain the pool and are not utilised.
2. High Cost — As the LP is the counterparty a significant proportion of platform fees must to LPs to compensate them for the risk of losses from trader wins. Also fees and slippage must be kept high to offset risk.
3. Low Asset Range — Listing of volatile assets significantly increases the risk of losses to the LP. This also means that overall interest (OI) must be kept low for the same reason.
4. Risk of Oracle Manipulation — As there is no mechanism for internal price discovery, vAMMs rely on oracles to specify asset prices. Should an oracle fall under attack, the health and operation of the entire protocol is at risk.
5. Fragmented Liquidity — As noted above for CLOB exchanges, liquidity is not infinite and the myriad of GMX forks and alternative vAMMs all rely on operating through their own LP. Given finite liquidity and fragmentation this becomes an intractable problem for scalability. Furthermore, as LP deposits need to be incentivised this becomes costly for protocols who must produce emissions to remain attractive and comes at the expense of reduced profitability and stakeholder value.

Given the significant risks associated with CEXs, we are at a stage now where there is the most need for an on-chain platform that can provide a competitive and genuinely scalable alternative. There is an opportunity to realise an ambitious vision for perpetuals trading that is based on self-custody through a trustless, permissionless, decentralised and secure financial application. The infrastructure currently limiting on-chain derivatives needs to change to reach parity with trading on a CEX. To be the GOAT you have to break the moat and we intent to do so.

Fenix EON: Trade With Intent On Blast

EON utilises an automated request for quote (AMFQ) “intent-based” architecture that will power the liquidity experience that traders have on a CEX with the security of a DEX. Hyper-scalability enabled through exceptional capital efficiency is the key that can break the CEX moat.

EON will do this through a smart contract infrastructure layer that brings together traders and solvers (market makers), through a permissionless, secure and isolated platform that has no custody or insolvency risk.

Trading Architecture

1. Trades access the EON front-end and input the details (long/short, quantity, leverage etc) and initiate a trade request.
2. By communicating with the solver network, EON continuously updates and streams the best available quotes (price, slippage, funding rate, fees, collateral etc) that are available from market makers. This allows the trader to accept the best offer in a matter of seconds.
3. The trade can be pushed on-chain by the trader providing the required locked collateral, which initiates an intent to trade.
4. The engaged solver can fill the position by depositing equal collateral to open the trade. Simultaneously, the solver can create a delta neutral position by hedging their exposure through a CEX, DEX, OTC or spot holdings.
5. Now both the trader and solver are in peer-to-peer agreement within a closed system that is enforced in code, so that one side must always pay to realise the PnL of the other after the trade is closed or if one of the parties becomes insolvent.
6. Crucially, a neutral third party operates to ensure that trades are always closed (should the trader request this) to eliminate the need to trust the solver to do this.

Intents With Benefits

Hyperscalability: EON brings deep liquidity through orders of magnitude higher capital efficiency. Following the trade request, the solver can provide just-in-time liquidity to open the position. This is in contrast to CLOB exchanges, where market makers are limited to providing deep liquidity on one book to fulfil quotes across a range of prices. This additional composability allows the solver network to operate through liquidity aggregation, whilst ensuring low slippage, efficient price discovery and optimal price execution.

Through the solver network, the EON architecture won’t have to compete with CLOB- or vAMM-based exchanges. This framework eliminates the need for significant amounts of idle liquidity and allows EON to require significantly less capital to maintain open interest when compared to vAMM-based exchanges and removes scalability constraints. Data shows that EON achieves a spectacular increase in capital efficiency of ~100x from an OI / TVL basis.

Low Fees. Key to breaking the CEX moat is to provide traders with equally low costs. EON is enabled to provide competitive fees by significantly reducing the cost for liquidity through high efficiency — there is no extra cost to pass on. This is a limiting problem for vAMMs who must charge traders higher fees to adequately compensate for the risk of providing to the LP.

Trustless Positions. Counterparty bankruptcy risk is eliminated through the symmetrical, isolated and locked-in framework that each trade takes. With the automated liquidation process, either side is ensured to receive PnL in a trustless manner. Additionally, the equal treatment of both the solver and the trader ensures that solvers are highly incentivised to constantly rebalance their trades as failure to do so leads to liquidation. This enhances capital efficiency further as liquidity is consistently being shifted to where it needs to be.

A secure interface between on- and off-chain markets: As liquidity can be sourced off-chain could this introduce a centralisation risk? As the market maker is hedging off-chain (say a CEX) and must lock their collateral on EON any off-chain risk is taken entirely on their side. Indeed, market makers are sophisticated entities who are best suited to execute hedging functions. This is all facilitated by the solver network, whilst the trader sits embedded within the security provided by the blockchain. By accessing liquidity off-chain in a trustless manner, EON provides a robust and secure infrastructure for users that allows for efficient financial markets on-chain.

Seamless UX: Through an ARFQ model, EON establishes communication in real-time between the trader and solver to execute trades in seconds. In this way, we are able to eliminate several “back and forth” steps usually seen in RFQ models to significantly reduce latency.

No Oracle Dependency: Through the intent architecture, oracles will only be needed to provide dispute resolution for extreme cases. This removes the significant risk associated with the possibility of an oracle being manipulated to disrupt asset pricing and trade settlement.

Subsidised Funding Rate

The funding rate is a mechanism that ensures the price of perpetuals contracts align with the underlying asset spot price. For a trader, this is important to consider. Rates can be positive or negative and shift according to the difference between the perp contract price and the spot price.

A positive rate means that if you’re long, you would pay the rate (which becomes expensive) to shorts and is there to discourage longs when the contract price is higher than the spot price. Opposingly, a negative rate involves solvers with shorts paying longs, and is there to discourage shorts when the contract price is lower than the spot price.

Fenix takes advantage of $USDB rebasing yield that comes from user deposits and collateral to offset funding rates and significantly reduce fees for traders.

This means that EON will provide one of the most competitive experiences for traders on-chain and gives Blast the potential to be a home for the best perpetuals trading experience in DeFi.

Conclusion

Fenix EON will launch with deep liquidity in April 2024 with over 250+ trading pairs and up to 60x leverage.

We want to establish Blast as the home for a new primitive of highly liquid and high throughput on-chain perpetuals trading. As EON develops, we envision a CEX like experience for users on a secure and decentralised on-chain platform.

The intent architecture that EON utilises has the technological capacity to break the CEX moat through robust security and deep liquidity. Subsidised funding rates are a huge step forwards in making on-chain fees comparable to CEX trading. Finally, we’re very excited to utilise the Meta Front End service provided by IntentX to bring the best user experience possible.

The path is set.

WE RISE TOGETHER