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AMA Highlights: Matrixswap

By Daniel Dal Bello, Director.
September 9, 2021–8 min read.

On Tuesday 7 September, we welcomed Joseph Liu, Founder of Matrixswap into the Hillrise Group Telegram chat for an AMA.

Matrixswap is a DEX aggregator and decentralized virtual AMM perpetual swap trading protocol. It allows users to long or short perpetual contracts for assets with up to 25x leverage.

Matrixswap endeavors to deploy its solution on Polkadot, Cardano, and Polygon.

As we’re observing more and more sophisticated decentralized trading products being introduced on the market we were curious to learn more about Matrixswap’s solutions to on-chain liquidity and leveraged trading.

In this post, we have compiled key questions and answers from the event.

Rowan Zwiers
To kick-off of this AMA, would you please introduce yourself and Matrixswap to our audience?

Joseph Liu
I’m Joseph, the founder of Matrixswap.

I’m originally from Taiwan, currently living in Germany. I’ve been in cryptocurrency since 2016 mainly as an investor and swing trader. I’ve helped multiple early-stage start-ups in crypto raise funds and I’ve built a strong network in since 2017.

Our team is based in Asia and we have seasoned developers that [have] worked on DeFi, oracles, and NFT projects.

Matrixswap is bringing leveraged trading, multi-token swaps, and proper risk management tools to the DeFi space.

Traditional AMMs like Uniswap don’t offer leveraged trading and are limited to single token transactions. At Matrixswap, traders can trade any asset with up to 25x leverage and will be able to swap multiple tokens at once via our DEX aggregator.

Rowan Zwiers
On top of DEX aggregation, Matrixswap promises a trading experience with infinite on-chain liquidity, which is a big claim, as it would be a game-changer for your platform if implemented successfully.

Your documentation describes a separation between the collateral vault and the virtual AMM that makes this infinite on-chain liquidity possible, including a step-by-step example of the dynamics. But it is unclear how infinite liquidity could be pulled from a virtual AMM while the holding in the collateral vault is finite.

Can you describe to us in layman's terms what innovation you bring that guarantees infinite, reliable on-chain liquidity?

Joseph Liu
The idea of infinite on-chain liquidity is that there’s always enough liquidity to pay everyone back.

Technically a Uniswap pool has infinite liquidity because of the constant product curve. In this case, for typically leveraged trades you’d need lenders, and traders as borrowers. So volume is relatively limited to lender funding.

In a virtual AMM setting the constant-product formula is used without the need for liquidity/lenders as long as there are traders taking positions you’d have reliable on-chain liquidity that is scalable and always enough to repay profits and losses.

Rowan Zwiers
Matrixswap uses a ‘Virtual AMM’, which is pioneered by perp.fi (currently live with x10 leverage enabled).

How does Matrixswap innovate in relation to what perp.fi has built so far?

Is there a structural improvement that enables much higher leveraged trades (x25) to take place on your platform?

Joseph Liu
The core structure is the same. To unlock higher leverage as a protocol, we had to adjust the projected insurance fund size and maintenance margin ratio to be more risk-taking as a protocol.

Now, the important thing to understand is that we ultimately need to protect users. If certain assets project much higher volatility we will limit the leverage users can apply and take overall open interest into account.

It’s a balance that the protocol will need to optimize as we collect more data, insurance ratio being a major factor.

Essentially, the higher risk the protocol takes on the more we need to have in our insurance fund, and the amount of leverage we offer correlates with that.

Raymond Reijnders
We often see synthetic-based platforms struggle to gain any kind of user base, even a large project like Synthetix still has a relatively small number of users.

What is your strategy post-IDO? How are you intending to onboard an active user base, and convert investors to end-users on your platform?

Especially as you’ll be needing this to ensure enough liquidity/volume.

Joseph Liu
We have multiple partnerships in place with DeFi protocols and trading communities for bringing in more retail/everyday users. Post IDO and as we get into the beta testing phase, we’ll launch trading competitions.

For the institution side, we have secured a few big accounts to trade on it. We’re also exploring the possibility of transaction mining. Essentially rewarding traders to take positions and trade on the protocol.

Daniel Dal Bello
Can you tell us about these partnerships?

Joseph Liu
I can’t share these yet but the news will come out on the 14th of September.

Rowan Zwiers
Your first focus for deployment was on Cardano and Polkadot, a unique choice since most of DeFi trade activity takes place on Ethereum (if possible via scaling solutions such as Polygon).

What has led you to your initial platform focus? We’re especially curious to hear the value you see in early deployment on Cardano.

Joseph Liu
I’ve been an early believer in Cardano (since before their ICO) and was involved with a few close friends of the founding team, so bringing a DeFi protocol to Cardano has been a dream of mine for years.

Even though the Plutus smart contract programming language is quite challenging for speed to market.

That being said, the Cardano ecosystem is extremely supportive — with community and leading tech companies all supporting one another. So it’s been a blessing working with some major leaders in the Cardano ecosystem.

Now to answer your question, I think Ethereum is too costly for us to run on so we’ve decided to not develop there. But we did get support from the Polygon team, they gave us a grant a few months ago. Ultimately we’re here to offer a good tool for users.

Now to answer your question, I think Ethereum is too costly for us to run on so we’ve decided to not develop there.

As long as the underlying blockchain is cost-efficient enough for us to deploy, and the users are interested we’re open to deploying on different chains.

Raymond Reijnders
What is your platform deployment strategy moving forward? Do you feel like the grant from Polygon has shifted your focus/priorities?

Joseph Liu
I would say building on Polygon helps a lot. It will get us a good amount of users and volume from the start that helps us gather data quickly.

The goal has always been getting more users and data to a point where it’s mature enough we can branch out to several chains.

As you know, Cardano smart contracts aren’t live yet, so there was a lot of waiting with uncertainty.

Rowan Zwiers
While your own Matrixswap Market Oracle nodes will receive information on the time-weighted average price of assets, external oracles are implemented for the real-time index price feed. You’ve selected Kylin as your first (and sole) oracle provider, mentioning other oracles to be implemented later on (e.g. Chainlink).

What has led you to this vote of confidence in Kylin over other oracle providers?

Joseph Liu
I would say in our oracle use case, it's slightly unique compared to other DeFi protocols. Typically if you work with Chainlink, they’d ask you to exclusively use their service because their reputation is on the line, they wouldn’t want their data-feed to mix with other oracles if it resulted in attacks/ exploits, etc.

In our case, we use it for our funding rate calculation, so there is less risk.

Instead of mixing oracle data, we’d be using a priority-based structure. If Chainlink doesn’t have a price feed for certain assets, we use Kylin and vice versa.

Dylan (Kylin founder) has also been extremely helpful as an advisor to our project, so we agreed to work on future integrations.

Rowan Zwiers
Are you regularly touching base with Dylan during development?

Joseph Liu
Yes, Dylan and I talk every other week, he’s been very helpful.

Rowan Zwiers
To my understanding, you're using a mixture of TWAP (Time-Weighed Average Price) data and external oracles (real-time) for your price feeds, correct?

Given the values of virtual market pairs are derived from external sources (oracles), how do you prevent manipulation of oracle data to game the virtual markets?

We can imagine the possibility of opening an x25 leveraged short position on a low volume and volatile coin and then dumping its price on the underlying market(s) to capitalize on the virtual leverage.

How is your product protected from malicious behavior?

Joseph Liu
I think market manipulation between spots and derivatives isn’t new in cryptocurrency. The best way for us to mitigate that is:

  1. To cap the open interest per account/ market, if the open interest is too large for a low index liquidity pair, things can go wrong very quickly.
  2. Open markets responsibly. What that means is that for a market to open it needs to meet a few conditions. First, it needs to have oracle data, without an oracle price feed, we can’t open markets. Chainlink and Kylin both have sets of criteria for a price feed to be created, which means the token itself would already have decent volume and liquidity.

Rowan Zwiers
Does your platform allow anonymous trading? And if so, could a cap not be mitigated by taking a position with several wallets at once?

Joseph Liu
Yes, that’s possible, but the market itself could be capped as well if underlying volatility is high. Again we’re cautious with this design and we expect to use data to better offer/protect users.

Rowan Zwiers
To our understanding, the ‘K-value’ (usually determined by multiplying pooled token A by pooled token B) of your market pairs will be manually set by your team (architects) based on (amongst others) the underlying assets trading volume, underlying asset pool value, underlying asset index price volatility, and platform open interest.

Since there are no actual tokens locked in the Virtual AMM the entire value is derived from external market information (Oracles etc.).

Can you shed some more light on this process, and how this process of setting up initial valuations of market pairs will evolve once ZionDAO comes into further effect?

Joseph Liu
At the start of the protocol, we would need to set K-values manually, as ZionDAO develops and more permissionless markets open we envision a set of formulas where if traders want to open markets they can plug in and our algorithm will take care of the K-value.

This is still being developed. After all, the Virtual AMM is still relatively new and we’re learning and optimizing as we deploy.

We’re also looking at different implementations for the initial market opening. But you hit it on the spot, it’s all derived from oracle information.

The upside is, we will set the K-value conservatively on the higher side to avoid massive slippage and wipe-outs.

Raymond Reijnders
As a final question, you’ve published a roadmap from mainnet launch for the governance plan of your ZionDAO, which ultimately after 9 months leads to the implementation of voting mechanisms on subjects such as market listings, token bridges, trading fees, oracle implementations, etc.

The major implementation and deployment of smart contracts will still be done by the Matrixswap core contributors.

Since core contributors will still remain in firm control of essential elements, what is the added value/importance of this migration of governance to a DAO structure for you?

Joseph Liu
We set that mainly for economic reasons. Meaning how the fees are charged, where the fees go, and for ecosystem development fund usage. We want to give those decisions to the community and not have power over who gets more/less share of economic value.

It’s the users that make the platform what it will be so we want to make sure the community is empowered that way.

Hillrise Group supports ambitious Web3 startups with early-stage venture capital and fundamental research.

Matrixswap is a decentralized virtual-AMM-based perpetual swaps trading protocol to be deployed on Polkadot, Cardano, and Polygon.

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Hillrise Group

Hillrise Group

Hillrise Group is a blockchain-native venture capital and consulting firm supporting emerging Web3 startups.

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