Introducing Perennial V2
After many months of hard work, we’re excited to announce V2 of the Perennial Protocol. We’ve built the protocol from the ground up to be faster, cheaper, and more capital efficient than ever before.
Check it out here: app.perennial.finance
Before getting into V2, let’s take a moment to look back at what we accomplished with V1.
Looking back
V1 of Perennial was a reimagination of derivatives in the form of a true DeFi primitive. We built a system that enabled permissionless creation of novel markets, best-in-class composability, and a fully customizable LP experience upon a shared liquidity layer. Perennial launched markets on Ethereum & Arbitrum (including power perpetuals), a pro trading interface, vaults that make LP’ing easy, and a first-of-its-kind pro maker UI to take advantage of leverage & other complexity within Perennial.
Traders & LPs took notice. In the first 3 months after launch, the protocol saw over a $billion in volume traded, and accumulated nearly $10mn in liquidity — all without additional incentives.
The response from builders was overwhelmingly positive. Siren built an options protocol upon Perennial. Cryptex Finance utilized Perennial infrastructure to launch proprietary markets. And Liqui began building delta-neutral LP vaults using Perennial. Many others in the community were excited by the possibilities enabled by a protocol like Perennial, but have been patiently awaiting V2 to begin building.
Over this period, V1 proved out the vision underlying Perennial, but more was demanded. The Perennial community shared tons of feedback with us, and we’ve listened. V2 immediately addresses the most significant pain points of V1 and positions Perennial extremely well to continue pushing the DeFi space forward over the coming months.
A big thank you to all our partners and community members for helping us get this far — this is only the beginning! 🌸😈🌸
Faster, Cheaper, Deeper: Perennial V2
Perennial V2 is a reimagination of what an onchain derivatives protocol can be. We’ve made some major improvements to make Perennial V2 faster, cheaper & deeper (in liquidity) than ever before.
Faster Oracles:
In line with Perennial’s vision of being a core DeFi primitive, V1 optimized for using the most robust & reliable on-chain infrastructure. The tradeoff to this: slower oracle updates & trade execution.
In V2, we’ve updated Perennial’s oracle system to support just about any low-latency oracle. This reduces the lag between order submission & execution from a few minutes, down to a matter of seconds! To start, we’ve integrated Pyth’s On-demand Oracle system — plus, we have a handful of other oracle integrations on the roadmap. With time, the Perennial community will be able to spin up markets using any of their favorite oracles.
Cheaper Fees:
The move to low-latency oracles reduces inefficiency that created additional fees in V1, allowing the protocol to keep trading fees as low as CEXs. And in Perennial V2, the protocol utilizes a PID-based dynamic funding rate. Unlike Perennial V1, where all traders paid funding, in Perennial V2, longs pay shorts or shorts pay longs (depending on the imbalance), meaning that traders & structured products built on Perennial can earn funding by opening positions, and all traders yield the benefit of net lower funding fees.
Deeper Liquidity (Better Capital Efficiency):
In V2, we’ve redesigned how markets operate. Previously, there was a market for both the Long & Short side of a particular price feed & payoff (long-ETH & short-ETH). This enabled some efficiency when it came to composability; however it wasn’t terribly capital efficient.
With V2, separate Long & Short markets are combined into one market per asset that can be traded long or short. In this model, long & shorts are natively netted, meaning that makers are only required to cover the resulting imbalance (if one exists). This makes the protocol an order of magnitude more capital efficient.
This model enables Perennial markets to have deeper liquidity than its peers, with only a fraction of the TVL. To illustrate, if there are $10mn in long positions & $8mn in short positions (a $2mn imbalance), Perennial V1 (and most other derivatives protocols) would have required at least $18mn in liquidity to back all long & short positions — but Perennial V2 would only require the net of longs & shorts, so $2mn in liquidity, a 9x improvement.
The efficiency in Perennial V2 market structure combined with the ability to use leverage as a maker puts Perennial best-in-class when it comes to capital efficiency.
Maker Risk Management
In V1, the separation of long & short pools left Perennial without a strong mechanism to balance the market & move towards equilibrium. This resulted in notably imbalanced markets, leading to makers (particularly vault LPs) taking on significant (and often unwanted) risk.
In V2, market coordinators now have the tools they need to help makers reduce or nearly eliminate risk/exposure. Dynamic funding rate & price impact (dynamic fees mechanism) are baked into the core protocol, creating proper incentives for arbitrageurs to push the market towards equilibrium.
When an imbalance exists, say long OI greatly exceeds Short OI, funding fees & price impact rise, making it more expensive to open and maintain a long position. And on the other side, shorts are now receiving more funding & have a reduced cost of opening positions, encouraging more shorts to enter the market.
Actively tuning funding & price impact parameters allows a market coordinator to define the amount of risk to take on — anywhere from high volatility to near-delta-neutral, the latter of which has been highly requested by users of Perennial V1.
And much more…
This only scratches the surface of Perennial V2. We built V2 to offer the best on-chain experience for makers & takers, alike, including:
- Support for any price feed — Perennial V2 is oracle agnostic, meaning the protocol can spin up markets for any API/price feed. We’ll be working with a number of oracle providers to launch markets for things like NFTs, RWAs, and other long-tail assets.
- Complex order types: Limit, Stop losses, Take Profits — Just around the corner after launch will be Limits & SL/TPs. These were heavily demanded by traders in V1, and we can’t wait to have these live.
- Multi-asset vaults — Perennial V1 only allowed for 1 market per vault. V2 will allow multiple markets per vault to create a simple endpoint for liquidity provision that abstracts away complex LP decisions.
- Risk Management by Gauntlet — We’ll do a deeper dive into this relationship soon, but we’re incredibly excited to have Gauntlet setting parameters for the Perennial protocol. Gauntlet is the best of the best at their craft, and their expertise will be vital in helping market operate smoothly (including helping LPs manage risk/economics)
DeFi’s Liquidity Layer
Perennial V2 will become the base liquidity layer for an ecosystem of DeFi products built around derivatives markets — a fully on-chain, composable toolset for frontends, vaults, and other protocols to plug into. Perennial Labs is eager to work closely with any & all teams who are interested in leveraging Perennial’s market infrastructure as a primitive.
We’ve got a big announcement coming on this front, so stay tuned. Soon you’ll be able to trade Perennial perps on one of your favourite trading applications.
Try out Perennial V2 Today!
V2 is now live on Arbitrum (and will soon be live on Base). Head over to the app, try it out, and let us know what you think!
And if you’re a V1 user, don’t forget to migrate over liquidity & positions! Follow our migration flow. If you happen to get stuck, see this guide on how to migrate liquidity and/or toss a message into the Perennial discord and someone from the community will help!
