Qilin Protocol
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Qilin Protocol

Qilin Community Call #3 Recap

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Qilin’s third community call was held on May 30th.

We updated the community on Qilin Protocol’s development and discussed use-cases for inverse perps with regards to Altcoins. We also took time to explain why layer 2 is not a priority for Qilin at the moment, and finished with some Q&A. Here is the recap👇, hope you enjoy!

Qilin Progress of Week 4, May

  1. V1 mainnet deployment preparation and re-tests;
  2. V2 design review, tech stack selection and optimizations;
  3. V2 Uniswap price feed technical scheme confirmation.

Guest Discussions

Topic 1: Inverse Perps on Altcoins

Q1: Why are Altcoins unpopular with centralised exchanges (CEXs)?

The reasons are transaction fees and user cohort.

Currently we see Altcoins progress as thus:

  1. Begin with poor liquidity;
  2. Low liquidity causes high volatility;
  3. Volatility creates opportunity for excess profit.

However, after the initial hype dies, volatility will decline also, and with it the user’s expected return. This makes Altcoins unpopular with CEXs as Altcoins lack the ability to generate sustained trading fees.

We noticed that high volatility also tend to attract liquidity. So Qilin is aiming to provide that volatility for Altcoins and hopefully lead them to price discovery.

Secondly, CEXs mainly service professional/institutional traders. And these traders mainly deal in mainstream large caps as the pricing for these assets are relatively more decentralised and less game-able. Altcoins users are few, and communities in early stages can be very small. Pricing for Altcoins therefore is relatively centralized — a small number of people may have the ability to control their prices.

This creates higher market-making costs which further exasperates the issue of Altcoins listing. Currently its just not beneficial for CEX to list majority of the Altcoins based on cost-benefit analysis.

Q2: Why is Qilin optimistic about demand for inverse perps?
Vanilla perps are stablecoin denominated.

Trading in ETH/USDC or ETH/USDT pair, for example, is quoted in ETH but settled in USDC. This means traders may actually be short ETH due to the fact they need the USDC for transactions.

Inverse perps on the other hand, trades the ETH/USD pair. Trading is quoted in USD and settled in ETH. This means you gain exposure to the underlying asset while you speculate on its volatility while you trade. With inverse perps, optimistic people do not need to exit the market while trading the underlying volatility.

We believe this opens up new trading strategies for new cohorts, such as projects that wants to manage their treasury, or hodlers that don’t want to sell their tokens. Therefore we are optimistic about the demand for the Qilin platform and products.

Q3: Why are inverse perps on Altcoins more suitable for trading on decentralised exchanges (DEXs)?
As mentioned above, Altcoins start off with small communities and has issues associated with this, such as information asymmetry.

This is perfect for DeFi where all information is on-chain. The information is transparent and verifiable, which is de-risking for DEX traders and the rise of Uniswap has proven demand for Altcoins markets.

We see that many big CEXs provide derivative products for mainstream asset, but inverse perps on Altcoins is more suitable for DEXs. There is a huge potential trading demand which has not been met at present.

This is our insight.

Topic 2: Why is layer 2 not a priority for Qilin at the moment?

  1. We have investigated and tested Arbitrum, Optimal Rollup and ZK Rollup;
  2. However, our current focus is on shipping V2 on time (V1 will launch this week with 1 trading pair);
  3. Qilin uses Uniswap’s TWAP as oracle for spot prices, so our layer 2 adoption is driven by Uniswap’s pace of adoption;
  4. Our layer 1 gas fees are already relatively low. Our rebase funding rate and liquidation system already reduced the cost of gasfee by 99.99% relative to similar layer 1 solution providers.

Q&A

Q1: Who are the target users of Qilin? Are they professional traders or ordinary cryptocurrency users?

The target users of Qilin are those who have a demand for derivatives trading.

If you asked CZ why Binance introduced perps in the first place and who would use it, he would not have been able to provide an answer, not on day 1 anyway.

The long-term construction of decentralized projects needs developers, and the long-term governance also needs the consensus of token holders. So our user base cannot be limited to traders, let alone just professional traders.

This will be a big ecosystem which needs the support of a variety of roles.

Compound, for example, did not divide the needs of users early on. They allowed for different roles to emerge from the community. Unlike lending which is a financial primitive with large natural demands, Qilin’s inverse perps on Altcoins does target a special cohort of traders to begin with. However, we don’t intent to only service one kind of trader.

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Qilin

Qilin

Decentralized risk-optimizing protocol for derivatives trading.