Qilin Protocol V2 Launch Space — AMA Recap
Hi fellow Qiliners! We just finished our first AMA post-V2 launch where we were able to cover some important topics about V2, permissionless perpetuals market, and building a decentralized derivatives protocol. We also received some valuable feedback from our community in Discord afterwards. So for those of you who missed the call, we have synthesized all the good info in this post for digestion :)
Q: What are the design principles behind Qilin V2?
A: Qilin’s team has a trading and market making background in crypto. Over the years, we have synthesized some principles in the derivatives space that we have instilled into Qilin’s derivatives marketplace.
Risk-reward fit: the first principle we follow is the idea of risk-reward fit. It’s slightly awkward phrased but definitely reflective of how the derivatives market is different compared to the spot market. In the spot market, as retail investors, setting impermanent loss aside, you can become a retail LP and earn an APY from transaction fees with little-to-none risk exposure. However, in the derivatives market, an investment product with a good yield profile is also a product with a corresponding risk profile. If done properly, a DeFi derivatives marketplace would incentivize higher-risk positions with higher rewards and vice versa.
What we are doing with our peer-to-pool LP model and liquidity shares is such that when LP is taking on high counterparty risks, liquidity provision during that high-risk period could result in higher returns. In addition, as the risk in derivatives is natually higher than in the spot, our LPs can earn multiple sources of rewards from tx fees, to funding fees, and to liquidation fees.
In essence, the derivatives market is where DeFi users can enjoy significantly higher yield and features such as liquidity pools as investment vehicles. When risk is fully considered in that regard, we can build a product that can be used by a lot of liquidity holders.
LP risk mitigation: in the derivatives market, traders usually take on hedging positions in order to reduce their risk exposure. This imposes some technical skills on the part of the trader to have and is why there is an entry barrier to the derivatives market. However, to emulate this feature in DeFi derivatives requires innovation. First, a lot of retail DeFi users don’t have hedging know-how; and second, on-chain trading markets don’t necessary provide hedging markets. All this means that Qilin needs to devise new designs to mitigate risks for liquidity providers on Qilin’s marketplace. It is very dangerous for a protocol not to have these functionalities if it wants to scale its liquidity market. It is with this background in mind that we have developed liquidity debt, funding fees, liquidation fees, and dynamic slippage.
Full decentralization: we also have wanted to make sure that Qilin is not some semi or pseudo decentralized product that claims to be decentralized but is actually not. So from conventionally centrally implemented features such as funding rate that is calculated and transfered off-chain, we have decided to implemented it through decentralized ways.
Other ways that we want our protocol to follow this DeFi ethos is that our liquidity provision is not done by designated market makers, and our marketplace to be permissionless so all LPs, projects, token holders, and even professional traders can participate in this with as little gatekeeping as possible.
- BNB Chain is arguably one of the most centralized chains. Are you worried about losing your audience with this move in terms of achieving full decentralization?
BNB has a significant altcoin market, and from a trader perspective if we want to democratize perps trading for all assets it’s an important ecosystem to have. Our trading community is launching a perps application built on the protocol’s code on BNB as the flagship application, so from the protocol team level we’d have one portion of the team focusing on the BNB application while having the rest focus on Ethereum and its L2s.
2. Would launching on different chains create liquidity fragmentation for some projects as some may try to concentrate liquidity initially?
When it comes to fragmented liquidity, we’re exploring solutions with a cross-chain bridging protocol. For most projects we expect launching it in just one market initially.
3. Whats your target audience in terms of marketcap for projects that you would have perps for? I understand its permissionless but is having every $2m mc token listen a part of the company goal?
Most CEXes have between 20–180 perps markets (80% usd-margined). So purely from a numbers standpoint, we expect majority of projects come from after top 200 by mc and some from within top 200.
4. How are oracle disagreements handled? Is there some hierarchy across your 3 sources (Uniswap, Chainlink, and Sushiswap)? Or is there never any overlap?
We chose to offer multiple oracle options bc some have better liquidity sources than others between chainlink uni and sushi. We’re leaving that choice to the token holder who opens the pool but once that is decided the pool will use that one oracle so no hierarchy. Building one seems to require a data analytics process that assesses liquidity depth but i’m not sure how often liquidity changes between those sources.
5. How will Qilin move to be the ones deploying the V2 protocol to different chains (that have more reasonable gas fees) before others fork it and do so?
Yeah we expect L2 and chain integration discussions to happen in the community as well. We were talking about having ecosystems pitching the community in a forum and have members to vote.
6. Are there any protocol fees?
Right now there is a protocol tx fees collected upon closing a position (0.05% of the position’s value).
7. Is Qilin V2 planning to have the ability to place take-profit and stop-loss orders at the same time as placing the initial order?
Current take-profit and stop-loss order implementations require centralized custody of users’ money in the hands of third-parties. It’s neither secure or aligned with our ethos. Our solution in plan is to have an off-chain client and have users to set it up with their wallet such that the system would still be non-custodial. We’re still exploring solutions to see if there are better ones.