Derify Protocol Documents
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Getting Started
About Derify protocol
Overview
Derify protocol is an innovative decentralized derivative trading protocol. Traders can trade with 10x leverage[1] on exchanges based on this protocol.
Derify protocol is a programmable liquidity pool that supports multiple assets. Third-party smart contract can achieve much more advanced and complicated DeFi applications based on this protocol.
Derify protocol enables anyone to create any derivatives freely (as long as proper Oracles exist). It supports all types of derivatives (based on price index), e.g. on-chain assets like ERC-20 tokens, or off-chain assets like gold and crude oil.
Based on the very nature of derivatives and margin trading, Derify protocol introduced two innovative mechanism: hAMM (Hedged Automated Market Making) and position mining.
With Derify protocol, traders can directly make their trade with the liquidity pool, without rely on the assistance of centralized matching system or market makers. Furthermore, in Derify, holding both long and short positions grants liquidity rewards from Position Mining (rather than paying funding fees like in traditional derivative exchanges).
Details of our operation as well as its feasibility are further illustrated below.
[1] Higher leverage is also supported based on the overall liquidity risk in each derivative.
Our Vision
Our goal is to become one of the safest, most adaptive and most widely-used derivative trading infrastructure in the world.
We hope the existence of Derify protocol sets stages for more innovative DeFi applications and products.
We are firm believers of Decentralized Autonomous Organization (DAO). As the project moves forward, Derify protocol will be completely owned by the community, run by the community and innovated by the community. Every holder of DRF token can participate in the community governance, and may hopefully earn substantial rewards from the growth of this project.
What is hAMM
Hedged Automated Market Making (hAMM) is our fundamental mechanism, which is inspired by Automated Market Making (AMM).
The goal for AMM is "price discovery", the key formula of which is
, presented as a curve of price (such as AMM for Uniswap) or surface of price (such as generalized-AMM for Balancer).
However, margin trading is significantly different from spot trading.
The goal for hAMM is "position hedged", which means that the sum of total long positions
equals to the sum of total short positions
in certain derivative.
The key formula of hAMM is:
Both hAMM and AMM take the same path to achieve their goal, i.e., each deviation and imbalance of the system caused by transactions would create reasonable arbitrage possibilities, which would attract external arbitrageurs to trade for risk-free profits, therefore restore the system back to a balanced state.
What is position mining
In Derify protocol, all long positions provide liquidity for short positions, and vice versa.
Therefore, holding position is providing liquidity.
Derify protocol will reward all positions held, regardless of their directions - this rule is called "position mining", which means all position holders (including but not limited to traders, arbitrageurs and yield farmers) will receive risk-free profits as rewards for holding positions.
Position mining rewards are distributed based on the percentage of held position in all positions (for each derivative).
Currently, rewards are fixed at 30% of all trading fees received by the exchange, distributed in stable coins.
In future updates, rewards will be distributed in both DRF token and stable coins.
Last modified 7mo ago
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