DeFi started as a system where users could access crypto assets without the censorship of centralized entities. The revolution of Uniswap as a protocol was users' ability to trade and provide liquidity(thus earning yield) on assets not listed on centralized exchanges; the reverse has been the case for decentralized perpetual platforms, which offer fewer trading pairs than their centralized counterparts. This is due to different barriers:
- Limitation of oracles
- Fractionalization of liquidity between pairs on the exchange
- Insufficient depth on trading pairs
Oracles such as chainlink help bring off-chain data on-chain, the most popular being price feeds and utilizes some forms of limitations on the number of trading pairs they offer to prevent exploits and malicious hackers who could end up hacking protocols that use these oracles, leading to losses amounting to billions of dollars. These limitations, from chain to chain, don’t allow exchanges built on different chains to access the prices of assets not on their chain if they don’t have sufficient liquidity in the native asset. With tradable built on different chains, connected through our base chain, we would have the ability to get the prices of native assets from their native pools and offer trading on them on all chains.
Most decentralized derivative exchanges still fractionalize liquidity between trading pairs, thereby not allowing sufficient liquidity on coins that may not interest liquidity providers to provide liquidity and would generate a lot of trading interest.
Due to insufficient liquidity and lack of cross-chain integration, most decentralized exchanges need to be more liquid to place trades, especially for long-tail assets, which could have fluctuating prices. Suppose we attract more liquidity through our attraction mechanisms. In that case, we could allocate more liquidity based on calculations to these tokens, thus having greater price resistance than DEXs(No more scam wicks!)
On tradable, there are three liquidity layers. These come to play when trading tokens without sufficient liquidity.
- Limit Orders from Markets Makers
- Limit Orders from Traders
- Side Vault
The Liquidity Checker checks if limit orders are within a preset range for each trade pair. If there's no liquidity within the range, orders to the orderbook get sent to the sidechain on which the trading pair has the most liquidity. With funds from our vault, we grant the user total exposure to the coin/token by buying it. When the side vault is used, a tiny price deviation is recorded on tradable as the original price for the token, so that losses from transaction fees, slippages on exchanges and other irregularities would be accounted for.
Shorting a token would be delta-hedged against the already existing leverged spot position.
If the asset's current price> the initial purchase price: delta-neutral positions loss+ Price Gain = Traders profit. If the asset's current price < the initial purchase price: delta-neutral positions gain = Vaults balance reimbursement. With this, we can pay traders and still save vault funds from depreciation. Trading fees on small-cap tokens would be more significant than on large-volume tokens.