DEUS Bilateral Agreements
With the upcoming Launch, DEUS will transition from a synthetics protocol to a bilateral OTC derivatives platform.
After analyzing all the available liquidity and clearing models such as AMMs, and traditional order books, we have concluded that the bilateral OTC model achieves the highest liquidity efficiency in onchain exchange contracts.
To capture the growing trend of digitization and automation of the derivatives market, V3 is offering synthetics in a way that has not been possible before. It allows anyone to create undercollateralized isolated derivatives contracts controlled by a decentralized oracle and keeper network.
In short, DEUS V3 is a Layer 1 for financial instruments.
DEUS’ complete vision is a complete 50+ pages whitepaper, so we will only go through some bullet points in this article.
People interested in the full Whitepaper can get their hands on it as early as February 2022.
Does this mean DEUS will not be offering synthetics Stocks anymore?
No, it means the exact opposite. It means that for the first time in crypto, a platform will offer synthetics that are 100% isolated and backed by a counterparty, creating an open market around peer-to-peer margin trading, lending, interest rate swaps, and much more.
The new upgrade will be fully backward compatible. All synthetics delivered through https://dsynths.com will be untouched, continued to be optimized, and offered through independent frontends.
Quick timeline
The V3 infrastructure is currently in production.
ETA is around the beginning of Q2 2022.
V3 will go Live with one third-party platform built on top of it that enables users to trade Binance / FTX Future contracts onchain, ETA also Q2 2022.
The broader vision
Everyone can trade everything KYC less.
We can consider DEUS v3 as the “Uber-ization” of OTC derivatives. In the current state of the market, OTC infrastructures are not efficient enough to allow everyone to have free access to OTC markets. Everyone can host their own derivatives platform through DEUS by building an efficient, straightforward cross margin and hedging system between Binance, Robinhood, Uniswap, or any other exchange.
Professional liquidity providers with the free competition between intermediaries, will eventually eliminate the middlemen like exchanges and brokers and provide markets on DEUS directly to consumers, lowering the spreads even more.
A study [1] showed that digitized derivatives in their infant state could already reduce administrative costs in banks by one-third, saving billions in operational costs yearly.
One can only imagine what happens if digitized derivatives are decentralized, accessible, and constructible by anyone.
Let’s dive into those abstract ideas with two concrete examples.
The permissionless derivative market for AMM-based assets.
Bob wants to open a leveraged position in 10x on the SPIRIT token.
- Bob uses a front end that hosts DEUSv3 technology.
- Bob deposits DEI into the DEUS account system.
- He finds the right product and liquidity provider. (can be done automatically.)
- He requests a x10 Long on SPIRIT via the front end that connects directly to a liquidity provider.
- He sends a quote onchain and gets filled by the liquidity provider
Now that Bob wants to hedge his position against Bitcoin volatility, he opens a put-on BTC with the same collateral to cover himself.
- He finds the right product and liquidity provider. (can be done automatically.)
- He sends a quote onchain and gets filled by the liquidity provider.
- He requests a put on BTC via the front end that connects directly to a liquidity provider.
- He is now exposed to a position using the same collateral (in a cross margin state) on BTC and SPIRIT.
On-chain projects do not have to rely on luck or bribe/pay a CEX to allow users access to a derivatives market on their assets.
Creating a derivative on an asset is essential to reduce volatility, increase volume, and enhance price discovery by attracting more capital.
A permissionless AMM-based asset swap market creates demand for single-token staking to provide liquidity to shorters.
For large tokens holders, usually protocol owners, it is possible to hedge their holdings on the market by providing liquidity for longs in the form of futures and calls.
There is no more need to sell assets to reduce risk exposure with this technology.
The Liquidity Provider can be anyone:
- Token holder for an AMM-based asset
- Broker/ExchangeUsers that hedges his countertrades on Binance/Robinhood
- Market Makers that farm fees and yield from positions he provides on-demand liquidity through the DEUS v3.
Selling a complex yield strategy on DEUS.
For example, of a strategy shown by @Route2FI,
- LP $LQRD/$FTM 152% APR in $LQDR.
- Convert $LQDR to $XLQDR and stake it.
- Get 124% APR. Rewards paid in $LQDR, $FTM, $SPIRIT, $SPELL and $LINSPIRIT$.
- Use the rewards to go into new farms on liquiddriver.finance/farms.
- Repeat indefinitely.
Bob can be exposed to this strategy while keeping his SPIRIT and BTC positions to earn a safe yield on his collateral.
Similar to how Bob opened his swap and option positions, he now opens an Interest Rate swap on this strategy and now earns safe yield along with his higher risk positions.
This kind of strategy is complex for an average user to manage.
With DEUS V3, Bob can create a derivative from his farming strategy and construct a contract where he collects the floating rates for a user and sells it at a fixed APY back to him.
In this example, Bob is still exposed to the underlying tokens and can take more risk and leverage his position without affecting the strategy seller.
