Perpetuals
Last updated
Last updated
FomoFactory supports a liquidation-free perpetual futures for memecoins for the first time. Users can safely leverage 5x to 10x on any memecoin without fearing liquidations or bad debt using FomoFactory's novel mechanism. There is no risk to the exchange even if a memecoin 10xes or crashes to zero within a second.
Furthermore, FomoFactory's liquidation-free design means that traders are immune to scamwicks. If a price moves against a trader to the point of having zero value, they can still make profit if the price recovers later on.
FomoFactory is oracle-free and does make any assumptions about the market cap or liquidity of the token. Perpetuals can be offered for any token as soon as they launch.
FomoFactory borrows concentrated LP positions to simulate perpetual positions.
Concentrated LPs can concentrate liquidity in small regions of the constant-product curve. Suppose a LP were to concentrate their liqudity in a super small region around the price of $100 per SOL. Then below a price of $100, the LP would be holding pure SOL (say 5 SOL), which then be sold for pure USDC once the price exceeded $100. Ignoring fees, the curve of the LP payoff would look like the following:
Now suppose Alice were to borrow the 5 SOL from the LP. If the price is below $100, she simply grabs the 5 SOL. If the price is higher than $100, say $125, she takes the 500 USDC from the LP, converts it to 4 SOL and then provides the remaining 1 SOL herself. The 1 SOL can be thought of as the collateral for the trade, and so Alice is 5x leveraged.
What happens if the SOL price drops below $100? Then Alice simply returns the 5 SOL to the LP position. What if the SOL price rises massively to $250? Then Alice sells 5 SOL for $1250 and repays the LP with 500 USDC, pocketing the remaining USDC. No matter what the price of SOL is, Alice is always able to repay the LP while realizing her profits.
More formally, Alice now has exposure to 5 SOL, represented by the middle graph. However, she still has a debt to the LP, equal to the price of the LP positions, represented by the rightmost graph. Subtracting the two graphs, Alice’s payoff is the green area located past the price of $100. That is exactly the payoff curve of a leveraged long!
To create a leveraged short, it is a matter of swapping the roles of USD and SOL. Alice borrows the 500 USDC if the price is above $100, or sells the 5 SOL for USD and posts collateral if the price is below $100.
What if the original LP didn't concentrate their liquidity in a super small region? Well any LP position can be sliced up in smaller concentrated positions. By combining several of these smaller concentrated positions, a leveraged position can be built in the same way.
Borrowing liquidity creates leverage.
There is something truly remarkable about building perpetuals in this fashion: by definition, the account value of the trader will never be negative. This means that Alice will never create bad debt no matter what the price of SOL is.
In virtually all other exchanges, if the account value of a leveraged trader strays too close to zero, the exchange will liquidate the trader, forcibly closing their position their position and seizing their remaining margin. At high leverage (15x and higher), it is often the case that traders lose money to liquidations due to natural fluctuations in price even if they are directionally correct about the price of the asset.
By mathematically guaranteeing no bad debt for the exchange, FomoFactory avoids liquidations entirely. If a 'scam wick' briefly causes the price of SOL to drop below $100, Alice's position remains open, allowing her to continue her directional bet on SOL.
Alice's position is eventually closed however. Rather than paying for a perpetual position and having it closed if the price moves against her, Alice pays upfront the cost of borrowing the LP position and is then granted a liquidation-free perpetual position for a limited amount of time. Instead of a price-based liquidation, Alice experiences a time-based liquidation.
What sort of assets have great AMM liquidity, but are often too volatile to safely provide leverage for? Memecoins of course!
Memecoin markets are subject to the most brutal volatility and manipulation in all of crypto. Tokens regularly crash to zero or 10x within seconds. For a traditional perpetual DEX, it is impossible to list these assets until they are more stable.
FomoFactory allows users to leverage memecoins. Imagine longing tokens like SLERF as soon as they launch, and watching as it races up 500% within hours. Imagine being able to bet on memecoins going down for the first time. All while being protected from scam wicks, manipulation, and liquidations.
Time-based perpetual positions also make the most sense within the context of memecoins. Time is incredibly precious within the memecoin space. Entire fortunes can be made or lost in the span of minutes.
FomoFactory is also a memecoin launchpad. FomoFactory will automate much of the work that is required from memecoin creators: seeding the initial AMM liquidity, setting up pre-sales and fair launch, and deploying the smart contracts to the blockchain. Creators can then focus on what's important: marketing, branding, and community engagement.
Tokens that are launched on FomoFactory will be available for leveraged trading as soon they launch.
By automating much of the work for creators, FomoFactory also indirectly protects users from mishaps and rugpulls (although even rugpulls can make money for users due to shorts).
FomoFactory will allow users to trade perpetuals for the full breadth of tokens available on-chain. Of the top tokens by on-chain trading volume, very few are listed on popular perpetual exchanges. FomoFactory taps into this market for the first time.
