With the rapid development of blockchain technology, the landscape of the encryption market is quietly changing. Investors’ demand for transparency, efficiency and decentralization has become increasingly strong, and cryptocurrency trading, which was previously completely dominated by centralized trading, has begun to move to the chain.
According to the latest data from Coingecko, the spot trading volume of CEX and DEX has reached a ratio of 55:45, which is not a big gap. Looking back at the derivatives trading market, the average daily trading volume of cryptocurrency derivatives across the entire network reaches hundreds of billions of dollars, but on-chain trading volume only accounts for 1%, and there is still room for tens of billions of growth in on-chain derivatives trading.
数据来源：The Block
After continuous changes and optimizations, the current on-chain derivatives track is dominated by two solutions:
One is GMX on Arbitrum, In the Vault mode represented by Hyperliquid, LP serves as the trader's counterparty, and the transaction price is determined by Oracle's price feed.
The second is the order book model represented by dYdX, which matches off-chain settlement with on-chain settlement, such as AEVO, Vertex, etc.
Of course, with the development of the DEX market, many projects generally combine these two methods to further increase user trading experience, and further optimize and improve trading depth and liquidity, so as to provide users with stable Spot asset trading quotations and decentralized leveraged contract products, such as Drift Protocol based on the Solana ecosystem, have performed well in the recent market. The number of users and total TVL have increased significantly, and they have attracted the attention of a large number of investors.
This article will deeply explore the core mechanism and technical features of the Solana ecosystem’s on-chain derivatives protocol Drift Protocol, as well as how to solve the risks faced by on-chain derivatives transactions and provide traders with safe and trustworthy on-chain transactions. environment.
Drift Protocol is an open source decentralized trading platform built on Solana. It was established in 2021 and mainly provides users with low slippage, low fees and high efficiency. Trading experience. Currently, Drift Protocol mainly provides four products: spot trading, perpetual contract trading, lending and passive liquidity supply. The goal of Drift Protocol is to improve capital efficiency while protecting user assets by building a complex cross-margin risk engine, while becoming the liquidity layer for derivatives and spot trading in the Solana ecosystem.
Drift Protocol launched the V2 version in January 2022. Using a new hybrid liquidity solution, transaction volume and user experience have been significantly improved. On May 16, 2024, the Drift Protocol airdrop opened for collection, airdropping 12% of the total supply to early users and supporters, and achieved continuous breakthroughs in TVL and transaction volume. According to data from DeFillama, Drift’s TVL currently ranks third among the entire on-chain derivatives platform and is a dark horse that cannot be ignored.
数据来源：DeFillama
For traders and users, the loss of handling fees in crypto derivatives trading is a very important indicator. Drift Protocol has the advantage of low handling fees to help users Reduce transaction wear and make more profits. The current taker fee for perpetual trading of BTC, ETH, and SOL is only 0.025%. If investors pledge 10K USDC in Drift Protocol’s Insurance Fund, the fee can be reduced to 0.01%. For other currencies, Drift Protocol’s transaction fees are only 0.03%-0.1%. Coupled with Drift Protocol’s official rebate discounts and rewards, the transaction fees are already better than most CEX exchanges.
According to official website data, Drift Protocol has currently accumulated US$26 billion in transaction volume, processed 17 million+ transactions, accumulated 190,000+ users, and has achieved explosive and sustained growth in the near future.
数据来源：Drift
Drift Protocol project advisor Arthur Hayes is the CFO of BitMEX and the CIO of Maelstromfund. Drift has also received the attention of capital. The project has received two rounds of financing, including a seed round of US$3.8 million. Investment institutions include Multichain Capital and Jump. In October 2023, it received US$23.5 million in Series A financing. The institution has not yet announced.
Different from common on-chain derivatives trading solutions represented by Hyperliquid and dYdX, Drift V2 adopts a hybrid liquidity mechanism to integrate the two solutions and optimized to provide more collateral and reduce risk. There are four main types of liquidity in Drift Protocol V2 that guarantee the best price for traders when executing orders:
Just-In-Time (JIT) Auction Liquidity
vAMM Liquidity
Decentralized Order Book Liquidity
Market Making Vaults
When a user (Taker) submits a market order, a personalized Dutch with a specific start price, end price and duration is automatically triggered style auction. Auctions force market participants to compete to satisfy user demand at a price that is better than or equal to the current auction price. If no market maker participates after an initial window (~5 seconds), users can complete trades on Drift’s AMM.
JIT auction is a supplementary liquidity mechanism that allows market makers (MM) to provide instant liquidity. Through this Just in time method, traders can obtain a zero-slippage trading experience in transactions. .
Drift's vAMM is the designated liquidity provider for the transaction. If the market order is not executed by JIT and meets the trigger price of vAMM execution , the transaction will be executed by the vAMM pool.
In Drift V2, Backstop AMM Liquidity (BAL) is included, allowing users to add liquidity to a specific pool and receive their share of accepted fees. BAL further supplements the liquidity of vAMM, reduces slippage, and improves the execution quality of orders.
vAMM provides a continuous source of liquidity to all traders. Drift Protocol can support new markets even without external market makers, eliminating the need to rely on external market makers to channel liquidity (albeit with the added risk of unsettled profits and losses being immediately available).
Many safeguards have also been adopted in the design of the protocol, such as limiting risk exposure, effective market making, revenue pool utilization, insurance fund rules, etc. to mitigate and isolate the risks of a single market. vAMM requires reliable oracles for spot reference assets in the perpetual market. For example, Drift's SOL-PERP perpetual market will refer to the SOL/USD spot oracle as a price reference and combine with other channels to ensure the accuracy of quotes.
Drift’s decentralized order book is powered by the Keeper Bot. The Keeper bot is responsible for recording, storing, and matching and executing submitted limit orders. Each Keeper robot has its own off-chain order book. Orders are sorted by attributes such as price, time and position size. When an order reaches the trigger price, the Keeper will submit the transaction against the DAMM. In return, Keepers receive transaction fees based on a ratio determined by a mathematical formula.
If there are buy and sell orders with exactly the same parameters, Keeper can match them directly without going through vAMM, which can maximize efficiency.
Market Making Vaults is a delta neutral market making and liquidity providing strategy. Drift Protcol further enhances liquidity and trading experience by integrating Circuit’s Market Making Vaults. and capture more yield for liquidity providers.
This strategy generates returns that are uncorrelated with overall market performance by hedging against price fluctuations in the underlying asset. Users can deposit USDC into Vaults and earn rewards based on market making activities performed by Circuit on Drift Protocol. Currently, Supercharger Vaults APY reaches 47.06% and Turbocherger Vault APY is 36%.
1. Open the official website, we can log in using the phantom wallet
2. After logging in, we can enter the perpetual contract trading interface. First, we need to activate the account and deposit assets. Click Depoist on the page to activate. Activating the account requires a small amount of SOL.
#3. Through the lower left corner, you can choose to switch between the professional version pro and the simplified version Lite of the page, as well as set RPC and transaction gas settings.
#4. After depositing the assets, you can select the transaction target, enter the price and leverage ratio to place an order. The leverage ratio can currently reach a maximum of 20 times leverage. The trading varieties include most of the current mainstream currencies.
Select "Trade——Spot" from the upper left menu of the page to enter the spot margin trading page. Drift provides a maximum leverage of 5 times rate, for the stablecoin USDT-USDC, it provides a maximum leverage rate of 10 times.
By default, margin is not turned on. Users who need to use leverage can turn on margin mode through settings. Before turning on the margin mode, you need to set up a sub-account. The funds in each sub-account are independent and will not affect the main account and other sub-accounts. When the activated sub-account is deleted, the corresponding activation funds will also be refunded.
Click the settings icon in the upper right corner of the page, enter the Settings page, and select Margin/Leverage to set it.
#After completion, we can select the corresponding leverage ratio in the transaction for margin trading.
Drift Protocol also provides users with Swap spot trading through cooperation with Jupiter. In addition, Swap trading can also provide up to 5 times the leverage rate and requires opening a sub-account.
Users can earn from perpetual trading, borrowing and liquidation by depositing funds into the insurance vault Fees ensure the solvency of the protocol, and pledgers can obtain rewards from the income pool. The current APR income of USDC can reach about 37%.
The Market Maker Vault is a delta neutral market maker and liquidity provision strategy provided by Circult, which can significantly increase investors' returns. Deposit funds have 7 days redemption period.
The Drift Draw is a lottery where takers can win up to 10 tickets for every $1 traded, every Monday at 2:00 p.m. A lottery will be held at 00 UTC, and one of the 3 prize pools will be randomly selected and allocated to the winning user. 3 lucky users will randomly draw the top prize, and 30 other users will receive special consolation prizes. As of now, the prize pool for the next draw is as high as $280,000.
The main purpose of the DRIFT governance token is to give Drift users actual ownership of the protocol and use the Drift DAO to have rights such as speaking and voting in the future development of the protocol. By distributing power and decision-making across the ecosystem, rather than centralizing it, Drift ensures sustainable health with the most active players.
The total amount of DRIFT is 1 billion, of which 53% will be allocated by the community, of which 43% will be used for ecosystem development and transaction rewards, 10% will be used for Launchpad airdrops; 25% for protocol development; 22% for protocol contributors.
On May 16, $DRIFT officially launched the airdrop, allocating 120 million tokens to 150,000+ early users, and supporting users to deposit $DRIFT into the protocol as Collateral, the airdrop deadline is August 17, 2024. The launch of the $DRIFT token has also received widespread attention from the industry, and its token $DRIFT has also been listed on mainstream CEX exchanges such as coinbase, gateio, kucoin, and huobi.
The recovery and continued prosperity of the Solana ecosystem has brought more liquidity and users to the chain, as well as more transaction needs. According to data from Coingecko, 4 of the top ten DEXs are native DEXs of the Solana ecosystem, with Jupiter, Orca, and Raydium ranking first, third, and fourth respectively. This reflects that transactions on the Solana chain have surpassed ETH and become the most active public chain.
By adopting the core mechanism of integrating liquidity, Drift Protocol has initially demonstrated its huge potential, achieving huge improvements in TVL, transaction volume, and user number. Currently, Drift is already the No. 1 derivatives protocol in terms of TVL and transaction volume on the Solana chain. In the future, Drift is likely to become the liquidity layer of the entire Solana ecosystem, providing power for the ecosystem.
In addition, Drift’s support for the Solana ecosystem is also very fast. Currently, the most popular currencies in the Solana ecosystem, such as WIF, W, TNSR, KMNO, etc., can be traded in contracts on Drift. This can also be seen from the side that Drift supports popular currencies in the Solana ecosystem very quickly. This kind of keeping pace with the market is also a key factor in gaining rapid user growth. At the same time, with the arrival of the bull market, the cryptocurrency market will also usher in rapid development again, which is also an important opportunity for Drift to achieve overtaking in corners.
The bull market has just begun. In the future, with the help of Solana’s efficient and low-cost infrastructure, as well as active on-chain users and transactions, Drift will continue to capture more liquidity and transaction needs, and It is unknown that the entire ecosystem will grow strongly together, even surpassing the EVM derivatives protocol.
The above is the detailed content of Interpretation of Drift Protocol: Arthur Hayes is a project consultant, a decentralized derivatives market based on Solana. For more information, please follow other related articles on the PHP Chinese website!
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