Continuous trades exchange Avantis’ developer believes that its novel solution to the age-old issue of balancing the cryptocurrency futures markets would be attractive to retail traders when it began for trading on Base mainnet on Friday.
Avantis is among the initial trading protocols to launch natively on Base, the layer 2 supported by Coinbase. Its supporters are hopeful that being near the massive centralized exchange could assist in introducing millions of new DeFi users to the realm of on-chain trading.
Such a group is unlikely to rush into the kind of high-risk leverage trading that Avantis claims to offer, given that it offers 75x leverage. However, a news release states that a lot happened during Avantis’ two-month testnet, which produced over $5 billion in trading from 50,000 wallets.
One aspect of cryptocurrency that is new to finance is perpetual swaps. In essence, they are contracts for futures that never expire. As long as they have posted enough collateral, both the longs (who anticipate a token’s price will rise) and the shorts (who think it will fall) can keep their bets in place.
However, these markets require upkeep: a means of making sure that the futures contract’s price doesn’t deviate excessively from the asset it is meant to represent. In order to regulate Open Interest, funding rates indicate the costs that buyers and sellers exchange.
According to Avantis CEO Harsehaj Singh, “the problem is DeFi and CeFi all get very professionalized, so a lot of market makers just arbitrage away any funding rate.” “Retail does not get an opportunity to get in the Open Interest game.”
Avantis takes a slightly different tack. Rather than relying on funding rates to maintain market equilibrium, it provides a guaranteed return to traders who adopt unconventional positions, such as forecasting a token’s price to decline while the majority of traders believe it will increase. This is a potentially disastrous trade. However, Singh noted that the guarantee made by the protocol to reimburse part of their losses lessens the danger significantly.
“It’s meant for people who are truly only doing directional trading,” Singh said in an interview.