Perpetual swaps exchange Avantis opened for trading on Base mainnet Friday, bringing a new approach to the old problem of balancing crypto futures markets that its creator thinks will appeal to retail traders.
Avantis is one of the first trading protocols to roll-out natively on Base, the Coinbase-backed layer 2 whose proponents are betting that a close proximity to the centralized exchange giant could potentially help shovel millions of first-time DeFi users into the on-chain world.
It seems unlikely that such a crowd would immediately flock to the sort of high-risk leverage trading that Avantis, which offers 75x leverage, says it offers. But plenty did during Avantis’ two-month testnet, which generated over $5 billion in trading from 50,000 wallets, according to a press release.
Perpetuals swaps are a financial novelty unique to crypto. They’re basically futures contracts without an expiration date. The longs (who believe a token’s price will go up) and the shorts (who think it will drop) can let their bets ride as long as they’ve posted sufficient collateral.
But these markets need maintenance: a way to ensure that the price of the futures contract doesn’t veer too wildly away from the value of the asset it represents. Funding rates mark the fees buyers and sellers pay each other, keeping Open Interest in check.
“The problem is DeFi and CeFi all get very professionalized, so a lot of market makers just arbitrage away any funding rate,” said Avantis CEO Harsehaj Singh. “Retail does not get an opportunity to get in the Open Interest game.”
Avantis’ approach differs slightly. Instead of using funding rates to balance the market, it offers a guaranteed rebate to traders who take contrarian positions by, perhaps, betting that the price of a token will drop when most others think it will soar. This is a risky trade that might well bust. But the risk is mitigated somewhat by the protocol’s promise to pay back some of their losses, Singh said.
“It’s meant for people who are truly only doing directional trading,” Singh said in an interview.