These docs describe v1 of the protocol. V2 is in R&D and will be documented afterwards
In its core, Palmswap Protocol aims to create a protocol for trading perpetual contracts on the Binance Smart Chain that anyone can use. Trades on Palmswap Protocol are settled in USDT, so all collateral used on the exchange is in USDT. Simply use your existing wallet to deposit USDT through our trading interface and you are ready to trade. Your funds will be controlled by your Metamask wallet or other compatible wallet at all times during the trading process.
Perpetual contracts are a type of futures contracts, initially introduced by Bitmex into the cryptocurrency space. Perpetual contracts are one of the most popular derivative products in the industry. In general, trading perpetual contracts on Palmswap is largely similar to trading perpetual contracts on centralized exchanges. However, there are small things that make us different, the main differences being:
- Palmswap is based on AMM
- Limit Order / Stop Loss / Take Profit are executed by AMM
- Trading is conducted fully on-chain
Perpetual contracts allow traders to speculate on the future price of a particular asset by buying (going long) or selling (going short) perpetual futures contracts. Unlike typical futures, perpetuals do not expire and remain effective until the trader closes his position. It is possible to use leverage of up to x10 during Mainnet v1. Financial products like perpetual contracts allow investors to better manage risk with their portfolios and open new ways of speculation. In simple terms... if you own 1 ETH and expect a rise, but don't have more capital available, you can trade 1ETH up to 10ETH and profit from an increase of the 10ETH. However, we recommend that you acquaint yourself with trading perpetual contracts before using the Palmswap protocol.
The price of perpetual contracts often deviates from the common market (also known as the spot market). These deviations indicate the sentiment on the exchange - if a majority of traders expect the underlying asset to increase in value over time, the price of the perpetual contract will likely exceed the spot price. Similarly, if a majority of traders expect the price to drop, the price of the perpetual will be lower than the spot price.
There are two mechanisms that moderate this process and serve to keep the price of the perpetual contract close to the spot price.
- Funding Payments
- Traders with open long or short positions pay each other a funding fee every hour, depending on the market conditions. When the contract price is above the spot price, Longs pay Shorts. When the contract price is below the spot price, Shorts pay Longs. The amount of the funding fee depends on the difference between the contract price and the spot price, as well as your position size. This incentivizes traders to take the unpopular side of the market.
- If the contract price on other exchanges differs significantly from the spot price, arbitrageurs can benefit in two ways. 1. if they hold a position on another exchange, they can use the palmswap protocol to take the opposite position and receive funding payments. 2. they buy or sell an asset on another exchange and buy or sell that asset using the Palmswap Protocol in the expectation that the price will tend to move back toward the spot price.
Palmswap v1 uses an virtual Automated Market Maker (vAMM) for perpetual trading.