KIP-74: TWAP Perpetuals

Summary

Build a perpetuals market using Uniswap TWAP (Time Weighted Average Price) oracles.

Abstract

TWAP Perpetuals will enable Kwenta to scale its trading experience to other chains, at a lower cost, and in an atomic manner.

Motivation

Currently, perpetual futures are offered on Optimism and are powered by Synthetix. Kwenta cannot capture markets on other chains unless an integration partner is available on other chains. Creating a perpetuals mechanism built on top of AMMs as widespread as Uniswap removes the bounds to where traders can trade with Kwenta.

Secondly, fees are typically used to protect liquidity providers, which can drive up costs for traders when a mechanism is inefficient at mitigating risk. By creating a mechanism that erases risk for LPs, Kwenta can offer a lower fee trading experience where fees are the cost of attracting passive liquidity providers seeking a low-risk return.

Lastly, in the current state of Synthetix Perps V2, the mechanism is only viable for traders using the delayed order mechanism. This creates issues for protocols that want to combine perpetual futures into other products. Because trades cannot be executed atomically (at a reasonable cost), products like permissionless funding rate arbitrage vaults or on-chain social trading strategies cannot be created.

In theory, the scalability of this mechanism is limitless, and a perpetual market can be deployed for any long-tail asset given sufficient liquidity.

Specification

For more information, visit: https://github.com/Kwenta/kwenta-state-log/blob/master/kips/drafts/kip-74.md