Equation: The new star of DEX with the BRMM mechanism for Perptual Futures

Since its launch one month ago, the Equation platform has performed outstandingly, with a total locked value increasing by three times and a trading volume reaching 500 million dollars. Whether in product design, token economics, or user experience, Equation has demonstrated remarkable strength, making it a model for other startup projects to learn from. This article will conduct an in-depth analysis of Equation, revealing the key factors behind its success in the Perptual Futures DEX field.

Industry Background

In terms of spot trading, the decentralized exchange (DEX) has already captured a considerable market share, and users are becoming increasingly adept at using platforms like Uniswap and Curve. However, in the field of Perptual Futures trading, the on-chain trading volume still has a huge gap compared to centralized exchanges. Data shows that the on-chain contract trading volume accounts for only about 1.5% of centralized exchanges, which means there is still a lot of room for development for on-chain Perptual Futures trading platforms. Currently, several on-chain Perptual Futures exchanges such as GMX, Gains Network, dYdX, and Hyperliquid are implementing perpetual trading functions in different ways.

Against this backdrop, Equation quickly attracted a large number of users with its innovative product mechanism and trading mining strategy, with a total locked value of (TVL) reaching 16 million USD.

Product Mechanism

Perptual Futures Overview

The main difference between Perptual Futures and traditional futures is that there is no expiration date. Traditional futures have specific settlement dates, while Perptual Futures allow traders to hold open positions indefinitely and close them at any time. Perptual Futures typically specify a time frame in hours, and at expiration, the exchange will automatically "roll" the position into the next contract.

The flexibility of Perptual Futures makes them very popular in cryptocurrency exchanges, often offering high leverage. Compared to spot trading, the potential profits of Perptual Futures are higher, but the risks are also greater. Perptual Futures use a funding rate mechanism, where one party to the contract regularly pays a small fee to the other party to ensure that the futures price converges periodically with the index price ( of the underlying asset price ).

Design features of the Equation

1. Trading Mechanism: Establish independent trading pools for different trading pairs as counterparties for traders. When users open positions, close positions, or are liquidated, liquidity providers (LP) will automatically hedge with positions of the same scale, the same price, but in the opposite direction.

2. Pricing Method: Equation adopts an innovative BRMM( Balance Rate Market Making) method for pricing. Among them, BR represents the liquidity pool balance rate, and the calculation formula is: BR = Value of short positions held by LP / Total liquidity of LP

   When the LP has no position, BR is zero, indicating that the liquidity pool is in a state of complete balance. When the LP holds a long position, BR is negative.

   Perptual Futures价格溢价率(PR)是Perptual Futures流动性池价格(P)相对于指数价格(Pi)的溢价率,PR = f(BR)。当BR = 0时,f(BR) = 0,即当LP处于完全平衡状态时,溢价率为零。

3. Funding Rate: In the BRMM model, the direction of the funding rate payment depends on the LP's position status:

   • When the LP holds a short position, the long position holder compensates the short position holder.
   • When LP holds a long position, the short position holder compensates the long position holder.

   Funding rate calculation formula: Funding Rate = IR + APR

   Among them, IR( Interest Rate) is the interest rate, which can be adjusted by the DAO; APR( Average Premium Rate) is the average premium rate, calculated every five seconds.

User Experience Advantages

Equation offers lower maintenance margin and higher leverage than dYdX and GMX in trading, which is very appealing to risk-tolerant cryptocurrency traders.

Comparison of Maintenance Margin and Maximum Leverage:

• dYdX: 3% / 20x
• GMX: 1% / 50x
• Equation: 0.25% / 200x

To protect LP, Equation has designed a risk buffer fund (RBF):

• When the LP incurs losses as a temporary trading counterpart for the user, RBF first bears all temporary losses until the fund balance is exhausted.
• The existence of RBF significantly reduces the likelihood of LP being affected by temporary losses.
• In the case of RBF scale expansion, LPs can use higher leverage without easily facing liquidation risks.

The sources of income for RBF include:

1. The portion of trading fees paid by traders when opening, closing, or liquidating positions.
2. The profit generated by LP as a temporary trading counterpart of the trader.
3. Fund transfer during LP settlement

Token Economics

The token design of Equation includes functional tokens (FT) and non-fungible tokens (NFT), and maximizes user participation incentives through a 100% fair distribution model.

EQU token

EQU, as a native token, is generated 100% through holding mining, liquidity mining, and referral mining. After being mined, it will be locked for 90 days, and early withdrawal will incur penalties. In addition, Equation uses the ve( vote-escrowed) model to empower the token:

• Users can lock EQU-ETH Pool LP to obtain veEQU.
• Holding veEQU can earn 25% of the protocol trading fees.

EFC Non-Fungible Token

EFC is divided into different levels, including Member, Connector, and Architect:

1. Member NFT:

   • A total of 10,000 units, distributed to individuals actively promoting Equation.
   • Each NFT can generate multiple referral codes
   • Holders can receive 10% of the trading fees and mining rewards of the referred users.
   • Referrers enjoy a 10% fee discount and 1.1 times liquidity mining multiplier.
   • After the NFT transfer, the referral code will also be transferred, and the original holder will no longer receive related benefits.

2. Connector NFT:

   • Total of 100 units, distributed to the Equation core promotion team
   • Each Connector NFT can mint 100 Member NFTs
   • Enjoy 10% of the total revenue generated from these minted NFTs.

3. Architect NFT:

   • Total of 100 units, allocated to the Equation core R&D team
   • Architect NFTs can enjoy a total of 25% of the trading fee revenue.

Through this multi-layered token design, Equation not only incentivizes users to participate and promote but also provides the core team with the motivation for long-term development, contributing to the project's sustainable growth.