Temporarily this audio will be on SNX’s Twitter Spaces, but soon it will be accessible on the official Synthetix Youtube channel.

Question - Before anything else, let's talk about Perpetual Futures, what they are, how they work, how the ongoing funding rates help to balance out each side, etc.

• The term and usage take off from BitMEX
• General Concept of perpetual futures - Like a traditional futures contract that continues to roll. There’s no expiration like regular futures, where you settle in cash / etc. Same basic principle as regular futures, but they’re a smooth, simple, risk management tool that markets can use. Very popular in DeFi.
• Background on how Perps work - There’s some funding period, there’s a separate price discovery happening in perps market, then the difference b/w spot and futures is the funding rates to help bring these markets in.

Question - Could we do a brief review of the current landscape of decentralized perps implementations?

• Long history in DeFi
  1. Afif’s first interaction with DeFi perps is DYDX, and their approach to perps is as follows - (order book model for perps)
     • They use an orderbook, and they have an off-chain oracle system, settlement is happening on-chain Starkware
     • Drawbacks - No composability, not on-chain, centralized, etc. This is the reason they’re moving to their own app-chain.
     • High performance is needed for order books which is why they live off-chain
     • Orderbooks haven’t been successfully done ON-CHAIN as far as Afif knows, as the performance need is so high.
  2. Perps AMM’s are next - Tons of them - Broken up into two types of Perps AMM’s - Oracle Reliant, and Non Oracle Reliant
     1. Oracle Reliant - Perps V1 SNX from Chainlink, GMX, Pika, etc
        • Strengths
          1. There’s always liquidity
          2. No weird funding rate dynamics
          3. User experience is best
        • Weaknesses
          1. Hard to have well-resolved price updates with an obscene amount of data on chain. You’d have to be putting data on-chain all the time, which is problematic. Over 90% of price updates are just wasted, as no trader needs them.
             1. This is the cost sustainability issues of having data live on chain
          2. Different tradeoffs require their own solutions - higher fees, lower OI caps, performance tradeoffs, etc.
     2. Non-Oracle Reliant - Perp Protocol, Perp Protocol V2, Drift Protocol on Solana
        • These have price discovery happening, b/c they’re not directly tied to an oracle.
        • Primary challenges: Risk management and funding rates - Passive liquidity in a Uniswap V2 pool, so if you want to have Uniswap V2 in the perps market always lags the spot price, people are only going to arb this if it’s needed
        • Strengths
          1. Funding rates are typically bad at balancing the market on these, but introducing these breaks the path independence
          2. No such thing as no oracle, b/c both of these need to look at some sort of external price as an index price to help dictate rules of the markets.
        • Weaknesses
          1. Capital Inefficency
          2. Easier to drift away from oracle price
          3. Etc

Question - What are some of the constraints with the current beta perps implementation?

• Oracle price latency was an issue, as it becomes a cat and mouse again of latency and frontrunners, which led to risk mitigation tools being implemented to stop this.
  1. Fees had to be set at a higher rate to stop any sort of front-running from oracle latency issues.
  2. Open Interest caps were set at lower levels to give access to markets, but not make it prohibitive to attempt to frontrun
• Quickly explaining how V1 Synthetix Perps work: Perps market that trades at oracle price, funding rates is pretty simple calculation based on how far away from skew.
• Most important consideration for perps protocol design (and what Synthetix Perps V2 cares most about) is how to bring in risk management to the protocol effectively, and everything comes back to risk management,
• Lessons learned from limitations of Perps V2:
  1. No more infinite liquidity - Always need instantaneous premium or discount based on the skew for a market -
     1. Instantly makes sure someone takes the other side of a long or short
     2. Uses the debt part as a temporary counterparty, but someone will arb the other side if the discount is big enough.
        1. Debt pool says: If you want to take the other side, great, get this free money (discount)

Question - What are the Overarching goals of Perps V2 and features

1. Risk minimization, not worrying about frontrunning
2. Increased capital efficiency

Which leads into

1. Lower fees
2. Support many additional markets
3. Higher open oi caps

Question continued - Features of Synthetix Perps V2 - How these features work, etc.