The ins and outs of MCDEX – the first perpetual ETH 10x leveraged swap contracts
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Keep keeping up & a special thanks to Fabian from DeFi World for this post on MCDEX!
Tap In Tuesday: MCDEX Explained
Guest Post: Fabian K., Founder of DeFi World.
A huge problem with current L2 solutions for trading is the lack of liquidity. As there are currently too few users that place and cancel buy/sell orders, only small amounts of token trades are possible. This makes these protocols hard to use. Not many people use them as of today. This is a pity because in times of 100+ gwei gas fees, more and more people wish to pay less for their transactions and trades. MCDEX aims to change that.
The first perpetual ETH/USDC contracts in DeFi
MCDEX is a decentralized exchange that brings perpetual ETH/USDC contracts to the Ethereum blockchain. The DEX leverages a hybrid on-chain AMM and off-chain orderbook combination. The perpetual contracts allow users to trade ETH with up to 10x leverage with no expiration date.
After their V2 launch in June, liquidity locked in MCDEX has increased significantly, which shows how innovative their recent upgrade was.
Let’s dive deeper into the workings of this new exciting protocol.
On-chain/Off-chain hybrid model
MCDEX leverages two fundamental types of exchanges: an off-chain orderbook and an on-chain automated market maker
The off-chain orderbook exchange has several advantages to on-chain exchanges. First of all, it is way faster because not every transaction has to find its way into the blockchain and therefore gas fees are saved. Even though you would expect the liquidity to be low at first, enough liquidity can be ensured because it is provided by the automated market maker on-chain. This is what the interface of the off-chain orderbook exchange looks like:
On-chain automated market maker
Transactions that are processed through the automated market maker are settled on the Ethereum blockchain, which ensures trustless and decentralized trading. Automated market makers are already well known in the crypto space (Uniswap, Kyber, 0x, Curve, …). They consist of a big fund, where many different types of tokens are deposited by users. In order to trade, users just have to put in a token, and take the equivalent amount of another token out of the fund. As simple as that. Users that provide the liquidity of the fund in the first place, get receive the trading fees as compensation. This incentivizes people to provide liquidity. However, automated market makers can be expensive as every transaction is settled on-chain.
This is why the synergy of the off-chain orderbook and on-chain exchange is so important. There needs to be a way to make liquidity accessible and to make cheap transactions possible at the same time.
The core reason this hybrid version exists is to ensure that there is enough liquidity for users that are using the off-chain order book exchange. While trading on the off-chain order book users have the same experience as in traditional centralized exchanges without having to worry about missing liquidity.
$MCB is MCDEX’s native token. This token is designed to capture value as the usage of the platform increases. The token is emitted through liquidity mining. This means the users, who provide to the automated market maker fund are rewarded not only through trading fees but also though freshly minted $MCB tokens. The tokens are distributed proportional to the user’s deposited amount of capital. If a user owns 1/10 of all the liquidity in the AMM, he will receive 1/10 of all the newly emitted $MCB.
Initial token distribution:
25% founding team/early investors
50% user incentives
Outlook into the future
MCDEX has many plans to increase its market share in the DeFi space. For example, a robo-advisor and social trading, which uses smart contracts, are in development. With social trading, users can lock their funds into a smart contract, which will trade the perpetual contracts according to its trading strategy.
MCDEX tries to solve one of the fundamental problems in the DeFi space. L2 solutions need to be more frequently used in order to lower the current gas prices (100+ gwei). Most L2 solutions today are not an option though because of lacking liquidity. MCDEX changes this. It combines L2 orderbook exchange with the liquidity of an on-chain automated market maker.
We at DEFI WORLD see MCDEX as a leading innovator in the space, that has the potential to solve the onboarding problem of L2 solutions. You should definitely give the exchange a try, as the interface is very similar to traditional DEXs. We cannot promise that MCDEX will become the leading DEX, but they will certainly advance the whole DeFi space.
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DISCLAIMER: Investing into cryptocurrency and DeFi platforms comes with inherent risk including technical risk, human error, platform failure and more. This is not financial advice. Please refer to our blog for more on mitigating your downside when using these protocols!
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