Qilin’s community call #9 was held on the 16th of August. In this call, we reviewed the whole progress in July and discussed how Qilin V2 will effectively motivate Altcoin LPs. Below is a recap of the call, hope you enjoy.
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Qilin Progress of July
On the technical progress in July, Qilin mainly focused on the technical development of V2, including rebase mechanism optimization development, micro service development, SDK development, front-end development, etc., followed by the user experience optimization of V1 mainnet; In terms of business and community construction in July, Qilin modified the Rebase Funding Rate of V1, submitted the new liquidity mining solution of Uniswap V3 to Uniswap Grant Program and showed it at the Uniswap Community Call #6. Also, we had a community member published an article on in-depth analysis of V1. For more details, please refer to July 2021 Qilin Monthly Update.
Discussion: How Qilin V2 will effectively motivate Altcoin LPs?
Q1 : How to effectively convince long tail pair LPs to not leave?
A1 : Maybe we can start with a focus on Liquid Alts and then diversify out to longer tail ones once you build up more liquidity and overall product demand.
A2: So the model would become more project focused, as in on board projects and ask them to use Qilin for their perps. But this doesn’t solve the issue in the long run. We are mauling over a few solutions. The simple thing is to ask for an illquidity premium from traders.
Q2: Where would the yield come from if you try to incentivize LPs? assuming paid from your treasury?
A: Establishing a perpetual contract trading is a normal development stage for a project. We hope that the project party to support liquidity mining incentives themselves, rather than relying on us to do it.
Just as most projects are willing to provide incentives for the liquidity of spot tradings, it is because the liquidity of spot trading pairs meets the liquidity needs of project parties and traders. We believe that in the field of perpetual contracts, if the liquidity of perpetual contracts can also meet the needs of both project parties and traders, then the project parties are also willing to carry out liquidity mining rewards on Qilin, which will reproduce 2020 Agitation.
Q3: Define what you mean here by project parties carrying out liquidity mining? You mean they will provide liquidity without getting token rewards because they earn a yield for providing liquidity?
A: What I mean is that the project party can use a portion of its own revenue as a liquidity mining reward to incentivize LP to provide liquidity for their perpetual contract trading pairs. As they do now in Uniswap V2.
Q4: Is there a way to start with more liquid alts and then release more Altcoin assets based on liquidity and community governance though to help solve this problem rather than offering all Uni tradable pairs? Then you align incentives more.
The big concern is the Altcoin assets with less liquidity and smaller market cap pairs where LP’s can pull their liquidity, then traders on the other side are screwed is that right?
A1: The core is that the Altcoin with a small market value has low liquidity and high volatility, which will cause the funds in the pool to be insufficient to pay the trader’s profit. For Altcoin, high volatility is inevitable, so how to solve low liquidity is an important problem. After all, for traders, if the corresponding income cannot be obtained during settlement, this is indeed an embarrassing problem.
A2: I think a quick way to improve liquidity is liquidity mining. Project parties can absorb liquidity through liquidity mining, so as to protect traders’ rights and interests. This can solve the liquidity problem, but it cannot solve the problem of the time difference in the derivative transaction process. After all, the trader’s income is the estimated income, and the LP can be withdrawn at any time. It doesn’t solve the longer term problem though.
Q5: Could you develop another market maker type role for those illiquid assets?
A: In the earliest V2 product design, I once designed an LP similar to this one. We divide the entire LP into Tranche A and Tranche B. Traders prefer to settle with Tranche B. At the same time, Tranche B is limited, but there is no time lock. Only when Tranche B loses 80%, Tranche A will bear part of the settlement risk.
However, the design of this pool is very complicated and difficult to implement (although we have solved this problem), but the core is more complicated, so the user threshold will be higher. We are worried that most LPs cannot use this function effectively, so We gave up this set of plans in the subsequent design. Thus adopting the simplest single pool scheme.
Q6: Could you start with the single pool and then V3 implement the more complex model we discussed?
A: It Makes sense, seems like the most workable solution. We can observe user feedback after V2 goes live and use this as a basis for improvement, but V3 really does not go live until 2022.
Q7: So what other notable improvements are there in Qilin V2?
A: The most noteworthy design in Qilin V2 is to realize “Permissionless” and “Composability” in the trading of derivatives contracts, that is, allow any users to create liquidity pools without permission, and build and combine personalized derivatives contracts based on any underlying assets, which will make the risk exposure assessment and control more accurate and efficient.
Developers can create perpetual contracts based on any oracle price-feeding and raise liquidity in Qilin. For example, the Altcoin perpetual contract trading market can be created by integrating Uniswap, the interest rate perpetual contract trading market can be created by integrating AAVE, and the stock perpetual contract trading market and foreign exchange perpetual contract trading market can be created by integrating Chainlink. In the market of perpetual contracts, reverse contract is the most needed trading type of Altcoin.
Secondly, Qilin V2 has significantly reduced the system GasFee through innovative architecture. It is estimated that the average GasFee is only 80% of that of Uniswap V3.
In addition, OpenPrice Update Mechanism, Rebase Funding Rate Mechanism based on V1 optimization, classification design of liquidity pool discussed above and decentralized clearing engine are also highlights of the new version.