Perps Come First: How to Build a Winning DeFi Ecosystem in 2023
Even with the days of food coins long behind us, the average DeFi platform’s sales pitch feels a bit overplayed, if not outright generic. And for good reason: DeFi’s best strategists appear to have exhausted their playbooks. The same tactics that played like a finely tuned instrument in DeFi’s golden days of 2020 and 2021 were hardly moving the needle in 2022, and have come to a complete standstill in 2023.
Standard liquidity mining was once all the rage in Web3 – now it’s about as vanilla and undaring as incentives come. Likewise, ploys to vampire liquidity via front-loaded governance token issuance are barely able to circulate on Crypto Twitter, let alone make headlines in its leading publications à la SushiSwap circa 2020.
The reality is that DeFi has both matured and evolved. Building a user base is not quite as simple as it once was. Nonetheless, DeFi remains abound with opportunities for newcomers to disrupt and compete with incumbents. The key is to target DeFi users where their most compelling engagements lie, which is no longer in the realm of spot markets and yield farming – it’s in the wild world of perps.
Perpetual Contracts: DeFi’s Next Major Battleground
Perpetual contracts – or “perps,” as they have been aptly abbreviated on crypto Twitter – are essentially modified futures contracts that have no expiration dates. Like traditional futures contracts, perpetuals allow traders to borrow capital and open leveraged positions on certain assets. Since perpetuals never expire, they are always cash-settled and can be held indefinitely.
Rising to popularity for their utility in placing hedges and high-stakes investments alike, perps have amassed immense capital and interest from crypto traders. Per CoinGecko, the combined market capitalization of perpetual exchange tokens currently sits at over $1.1 billion, and it is not uncommon for trailing 24-hour trading volume on perpetual contracts to surpass $100M.
As of now, perpetuals show no signs of slowing down.
Getting Perps Right: The Entry Point to the 2023 DeFi Scene
Today, a small cast of elite DeFi protocols dominate swaps, lending markets, order routing, and liquidity aggregation. Their volume is staggering, their liquidity is unrivaled, and their user bases are loyal, immense, and growing. It’s no secret: attempting to break into the 2023 DeFi scene by targeting spot markets and swaps is a futile endeavor.
But in a lukewarm market that has been trending sideways at best for the last two years and change, perpetual contracts have become a favorite amongst traders who love to swing for the fences. Crypto traders are notorious for their insatiable risk appetites and are becoming increasingly active on perpetual exchanges. No matter where the market moves next, perps give traders the freedom to bet long or short, and the leverage to raise the stakes and capitalize when they’re right.
In high-stakes environments, every minute detail matters. Perpetual contracts are nuanced, complicated products, as are the perpetuals exchanges they live on. Margin traders are constantly on the lookout for new features, a slicker experience and interface, support for new assets, and, of course, more leverage.
Existing DeFi incumbents have nailed down the spot market experience to a tee. Their rates, liquidity depth, and routing features are hard to match, let alone disrupt. But on the perpetuals scene, the door is wide open to win over users. Solving pain points for perpetual traders by simplifying process flows, providing a more intuitive interface, and offering a simple, honest fee structure is a golden ticket to onboarding existing traders onto not only a new perpetual exchange but an entirely new DeFi ecosystem.
The Recipe for the Perfect Perps
When it comes to garnering interest from perpetual traders, there are three key ingredients to develop the perfect perps.
The first is choosing the right chain. Crypto-native perpetual contracts were first introduced by BitMEX following its 2014 launch, and it was not long ago that CEXs were dominating the perpetuals market with their sophisticated liquidation engines and deep-pocketed market makers. In 2023, it is critical to select a chain that can properly support a full-featured perpetual exchange, ensure high performance, and keep trading fees in check.
Second, the big features users come to expect need to be in place. That means support for crypto’s most popular, blue-chip assets and stablecoins, significant double-digit leverage, and strong incentives for liquidity provision. These are foundational components of any successful perpetual exchange, and they have no substitutes.
Last but certainly not least, providing existing and prospective users with free educational content is imperative. Perpetual contracts are both extremely fair and extremely dangerous. Helping users interpret a platform’s analytics dashboard, develop a nuanced understanding of its liquidation functions, and properly assess collateral requirements go a long way. Not only does such content help users to get acquainted with the platform, but it also shows them that the development team cares about its community. There’s nothing better than going above and beyond to do right by users; that’s something everyone wants to see more of in Web3.
Satisfied Perpetual Traders Become Loyal Community Members
Once perpetual traders are satisfied with their experience on a perpetual exchange, they become interested in exploring what else its native DeFi ecosystem has in store. After all, if a decentralized platform can offer steep leverage, execute swift liquidations, and command multi-asset liquidity incentives, spinning up a V3 decentralized exchange (DEX) and supporting active liquidity management must be a breeze.
This is the path to new user acquisition in the 2023 DeFi scene. Users are salivating for the next DeFi giant to set up shop at ground zero and build the next DeFi empire. The secret is to start with perps – not swaps.
Alexi Atlas is the founder of the Kinetix DeFi hub.