The Monte Carlo DEX today announced the launch of its decentralized derivative exchange for “perpetuals,” a financial derivative that allows investors to use leverage to long or short crypto. MCDEX’s difference is that perpetual contracts have no expiration date, and are soft pegged against an index, which is supposed to make them less biased than normal future contracts.
“What differentiates MCDEX is that it is the first of its kind to introduce an Automated Market Make to provide on-chain liquidity to its perpetual contracts,” Jie Liu, founder of Beijing-based MCDEX, told Decrypt. “Competitors such as dYdX still rely on off-chain funding rates, and therefore are less decentralized.”
Liu says MCDESX’s on-chain AMM is fully decentralized and can feed real data to derive funding rates which balances out long or short orders to ensure that the perpetual futures contract price stays close to the index price.
Like many things in DeFi, you can think of MCDEX’s AMM as a kind of money Lego block. It provides basic composability and allows smart contracts to trade, arbitrage, and speculate (up to 10x) with MCDEX’s on-chain perpetual contracts, while also managing investor’s portfolios.
MCDEX’s design is not all decentralized and on-chain, however. It has a hybrid model combining both on-chain AMM and off-chain order books.
The on-chain AMM is fully decentralized and therefore can feed real data to derive funding rates, an essential mechanism that balances out long or short orders to ensure that the perpetual futures contract price stays close to the index price. “Yet on-chain trading is not the best for many traders who are used to centralized trading softwares,” Liu said. “Therefore we are adding off-chain order books, which naturally have lower slippage, better liquidity and ultimately a better trading experience.”
In instances of on-chain/off-chain liquidity differences, arbitrageurs are incentivized to bridge the gap.
MCDEX is also using Chainlink’s ETH/USD Price Reference Contract on the Ethereum mainnet as its index price feed.
In China, Liu is well known as a “technology believer 技术信仰者.” He started MCDEX while working on his previous startup Minerbabe, software that optimizes graphics cards for miners. “We had to develop something to ensure the security of hashrate futures contracts,” he said. “DeFi came to our mind, so we developed MCDEX on the side.”
That side business turned into the main business: MCDEX has 20 people in Beijing and targets both China and the US DeFi markets.
“The mission of MCDEX is to make investing easier in DeFi,” Liu said, “our upcoming products include a robo-advisor and social trading using smart contracts. Users can deposit their funds with us, locked into a smart contract, and then the contract will trade our perpetual swaps based on its trading strategy.”
MCDEX’s smart contracts are audited by OpenZeppelin and ConSensys Diligence.