Solana DeFi Exchange for Crypto Derivatives Nabs $2.2M in Seed Round

Looking for more crypto derivatives products to wrap your head around?

They're coming.

01 Exchange, a Solana-based platform for newfangled forms of crypto derivatives, raised $2.2 million in a seed round announced today. The round was led by Multicoin Capital and Alameda Research, the firm founded by FTX CEO Sam Bankman-Fried. Solana Ventures, Ledger Prime, and other firms and individuals also chipped in funding.

Though 01 calls itself "the first fully-decentralized derivatives exchange to support orderbook-based power perpetuals and perpetual futures on Solana," it won't be functional until its January 27 mainnet launch. The company intends to use its newfound millions to create a “unified venue" for trading. 

Derivatives are investment products based on other investment products. A futures contract is essentially an agreement between a buyer and seller to make a trade if an asset reaches a specified price. Although many futures contracts have an expiration date, crypto platforms are increasingly turning to perpetual futures, which can run forever.

Power perpetuals aren't as well-known, as they were first introduced by the team at crypto investment firm Paradigm in August 2021. Power perpetuals use enough math—as in "x to the power of y"—to turn off people still smarting from trigonometry class. The gist is that people who are long on an asset (i.e., betting on the price to rise) pay a yield to those who are short (i.e., betting on the price to fall) so that they can get exposure to more upside in the case of a big price increase.

"Power perpetuals are going to disrupt the derivatives industry, and we can't see it better implemented than on a fully decentralized orderbook model like 01 Exchange's," Alameda Research partner Brian Lee said in a press release.

That's a lot of disruption. Crypto derivatives produce much bigger trading volumes on exchanges such as Binance and FTX than mere spot trades—when someone buys or sells a coin or token at the current going rate.

But the crypto derivatives market is dominated by centralized exchanges, meaning there's a middleman facilitating the trade. Though some decentralized exchanges such as dYdX offer perpetual markets that compete with centralized products, most protocols are built atop Ethereum. Solana, a newer network, is still building up its ecosystem of applications as it seeks to win decentralized finance (DeFi) traders with the prospect of lower fees and less congestion.

01 Exchange's particular model integrates with Project Serum, itself a kind of decentralized exchange that allows traders to swap tokens across different blockchains, including Ethereum. Other Solana DEXs, such as top-dog Raydium, also use Serum's orderbook to make trades. These order books are built to bypass the need for intermediaries so that the exchanges themselves don't have to take control of people's assets to finalize a trade.

The forthcoming platform thinks it can compete with not only its Ethereum analogs but also its centralized counterparts. Said Stratos, the pseudonymous co-founder of 01, "The ultimate vision outlined by the team is to build a trading experience that doesn't compromise on decentralization all while offering the same functionalities as any centralized exchange."