Derify Community AMA Recap (Oct 24th, 2021)

10 min readOct 28, 2021

On the 24th of October 2021, core member of the Derify Protocol’s developer team Constantin Gao, had an exciting and expository AMA with the community on Telegram. It was a great time of learning more about the Derify team and the Derify project.

The questions were submitted prior to the AMA, Dave moderated the session and Constantin answered the questions with simplified and detailed responses.

Enjoy!

Dav| Derify Protocol

Good day everyone, Thank you for sending in your questions.

We have a core team member of Derify protocol available to answer all the questions you have sent in.

Please welcome @ConstantinGao 👏

Constantin

hello everyone

If you have any questions feel free to ask

Dav| Derify Protocol

Thank you for joining us @ConstantinGao

I will forward the questions collected to the group and you can answer.

Is this okay?

Constantin

yeah sure

Dav| Derify Protocol

Great!

Dav| Derify Protocol

Tell us about your background and other Derify team members?

Constantin

Well, I was of financial background, other developers are of trading and technical background. The team was top market maker for exchanges including Binance, Huobi, Okex, mxc, providing liquidity for different cryptos and managing thousands of bitcoins, during the service, the team find some existential problems with traditional exchanges and order-book model, thus we decide to develop a innovative perpetual contract trading protocol

Dav| Derify Protocol

Cool, finance background is very crucial to what you’re building.

Dav| Derify Protocol

Why did the testnet take so long? Multiple postponements.

Constantin

Yes, the delay is unfortunate, mainly due to following reasons:

1. What we are building is completely new, the logic and mechanism behind Derify is different from other existing derivative DEX.

2. Because of what we are building, the developers faced multiple challenges that may not have any mature solutions.

e.g. In other DEX like dydx, orders are stored on an off-chain server, which is quicker to process but actually no safer from CEX, but everything of Derify is on-chain.

3. During the development, we tested different layer2 solutions and oracles, it takes time for us to integrate those services in the first place. e.g. ZKsync and other ZK-rollup options

Dav| Derify Protocol

Absolutely, on-chain derivatives trading is relatively new.

Constantin

Yes, the logic behind is — the server of DEX is not any safer or more transparent than CEX, (blockchain network does). We choose DEX over CEX because we want alternative option with privacy/safety over efficiency.

Dav| Derify Protocol

True with the crack down on CEXs - DEXs, DeFi is the way to go.

Dav| Derify Protocol

This leads to the next question:

Dav| Derify Protocol

When will the mainnet be ready?

Since the testnet took a while..

Constantin

Approximately 3 months later.

On the technical side, it’s a bit easier to prepare the mainnet, since this beta version already has everything you need for a proper functioning DEX.

During beta, we are mainly testing the stability and gathering trading data to calculate our risk control components.

We may deploy on multiple chains/cross chains, but not all chains are stable enough for our DEX, so we need to test them during beta.

The risk control components will be public and changeable through our governance, but the initial values are still an important reference — it tells us how much risk this whole DEX can take.

Also we will improve UI/UX for mainnet, of course.

Dav| Derify Protocol

Great,

Could you please give a quick introduction to Derify Protocol?

Constantin

Derify is a derivative DEX that allows users to trade derivatives and speculate/hedge over asset price with leverage. It’s a transparent, safe and innovative alternative for traditional exchanges.

Dav| Derify Protocol

Awesome..

Dav| Derify Protocol

You participated in the Solana Hackathon, were they successful?

Constantin

Yes, we participated in the Solana Hackathon and received their grants, we are also among finalists of the Chia Hackathon.

Dav| Derify Protocol

Good news, I believe this will help the publicity of the project.

@Da_yems (One of the community member)

If the logic behind derify is completely new and the logic and mechanism different from others, what plans do you have to get users? As you know, many users like to navigate familiar grounds the most

Dav| Derify Protocol

@ConstantinGao Please can you attend to @Da_yems question , so we can move on…🙏

Constantin

Well, because the users’ needs are not new, we are just providing innovative solutions to those existing needs. New ways aren’t necessarily better, but people need to keep trying.

It may takes more time for people to build new roads but we need people to do the right things rather than easy things.

e.g.

The users want a transparent and safe exchange to trade perpetuals, so we choose to build everything on smart contracts and on-chain.

Users suffer great hidden losses from Funding Fees, we completely remove Funding Fees.

etc.

Dav| Derify Protocol

Thanks for the detailed response.

Dav| Derify Protocol

The next question

Dav| Derify Protocol

Do you have a token? What is the utility?

Constantin

There are 3 tokens in Derify.

1. DRF token that is the governance token for the network. All the profits of the whole product goes will be used to buy back the tokens and thus goes to the holders.

2. eDRF token, which is essentially the “votes” used for governance. You need to stake DRF to get them. You also need them to maintain your Broker privilege.

3. bDRF token that is our bond token. It is a stable coin with 1:1 peg to USD that will be minted during emergency situations. bDRF can be redeemed just like normal bonds, bond holders can get interest too.

@Da_yems

Hmm, very true and educative.

Another quick question; is the public sale on or there won’t be one?

Constantin

There will be an IDO, that’s also our main focus in the next stage.

Dav| Derify Protocol

Awesome..a lot to look forward to.

Dav| Derify Protocol

Onto the next question..

Dav| Derify Protocol

What are the advantages of Derify Protocol compared to competitors like Bitmex, Serum, Perp, dYdX etc?

Constantin

Actually those competitors are totally different. Let me break it down a bit.

BitMEX is a traditional CEX with derivatives, nothing different from Binance, FTX, Huobi etc.

Dydx is an orderbook derivative DEX.

Serum offers a group of exchanges on Solana, if you need to trade, you go to orderbook derivative DEX like Raydium (Solana version of Dydx)

Perp is AMM-like derivative DEX.

Dav| Derify Protocol

Please expatiate..

Constantin

CEXs are all good, but their transparency and safety are questionable, with price manipulation, man-made extreme liquidity squeeze or simple bankruptcy.

Orderbook DEX solves the safety issue because everything is on blockchain. But the transparency issue is still there, because orderbook model rely on market makers (who often have close relationship with the DEX) to provide orders to maintain its depth, and if market makers conspire with the DEX, liquidity squeeze can be artificially created at anytime.

AMM-like DEX solves both transparency and safety, but in general have much higher cost, and have many limitations:

e.g. on chain deployment costs lots of gas fees, most derivative DEX does not have risk control layers — they rely on LP pools as a safety net, but in extreme conditions, LPs can lose all their money.

Constantin

If I have to choose, Derify is more similar to Perp. But Perp did “price discovery” themselves just like Uniswap (which caused a flash crash in August), but Derify’s price feed purely from reliable oracles, and your trading activity will not affect price feeds or deviate them.

Dav| Derify Protocol

Yes, the transparency with CEX is a major issue. Front running, manipulations etc

Constantin

Yes, as market makers we witnessed too much of those. :)

Dav| Derify Protocol

Lol, you know the game..😄

Hopefully Derify benefits from your rich experience with MM.

Dav| Derify Protocol

Then next question, continues from the previous..

Dav| Derify Protocol

Do you work with market makers and liquidity providers? How does the exchange get liquidity?

Constantin

Derify do not need market makers, as the system is the counterparty to everyone. But just like all other AMM exchanges, Derify needs liquidity providers.

However, the experience of liquidity providers is much better here, you don’t stake your tokens to a “LP pool” and do simple farming. On Derify we have “Position Mining” because holding position is providing liquidity. Every user and trader is a liquidity provider and will receive mining rewards according to the positions they hold. (You can check your mining rewards on beta testnet too, currently it’s over 200%, but it’s testnet of course).

If you only want to provide liquidity to earn yield, you can simply open a two-way position and hold it. Your positions will always remain there and both positions will give you mining rewards.

Dav| Derify Protocol

Wow, impressive..

Dav| Derify Protocol

What’s the risks of holding these 2 way positions (position mining)

Constantin

It’s almost risk free.

Because Derify is using cross market mode for margins (which means PnL of all your positions are calculated together), the profit of one of your positions is the same as the loss of your other position, so you will never get liquidated. Your PnL will always be zero, and you can earn lots of mining rewards.

Theoretically there’s one situation that may cause your liquidation, where the asset price is sky high (BTC to $1M) which may requires you to add more margins to maintain the two-way position, but you should have enough time to avoid it by adding more margins.

Dav| Derify Protocol

Definitely worth trying..

Dav| Derify Protocol

Thanks for the detailed answers @ConstantinGao we still have a couple more to go…

Dav| Derify Protocol

Can you tell us the key milestones that Derify has achieved recently, what should the community expect in the coming weeks?

Constantin

We just finished the development of Beta testnet.

As you know Brokers are also major parts of our project, we will start the Genesis Broker Recruitment in the next few weeks.

https://derify.medium.com/who-are-derify-brokers-and-a1e52b67ee2a

Constantin

As mentioned we are also preparing a potential IDO but it’s still up in the air right now.

Dav| Derify Protocol

Great!

Dav| Derify Protocol

What is the structure of the company, is it a decentralised, open-sourced protocol where everybody can contribute? If so, how does the governance plan on being handled?

Constantin

Derivation Lab, the developer of the source code, is a company based in BVI, it is only responsible for developing the codes, and helping to kick start the project.

Derify is a decentralized, open source protocol where everyone can contribute and play (also share the profit earned by the project).

The direction of the product and project is decided by DRF holders, mainly Brokers who usually hold more tokens, have more experience and contribute more to the marketing and promotion.

Dav| Derify Protocol

So we will be looking at a full blown DAO in the future?

Constantin

Yes, a full DAO.

Other than the plan in our white paper, we actually have an innovative plan to structure the DAO…which could be interesting…

We will reveal it for discussion in later stage of the testnet.

Dav| Derify Protocol

Sounds great

Dav| Derify Protocol

Ok, 3 questions to go..

Dav| Derify Protocol

Some projects remain half way because their developers abandon the concept because they cannot achieve the desired capitalization in the long term; how does Derify Protocol plan to make this project sustainable for its development?

Dav| Derify Protocol

I think you have answered this partially..

Kindly throw more light..

Constantin

Yes, Derify is self-sustainable, with or without the initial developers (Derify team).

Derify’s value comes from the profit it generates, not initial capitalization.

The reasons why developers stay with the project is that we can benefit from the project too.

At the end of the day, we ourselves want a place to do mining, getting Broker rewards for our marketing effort, or open large positions without funding fee losses/slippage costs/impermanent losses etc.

Dav| Derify Protocol

Ok, explicit!

Dav| Derify Protocol

Who are your target customers; professional traders or the one’s that are just getting started? Who can benefit the most from the tools that you are offering?

Constantin

Both.

Professional traders need better exchanges to execute their strategies rather than being exploited by large CEX.

New traders can do farming on Derify, as well as learning the highly-risky derivative trading during the process.

Constantin

In general, if you are a professional trader, it should be easy for you to understand our technical design and why we make those designs. If you are a new trader, you may not be aware of your losses when you’re using CEX, but you actually get invisible benefits when you are using Derify.

Dav| Derify Protocol

Ok, our final question.

Dav| Derify Protocol

Does your project have a program that rewards individual vulnerability detection of the system?

Constantin

Yes, we have a bounty program for testers and bug reporters. The clauses will be released in our next medium articles.

Dav| Derify Protocol

Alright

Dav| Derify Protocol

Finally, I got some DMs about the hash drop program. Can you say something about it?

When it will continue, the rewards distribution etc

Constantin