PREFACE
Welcome to this article about Drake, a fully on-chain decentralized perpetual trading platform (perp DEX).

[Note / Definition – Perp DEX]: A “perp DEX” (Perpetual Decentralized Exchange) is a trading platform for derivative instruments (perpetual futures) with no expiry date. They operate autonomously through smart contracts, without a centralized entity holding users’ funds.

Drake aims to combine the ease of use of a centralized exchange (CEX) with the transparency and user control characteristic of decentralized finance (DeFi).

[Note / Definition – CEX & DeFi]

• CEX (Centralized Exchange): A trading platform managed by a central entity (e.g., Coinbase, Binance). Users deposit funds, which the exchange custodies on their behalf.
• DeFi (Decentralized Finance): A set of financial services—trading, lending, borrowing, etc.—running on public blockchains via smart contracts, without intermediaries.

In this article, we will explore Drake’s key features, its trading mechanics, its approach to leverage, and understand why it aims to become the native perpetual DEX on the Monad blockchain @monad_xyz (official website: https://monad.xyz).

I. INTRODUCTION

1.1 Context and Vision

Drake is presented as a perpetual exchange (perpetual futures) that is fully decentralized.

[Note / Definition – Perpetual Futures]: A type of crypto derivative with no expiry date, whose price is kept near the spot market through a “funding fee” mechanism paid between long and short positions.

The founding team brings over a decade of expertise in high-frequency trading, market making, and arbitrage, and their goal is to deliver a DEX experience as smooth and efficient as a CEX.

[Note / Definition – High-Frequency Trading]: A strategy based on executing a large number of trades within extremely short time intervals to profit from small price movements.

Goal: “Put the CEX into a perp DEX”

• Drake uses a fully on-chain Order Book combined with a USDC-based AMM (Automated Market Maker).

[Note / Definition – Order Book & AMM]

• Order Book: A list of all buy and sell orders, sorted by price.
• AMM (Automated Market Maker): A system where users provide liquidity into a smart contract. Prices are determined by a set formula, without a direct centralized intermediary.

Official Sites and Links:

• Drake:
  • Website
  • Dapp
  • Twitter/X
  • Discord
  • Github
• Monad: @monad_xyz, https://monad.xyz

1.2 Drake on the Monad Blockchain

Drake was recognized as a finalist at Monad Madness NYC 2024 and aims to establish itself as the go-to perp DEX on the Monad blockchain.

[Note / Definition – Monad]: A next-generation blockchain focused on high performance and rapid finality (the point at which a transaction is considered irreversible). It seeks to create an ideal environment for DeFi applications.

• Monad Madness NYC 2024: Highlights Drake’s innovation and potential within Monad’s ecosystem.
• Objective: Keep pushing on-chain trading to new levels of performance and transparency.

II. DRAKE’S MAIN FEATURES

2.1 Up to 50x Leverage

Drake allows positions with leverage of up to 50x on pairs like ETH/USDC or BTC/USDC.

[Note / Definition – Leverage]: A mechanism where you borrow additional funds to magnify your exposure. While potential gains can be greater, so can potential losses.

• Standard Trading Fee: 0.1% of the notional value.
• Slippage: Kept low thanks to the order book and the USDC-based AMM liquidity.

2.2 Funding Rate Earn Vault

Besides trading, Drake offers a Funding Rate Vault to generate “delta-neutral” yields.

[Note / Definition – Delta-Neutral & Funding Rate]

• Delta-Neutral: A strategy that cancels out exposure to price movements, profiting primarily from funding fees.
• Funding Rate: A rate paid (or received) by long or short positions to keep the perpetual contract price close to the underlying spot price.

Users deposit USDC, and the protocol automatically opens a short position to offset price risk while capturing a positive funding rate.

2.3 Cross Margin Trading Account

A “cross margin” account pools collateral for all positions together.

[Note / Definition – Cross Margin]: A margin mode where all positions share the same balance. Unrealized gains on one position can help cover losses on another.

Advantages

• Capital Efficiency: Requires less margin overall.
• Lower Liquidation Risk: The total balance is available to back each position.

2.4 Isolated Margin Trading Account

The “isolated margin” mode dedicates separate collateral to each position.

[Note / Definition – Isolated Margin]: Each trade has its own margin. A loss on one position does not affect the rest of your portfolio.

Advantages

• Risk Control: One bad trade does not endanger your entire capital.
• Granularity: Ideal for specific strategies where each position is managed independently.

2.5 Self-Custody & Gas-Free Trading

• Self-Custody: Funds remain in smart contracts linked to your personal wallet, without a central custodian.
• Gas-Free Trading: Internal transactions on Drake incur no gas costs, preserving user capital for actual trading.

III. COMPETITIVE ADVANTAGES

3.1 Chainlink Low Latency Oracle

Drake leverages Chainlink’s low latency oracles to execute trades with near real-time pricing.

[Note / Definition – Chainlink Oracles]: Services providing reliable external data (prices, off-chain events, etc.) to smart contracts. “Low latency” ensures price updates are very frequent.

3.2 Rigorous Risk Management

Multiple risk management mechanisms protect users:

• Liquidation: Clear margin thresholds (110% in isolated margin, 105% in cross margin).
• Auto-Deleveraging (ADL): Automatically reduces certain positions during prolonged imbalances to prevent the vault from becoming undercapitalized.

3.3 Easy Onboarding

• User-Friendly Interface: Suits beginners and experienced traders alike.
• Social Login: Simplifies access without complicated private key management.

3.4 Liquidity Efficiency

Drake combines a fully on-chain Limit Order Book with a USDC-based AMM.

• Tight Spreads & Deep Liquidity: Orders may be executed via the order book, the AMM, or split across both for the best price.
• USDC Quoting: Limits volatility and simplifies profit and loss (PnL) calculations.

3.5 Onchain Transparency

All operations are recorded on-chain.

[Note / Definition – On-chain]: Each transaction is immutably written to the blockchain, ensuring auditability and security.

IV. REWARDS AND ROADMAP

4.1 Competitions and Honors

• Monad Madness NYC 2024 Finalist: Demonstrates Drake’s recognition among cutting-edge projects on Monad.
• Base Onchain Summer Buildathon 2024 Winner: Won the “Trading Track” for its Tokenized Funding Rate Vault and a paper trading competition.

4.2 Future Plans

• More Trading Pairs: Including “longtail assets” (memecoins, emerging tokens…).
• Rewards Program: VIP levels, referral programs, and profit-sharing with stakers.
• Technical Optimizations: Continual improvements for speed, cost reduction, and new DeFi integrations on Monad.

4.3 Long-Term Vision

• Goal: Become the leading decentralized perpetual trading solution on Monad.
• Approach: Attract both institutional traders and retail users by offering top-tier performance and ease of use.

V. TRADING ARCHITECTURE AND MECHANICS

5.1 Hybrid Liquidity: LOB + AMM

Drake’s two-layer liquidity approach:

1. Fully Onchain Limit Order Book (LOB): Limit orders posted on-chain for transparent and reliable execution.
2. Automated Market Maker (AMM): A USDC pool ensures trade execution if the order book lacks enough liquidity.

[Note / Definition – Order Routing]

• Full Execution via LOB: If the order book’s liquidity can fill the entire trade.
• Execution via AMM Pool: If the LOB doesn’t have sufficient liquidity.
• Split Execution: Part of the order goes to the LOB, part to the AMM.

5.2 Liquidity Vault Revenue Streams

The USDC vault (liquidity pool) earns revenue from:

• Trading Fees (0.1%)
• Borrowing Fees
• Trader Losses: Losing trades add negative PnL to the vault, boosting its balance.

VI. COLLATERAL & POSITION MANAGEMENT

6.1 Isolated vs Cross Margin

• Isolated Margin: Each position has a dedicated margin, liquidated at 110%.
• Cross Margin: One margin balance across all positions; partial or full liquidation if margin dips below 105%.

6.2 Collateral Swap

Swap collateral (WETH, WBTC, etc.) directly via Uniswap or Aerodrome AMM without leaving Drake.

[Note / Definition – Swap]: Converting one asset to another inside the platform’s ecosystem.

6.3 Auto Borrow & Auto Repay

Drake can automatically borrow USDC when margin is low and repay by selling certain assets if needed.

[Note / Definition – Auto Borrow / Repay]

• Auto-Borrow: Taps into the USDC vault if your margin ratio falls below acceptable thresholds.
• Auto-Repay: Sells some of your collateral to repay the debt and restore a healthier margin ratio.

VII. FEE STRUCTURE & INCENTIVES

7.1 Trading Fees

• Standard Fee: 0.1% of the position’s notional value.
• VIP Level Discount: Reductions for high-volume traders.
• Referral Program: If a referrer is involved, 20% of the trading fee (after a 5% on-chain deduction) goes to the referrer.

7.2 Borrowing Fees

Borrowing APR depends on a VolFactor (a volatility indicator) and how total Open Interest (OI) compares to the vault’s size.

[Note / Definition – VolFactor and Open Interest]

• VolFactor: A metric derived from ATR (Average True Range), which measures volatility.
• Open Interest (OI): The total number of open positions in a perpetual futures market.

7.3 Funding Fees

A balancing mechanism between long and short positions:

• If Long OI > Short OI, longs pay a funding fee to shorts (and vice versa).
• Rates are calculated continuously and may be clamped (limited) to avoid extremes.

VIII. ORDER TYPES

8.1 Market Order

Immediate execution at the best available price, factoring in a “price spread” (starting at 0.04% for BTC/ETH).

[Note / Definition – Price Spread]: A markup or markdown on the spot price to account for slippage, liquidity risk, and potential volatility.

8.2 Limit Order

An order for a specific price: execution occurs only if the market reaches or exceeds (for a sell) that threshold.

[Note / Definition – Limit Order]: Often used to secure a better price in a volatile market, assuming you can wait.

8.3 Stop Market Order

An order that remains dormant until it hits a trigger price, then executes as a market order.

[Note / Definition – Stop Market]: Commonly used as a stop-loss measure to protect against adverse price movements.

IX. COLLATERAL & TRADING PAIRS

9.1 USDC-Margined Perpetual Contracts

Drake prioritizes perpetual contracts settled in USDC:

• BTC/USDC
• ETH/USDC

[Note / Definition – USDC Settlement]: Profits or losses (PnL) are calculated in USDC, making accounting simpler and limiting collateral volatility.

9.2 Accepting Multiple Collaterals

• USDC (ERC-20)
• BTC (cbBTC)
• ETH (WETH)
• stETH (wstETH, coming soon)

[Note / Definition – Discount Ratio]: A safety margin applied to collateral to account for its volatility, reducing its effective value for margin.

X. SECURITY & TRANSPARENCY

10.1 Oracle Protection & Verification

• Chainlink Data Streams: Price feeds updated at least once per second.
• On-chain Verification: Prices can be checked against Chainlink’s verification contract to prevent manipulation.

10.2 Auto Deleveraging (ADL)

A mechanism that triggers to avoid extreme imbalances in the vault:

[Note / Definition – ADL]: Automatically reduces the size of certain positions (prioritizing large or very profitable ones) to maintain overall stability.

10.3 Liquidity Vault (dUSDC)

The main USDC pool acts as the counterparty to trades:

• dUSDC: A token representing each liquidity provider’s share of the vault.

[Note / Definition – dUSDC]: An ERC-4626 token minted when you deposit USDC. You must return it to the protocol to withdraw your original funds plus any accrued gains.

XI. FUNDING RATE VAULT: DELTA-NEUTRAL STRATEGY

11.1 Principle

The Funding Rate Vault automatically opens a short position on an asset with a positive funding rate.

1. Deposit USDC
2. Swap to acquire the asset (e.g., ETH if it has a positive funding rate)
3. Open a short of equal size to neutralize price risk
4. Earn the ongoing funding fees

[Note / Example]:

1. Deposit 1,000 USDC
2. Buy ETH with those 1,000 USDC + open a short of equal value on ETH
3. Gains = The funding fee if longs must pay shorts.

11.2 frUSDC

When depositing in the Funding Rate Vault, users receive frUSDC.

[Note / Definition – frUSDC]: A token that reflects your share in this strategy. When you withdraw, frUSDC is converted back to USDC including any accumulated funding fee profits.

XII. CONCLUSION

By combining DeFi transparency with the performance of an on-chain Order Book, Drake offers a next-generation perpetual trading solution on the Monad blockchain. Its core features—up to 50x leverage, automated vault strategies (including the Funding Rate Vault), a hybrid LOB+AMM approach, and cross/isolated margin modes—cater to both newcomers and professionals:

• Beginners: Simple interface, automated “delta-neutral” strategies.
• Experts: Advanced risk management tools, fast execution, high-frequency oracles, and detailed liquidation processes.

For further information:

• Drake Website
• Drake Dapp
• Twitter/X @DrakeExchange
• Discord Invite
• Github

And don’t forget the Monad ecosystem: @monad_xyz / https://monad.xyz.

Enjoy trading on Drake, the perp DEX aiming to surpass the CEX experience while remaining fully decentralized and transparent!

Author: Yool