Is it certainly fascinating to think about the future of DeFi as it gradually evolves in front of our eyes. Despite being an essential component of centralized finance, the derivative market remains a comparatively untapped territory in DeFi. As many are speculating to what extent the derivative market can propel the current DeFi ecosystem to the next stage of growth, there are still issues that need to be addressed by aspiring decentralized derivative exchanges with regard to the limitation of Layer1 blockchains, including delayed price feed, order matching limitation, costly market making, and delayed liquidation.
There are several challenges in the existing decentralized derivatives market, which we at Shield hope to address with this perpetual options contract. Shield protocol fully applies the revolutionary qualities of DeFi with academic-level financial engineering (perpetual options) innovation to meet a differentiated market need that has been unmet by CEX today. In short — with Shield, a new path has been created for derivatives to break the ice.
Shield provides legitimate solutions to the issues mentioned above:
- Traders of Shield’s risk-free perpetual contracts only need to pay for the funding fee when opening the positions and add funds to the funding fee account to sustain balance.
- The opening price relies on an external price oracle where a peer-to-pool model is implemented to directly interact with liquidity pools for pricing.
- Shield’s risk-free perpetual contract applies a dual liquidity pools mechanism that contains both public and private pools to diversify risks between professional and common market makers and to reward liquidity mining accordingly.
- Shield uses a dual incentives plan that includes reward systems based on gas fees and participation levels to incentivize external liquidators to expedite liquidation processes.
Shield presents an innovative structure to apply perpetual contracts to the current DeFi space. In addition, the project understands the incentives behind perpetual trading and uses this knowledge to tailor the protocol to suit the needs of different market participants. We at A&T Capital are inspired by the work and thoughts that Shield’s developers put into their project and proud to take part in supporting its growth.