On-chain derivatives protocol ProsperEx: Exploring the RWA narrative and creating a DeFi dark horse

Author: Coin Master

Since the explosive growth of the on-chain world during the DeFi summer of 2020, the on-chain derivatives sector has gradually entered its developmental infancy and is expected to experience a qualitative leap in the next two years. According to the data compiled in TokenInsight's "Q3 2022 Decentralized Derivatives Exchange Research Report," the total trading volume of the on-chain derivatives sector reached $478B from February to December 2022, while at the beginning of 2021, the overall trading volume of this sector was nearly zero. The on-chain derivatives trading is becoming a new trend. On the other hand, as regulatory scrutiny of CEXs becomes increasingly strict and trust diminishes, it has accelerated the migration of CEX users to on-chain platforms.

If we look at the on-chain derivatives sector in detail, the on-chain contract segment has always dominated, with leading on-chain perpetual contract DEXs like dYdX, GMX, Level, Kwenta, and Gains Network accounting for the vast majority of trading volume and TVL in the overall on-chain derivatives sector. However, the trading volume of these leading on-chain perpetual contracts is often supported by incentives, especially for Level and Kwenta, which have recently emerged as strong contenders. This is key to their continuous siphoning of users, and of course, their main user base remains crypto natives.

Comparison of Major Perpetual DEX Trading Volumes (Image Source: https://dune.com/shogun/perpetual-dexs-overview)

Although on-chain options have seen rapid growth in recent years, their overall performance has been poor, especially in the context of last year's overall market decline, where major on-chain options protocols such as OPYN, Hegic, and Dopex experienced a cliff-like drop in data (thus, research on the options sector generally starts from the product perspective rather than highlighting data). This indicates that the on-chain options sector still has significant room for development, and options protocols with innovative attributes are more likely to succeed.

While on-chain derivatives represent a brand new trend, the crypto-native nature has also led to a lack of liquidity and functionality in derivatives protocols, resulting in a poor trading experience. At the same time, the investment targets of on-chain derivatives protocols are singular, with the vast majority only supporting cryptocurrency assets, lacking diversity.

Although the on-chain derivatives sector itself has great development potential, it often struggles to attract a broader base of Web2 users. Therefore, for a long time after the explosion in this field last year, it failed to continuously capture new incremental users. We see that the emerging on-chain derivatives protocol ProsperEx has set a good example, and this article will use ProsperEx as a case study to explore how the on-chain derivatives sector can capture incremental users.

Highly Innovative ProsperEx

ProsperEx is an emerging on-chain derivatives protocol that not only includes major derivatives play such as on-chain perpetual contracts and on-chain options but also supports spot trading, DeFi mining, and staking, among many other trading and yield methods, to meet the needs of users with different trading preferences.

In terms of trading models, ProsperEx adopts two mainstream trading methods: pool-to-pool and peer-to-peer (order book), and utilizes zero-knowledge proof technology to ensure that peer-to-peer trading is more decentralized, secure, and possesses privacy features. Based on this hybrid trading model, ProsperEx not only has characteristics such as low fees and zero slippage but can also achieve optimal prices with minimal spreads and price impacts when entering and exiting positions, without incurring additional costs. Additionally, it has the potential to expand more trading functionalities, such as supporting trading of a wider range of asset types beyond FT assets, including NFTs.

From the most basic model of ProsperEx, the combination of various products and trading models forms a complementary relationship, giving it a unique advantage compared to any other on-chain derivatives protocol.

Of course, the biggest highlight of the ProsperEx protocol is its support for trading RWA (Real World Asset Tokenization) assets, meaning it not only supports trading of crypto assets (BTC, ETH) but also allows for unlimited trading of traditional financial assets such as futures, stocks, and gold in a tokenized form on-chain. This is a very promising narrative direction, and with its advantages, it is expected to secure a place in the on-chain derivatives sector and become a connection point between the Web2 and Web3 worlds in the future.

Capturing Users More Broadly Through RWA

Currently, there are only about 605 million cryptocurrency users globally, accounting for just 7.5% of the world's population. According to the innovation diffusion model, when a technology's market share reaches 13.5%, it marks a threshold for breaking through early development. Clearly, 605 million users are still considered early adopters, as crypto technology needs 700 million users to reach the early majority stage. Therefore, relying solely on cryptocurrency as a niche asset is unlikely to capture users broadly.

The traditional financial sector has a history of over a hundred years, and traditional financial assets have a massive Web2 user base. These users have a good understanding of financial asset investments (stocks, futures, etc.) and can become sustained, long-term investors. It is reported that the traditional financial market is approximately $800 trillion, far exceeding the market capitalization of cryptocurrencies (around $1 trillion). RWA is the only way to bring the traditional financial market into the Web3 space and can broadly and massively capture billions of Web2 users.

From the perspective of the Web3 world, there are currently few protocols in the on-chain derivatives sector that venture into the RWA field. ProsperEx has become an early entrant in this market, seizing the opportunity.

Compared to traditional financial institutions, ProsperEx is built on-chain and allows any user to participate in trading in a permissionless manner, meaning ProsperEx can widely provide trading services to all potential users without geographical or time restrictions. Moreover, ProsperEx supports a wide range of RWA asset types, with rich leverage options and lower fees, which is expected to help ProsperEx differentiate itself from traditional financial trading platforms.

In contrast to on-chain derivatives protocols, ProsperEx's support for trading RWA assets itself is a unique advantage. Compared to protocols in the same sector, it offers rich asset support and advantages in trading models, trading experiences, and trading methods, representing a dimensional advantage over its peers.

The Launch of a New Value Flywheel

ProsperEx has built an economic system that constructs rights and incentives for various ecological roles through incentives and equity, encouraging them to participate in ecological construction and accelerating the speed of ProsperEx's value flywheel.

Token Economic System Centered on PPE

ProsperEx uses PPE assets as governance tokens, with a total supply of 400 million tokens, of which more than 70% is used for incentives for nodes and trading mining to promote sustained liquidity and trading volume in the ecosystem.

ProsperEx has established a tiered fee mechanism, using the number of PPE assets held as the basis for the fee tier, meaning the more PPE one holds, the lower the fees. Additionally, PPE asset holders can enjoy ProsperEx's unique lending and wealth management services to achieve high returns on investment. Furthermore, PPE holders will continuously benefit from the platform's development.

With the support of RWA characteristics, ProsperEx's user base will be widely distributed across Web2 and Web3, generating trading demand backed by a large user base, which is expected to help establish a solid value foundation for PPE assets.

ProsperEx has also set a direction for revenue allocation, with 20% of platform revenue (such as fees) used to repurchase PPE assets, helping to further create deflation. ProsperEx is driven by a DAO ecosystem, where all revenue distributions are executed automatically by contracts, and decisions are entirely dependent on the votes of PPE holders. ProsperEx's adherence to a more decentralized DAO mechanism ensures that democracy permeates the ecological development process and balances the interests of large capital holders to prevent malfeasance.

It is evident that holding PPE assets is expected to yield continuous benefits and rights from multiple directions, helping users establish a multi-dimensional motivation to hold PPE assets.

PPE Node

PPE Node is the equity asset of the ProsperEx ecosystem (presented in the form of NFTs), and holding it will grant numerous ecological rights. There are only 21,000 PPE Nodes, with an initial price of 1,000 USDT, and the price will increase by 50% for every 2,100 sold, meaning early purchasers will have the lowest cost.

Any purchaser of a PPE Node will receive a reward of 10,000 PPE tokens, which will be released linearly over 18 months based on smart contract terms, allowing for free collection. Additionally, 50% of the transaction fees generated by the ProsperEx platform will be distributed to PPE Node holders. Besides the aforementioned rights, any holder will have priority access to token airdrops for projects launched on ProsperEx and the opportunity to acquire IEO rights at a lower price. PPE Node holders participating in DAO governance will also typically receive higher voting weights.

As a value symbol of the ProsperEx ecosystem, PPE Node holders will become the best beneficiaries of ecological dividends. The total supply of this asset is fixed, ensuring its scarcity, and early holders will maximize their benefits.

Currently, the ProsperEx project has already received early support from "Emurgo Ventures," the official commercial founding capital of the Cardano "ADA" blockchain, due to its grand narrative direction, along with various support commitments. Additionally, Bitmart has also provided relevant support and investment.

Overall, ProsperEx is backed by a promising on-chain derivatives sector and is one of the early players in the RWA field. This ecosystem has the capability to comprehensively capture Web2 and Web3 users and is expected to become an early connection point between the Web2 and Web3 worlds. As the ProsperEx ecosystem unfolds, a large influx of users will drive the initiation of ProsperEx's value flywheel, gradually increasing its rotational speed and continuously accelerating the capture of ecological value.