PepperDex: Bringing the CEX Experience to Solana

October 5, 2023

In conclusion

We love David and Goliath stories. An underdog taking on the power-players in the ecosystem. For some reason, these stories have become quite relatable with most protocols in DeFi. The centralised power players keep exerting their power over the larger DeFi ecosystem, while the decentralised alternatives keep innovating to eat away at that market share. 

The existing DEX market has an estimated TVL of $12B across various chains and protocols, which seems nothing compared to CEX volume where Binance alone processes that kind of volume in a couple of days. But the Davids of the ecosystem are extensively innovating to provide a better - if not a similar - experience for users. 

One such area in exchanges where DEXes are showing incredible strength is derivatives. Derivatives are a strong indicator of sophisticated and institutional capital inflows into the ecosystem. They open up the same opportunities for users as they would be expecting from their counterpart centralised exchanges. The market for derivatives DEXes is huge. 

Today, we will be introducing you to one of the more innovative derivative DEXes in the industry.

Enter PepperDEX 

PepperDEX is spicy hot and comes with a lot of surprises. It’s built on the Hxro Network and combines all the cool features of a proper CEX such as a spot market, order-book-based perpetual trading, and an expiring futures market for the hottest cryptocurrencies. This is coupled with them being based, truly, on the Hxro Network - a global liquidity layer built specifically for derivatives trading. This means the two come together to create a fiery combo of fuel and fire - empowering a TAM of billions of dollars just within crypto (the global derivatives market is valued at a quadrillion dollars!). So before diving into all the nitty gritty details, let’s look at the market that PepperDEX is catering to. 

Total Addressable Market (TAM) 

The existing total 24h trading volume for all decentralised derivatives is valued at around $1.18B spread across various networks. 

The top 5 centralised derivatives exchanges 24h volume, on the other hand, is $111B+. Given the regulatory ambiguities associated with centralised exchanges and their propensity to get railed by regulators makes decentralised perpetuals a great alternative. Thanks to the order-book implementation for their perpetuals, PepperDEX certainly stands out among the competition. This means, as rough assumptions, they have at-least an easy 1-2% TAM (of the existing centralised derivatives market) among all the other competitors. This underlines a very valuable proposition for the DEX. 


The Hxro Network charges a fee of 0.025%. Apart from this, their protocol fee breakdown looks like this: 

  • PEP stakers receive 30%
  • PEP/SOL LP protocol-owned-liquidity has 20%
  • DAO Treasury maintains 20%
  • For HXRO buyback and staking with maximum locking period 20%
  • Referrals are allocated 10%

The protocol aims to allocate 20% of the initial transaction fees (capped at $5M) to the PEP/SOL LP POL because it relies on Hxro Network’s Dexterity Protocol's liquidity.

PEP Token 

The PEP token is the native token of the platform. The protocol is cleverly utilising its PEP token incentives to entice new users (i.e., traders) to the platform (and then rely on their own product’s UX and security to create a moat to build retention). One of the primary reasons why they do this is to avoid “mercenary incentive farmers” who simply deposit their liquidity to a protocol to maximise profits and then leave without providing any significant value to it.

PepperDEX on the other hand, achieves the following:

  • Incentive trading on the DEX
  • Maintain deep on-chain liquidity through POL
  • Build the protocol’s treasury

The protocol pays out trading rewards in the form of “oPEP” tokens. oPEP works similarly to an options contract where its holders have the right, but not the obligation, to convert it to PEP by purchasing the latter at a 50% discount to the existing market price. For this redemption to happen, traders pay a small fee in USDC. These oPEP option tokens have a 90-day expiry period from the day they are issued. 

Claiming oPEP needs to be done within 90 days of earning rewards, but redemptions can be completed anytime.

oPEP Redemptions 

oPEP redemptions help the protocol build a resilient treasury. They can acquire and stake HXRO to the underlying HXRO network with the maximum 3-year locking period to maximize the staking weight. 

This, however, has recently been updated. The goal still remains, they want to keep acquiring a greater share in the HXRO network, but the updates just make this easier. The main difference was shifting from allowing oPEP redemptions in only HXRO tokens to also allowing USDC. 

It creates a simpler user experience since more people are likely to have liquid USDC, but the bigger benefit is the dynamicity in achieving their goal. The USDC can be used in multiple ways such as growing POL or rewarding stakers. 

Staking Rewards & vePEP 

When users stake their PEP tokens, they receive three kinds of rewards: 

  • they accrue 30% of the revenue generated by the protocol, 
  • they get stakeweight boosts (such as increase in vePEP; it is used to provide governance boosts as well), 
  • they get SOL, esHXRO, USDC, USDT, BONK and other token rewards
  • they get revenue from oPEP redemptions as well    

PEP tokens can be staked (locked) for a period of 7 days (a week) to 1095 days (3 years). The disparity has been deliberately kept to distinguish between short-term users and long-term believers of the protocol. Naturally, for the latter, they have a higher stake weight. This is why 3-year stakers get the maximum stake weight multiplier. 

The vePEP token is used for voting on governance proposals of the protocol. When PEP holders stake their tokens, they receive vePEP - the amount of which is proportional to the duration for which users stake their PEP tokens. PEP holders also get 100% of the HXRO staking rewards! 

PepperDEX Governance

To ensure that long-term holders have a greater say in the protocol’s governance, PepperDEX implements time-weighted voting which is established via its ve token, vePEP. This applies to Genesis contributors as well as they receive vePEP tokens that are equal to a 24-month lockup. Anyone with a 0.01% PEP staked tokens will be able to draft proposals in PepperDEX governance. 

Governance actions include: 

  • Token grants
  • Incentive programs
  • Partnerships
  • Fee changes on the protocol

All of these proposals are subject to 3-day voting periods. 

PEP Tokenomics 

The PEP token has a maximum supply of 100M PEP tokens, of which the allocation is detailed below.  

25%: DAO Treasury 

The treasury funds will be used for the protocol’s referral and insurance program. Initially, 15% of these tokens will be available immediately and the remaining will be made available on a linear vesting schedule over a 3-year period. 

25%: POL 

Off the 25% allocated to POL, 12.5% will be used for bootstrapping the PEP token market via two PEP token auctions (for PEP-SOL and PEP-WETH). From these auctions, 80% of the proceeds will go to the liquidity pools on both Solana and Ethereum and the remaining 20% to the treasury. 

17.5%: Core Contributors 

Also, 14% rewards from the Core Contributors will be distributed logarithmically over a 3-year period and the remaining 3.5% will be used to reward later contributors.

25%: Trading Volume Incentives

The daily incentives trading will be based on 500 $1B epochs and these will be distributed at the end of each epoch. This mechanism has been created in such a way that as the trading activity decreases on the protocol, the rewards will increase (as illustrated below). 

In addition to this, the HXRO network also provides incentives for trading which will be added to these incentives.

2.5%: HXRO Network treasury 

All of these tokens will be locked in the staking contract for the maximum available period of 3 years. 

2.5%: Airdrop 

The airdrop will be held and tokens distributed to early contributors before the launch of the platform. Of this, 75% of the airdrop will be distributed to HXRO stakers over 12 two-week epochs.

The remaining 2.5% has been allocated to marketing-related activities of the protocol. 


The protocol has already launched their website and an art contest. The remaining activities will be launched soon. For more details on the roadmap, check on their website here. 

Closing Thoughts 

The potential for building innovative derivatives DEX on Solana is huge given there is very little competition. With a strong tokenomics design, PepperDEX is positioned to take over the DEX market on not just Solana but also on other EVM networks.

I’ll be closely monitoring their growth over the next few months and you should too. 

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