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Uncovering The Unstoppable Margin DEX

February 15, 2024

In conclusion

It’s been a couple of weeks since we last gave you all an update on Unstoppable. Previously, we introduced you to their app. If you had early access and could test it out, then I’m sure most of you would have been as impressed as we were. 

Staying on a similar theme, today, we will be introducing you to one of their most interesting products, which has just gone live on their app, and that product is the margin DEX.

A primer on margin trading

Margin trading is by far the most popular form of trading in this industry. Estimates suggest that over 90% of trading volume on CEXs is generated through perpetuals rather than spot trading. 

I mean, what do you expect? Degens are going to degen - the only way to make it is to hypergamble your way to generation wealth, right? 

Besides quenching the thirst for retail degens, these derivatives do play an important role for more sophisticated investors who use them as an instrument to hedge their spot portfolio or venture investments. 

Whether it’s a DEX or a CEX, margin trading products in crypto are all very similar. 

There is a derivative of the traded asset, in this case, a perpetual (perps) contract, which traders can use to access leverage on the asset they choose to trade. The second element is a ‘house’ of some sort. The party that pays the traders if they win and gets paid if they lose. 

While there is nothing inherently wrong with this instrument, it has proved to be very difficult to implement perps on-chain in a seamless manner. There are limits on open interest, fees are much higher, shallow liquidity leads to worse execution, and transaction times are not as quick. 

In short, replicating the CEX perp trading experience on-chain is proving to be a really tough task. 

So what’s the solution? Simply go a completely different route. 

In typical Unstoppable fashion, they have done exactly that with their Margin DEX.

The Unstoppable Margin DEX

Rather than trying to fit complex derivatives onto a blockchain, Unstoppable simply uses something that has already been tried and tested. Spot trading with AMMs. However, they apply it to margin trading. 

Think of it as leverage spot trading. 

You can choose the amount of leverage you want, and when you open a trade and borrow that amount, the exchange simply uses all those borrowed funds to buy a spot position from the best available liquidity source. 

The traders borrow the funds from the liquidity providers and, therefore, pay a one-time fee to them, and then those borrowed funds are used to buy a leveraged spot position.

This design comes with a ton of benefits:

  • No open interest caps 
  • The Unstoppable DEX doesn't need to balance long/short positions 
  • Reactive interest rates for borrowing based on utilization and adjusted in real-time on a block-by-block basis 
  • Traders & LPs are not trading against each other 
  • One-time fee rather than a continuous funding rate fee 
  • All trading positions are always 100% backed by the underlying asset, which is verifiable on-chain 

The fee for opening a trade is 0.1%, and closing a trade is free, plus 100% of the fees are paid out to LPs and UND stakers. The fees are configurable by the multisig and will be adjusted to ensure that the overall health of the protocol is maintained. 

Currently, the margin DEX is live on the beta app, and the process to open a trade is as follows:

  1. Navigate to “My Account” and deposit some collateral. USDC for a short and ETH for a long
  2. Select the long ETH or short ETH option 
  3. Select your quantity 
  4. Confirm the position by clicking “buy” or “sell” 
  5. Confirm the transaction in your wallet 
  6. Your trade is now opened

Whether you want to open a long or a short position, you can do it from here.

You also have the choice between basic mode and degen mode for leverage. For assets like BTC/ETH, basic mode offers you up to 10x while degen mode offers up to 20x. But for more volatile alts, basic mode offers 2x while degen mode offers 4x. 

Just keeping you degens safe from yourself. 

If you scroll a little lower, you will see this.

This is essentially where you can track your open positions and check your limit orders that you placed. 

Liquidations 

You must be wondering, since this is a leveraged spot setup, how would liquidations work? 

When a trader opens a leverage position, they have a collateral ratio. Once this collateral ratio increases above the protocol's max leverage limit, a liquidation is triggered. 

During the liquidation process, a portion of the collateral is sold to bring down the collateral ratio. This sold collateral is used to pay LPs and UND stakers and the remainder collateral is given back to the trader. 

Let’s look at an example. 

Suppose ETH is at $1.8k. A trader deposits 1k USDC to long and opens a 45x lev trade (one of us! one of us!)

Imagine Vitalik dumps another chunk of his bags on us, and ETH drops to $1.7k. The trader will have hit the max leverage limit, and a liquidation will be triggered. 

His position will be closed, and the collateral will be sold to pay back LPs and UND stakers. 

To know more about how the Unstoppable liquidation engine works, check this article we did previously. 

Concluding thoughts 

At this point, we don’t even think we need to say it. Unstoppable is amongst the best in the game, and in due time, the rest of the market will find out. 

They continue to push the boundaries of innovation while bringing crypto users some of the best products in terms of UI & UX. The app is still in beta so we have barely touched the surface of what Unstoppable is capable of. All we can say is that there is a lot more to come, and we will be there at every step along the way. 

For those looking to try out the Margin DEX, click here for early access. This is one you won’t want to miss. 

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