In TradFi, copy trading has emerged as a popular method for novice investors to enter the complex and often intimidating world of trading stocks. As the name suggests, copy trading allows traders to automatically copy the positions of successful traders in the market. By doing so, investors can gain valuable insights into the trading strategies employed by successful traders and potentially achieve similar levels of profitability. In return, investors pay some sort of fee to the trader for availing of their services. In this context, I’m referring to a trader as a person who provides copy trading services and an investor who wants to benefit from these services.
Essentially, copy trading is like the lazy man’s way to get rich quickly in the stock market – with regard to TradFi. Why bother with all that pesky research and analysis when you can just follow someone else’s trades and hope for the best, right?
But in all seriousness, copy trading is particularly appealing for those who lack the time, expertise, or confidence to trade on their own. Rather than having to conduct research and analysis on their own, copy traders can simply identify a successful trader to follow and rely on a platform to replicate the trader’s trades automatically. Sounds good, right?
Copy trading is not a new phenomenon, but it has gained popularity in recent years thanks to the rise of social trading. Social trading is a form of investing that involves the sharing of trading ideas, strategies, and market insights among a community of investors. Think Crypto Twitter. It is facilitated by online platforms that allow investors to connect and share information with each other, as well as replicate the trades of successful traders i.e. copy trading.
While copy trading can be a powerful tool for new entrants to the markets, it is important to remember that it is not a silver bullet. Copy trading should be used as part of a broader investment strategy and should not be relied on exclusively. Additionally, investors should carefully vet the traders they choose to follow and do their own due diligence before investing any capital.
But hey, at least with copy trading, you can blame someone else if things go wrong, right? It’s not your fault, you were just following orders (or trades, in this case). I mean, that’s worth something, right?
Furthermore, in the context of DeFi, trading futures on decentralised perpetual exchanges has become increasingly popular. GMX and GNS command impressive numbers, and other promising protocols are building in this sector within DeFi. These oracle-based DEXes are able to offer relatively safe environments to trade, with increased capital efficiency, and as a result, have been able to cement their position.
The prospect of extremely high leverage – as high as 150x in certain cases, is too good to pass out on for some. As such, this product has captivated DeFi native traders and other less informed market participants alike. However, as you can guess, with the potential of high reward comes extremely high risk. Many have totally rekt their portfolios in the process. May their portfolios rest in peace…
Well, this is where Perpy Finance comes in. They identified an opportunity and a missing piece in the jigsaw. They combined these two emerging trends to build the first decentralised perpetual exchange that natively supports copy trading. They are pioneering the concept of connecting traders to investors 24/7 on a decentralised perpetual exchange in a non-custodial and fully transparent way.
In this article, I will explain what Perpy finance is, we’ll explore the protocol architecture and some technical details, look at optimal user flows, learn about the native protocol token, and much more. Strap in!
What is Perpy Finance?
Perpy is a fully on-chain and non-custodial copy trading platform. The platform connects traders and investors on a 24/7 basis.
The copy trading solution is linked to GMX via smart contracts, allowing users to copy successful traders on GMX and allowing savvy GMX traders to monetise their trading skills. Perpy offers full transparency on performance and strategy, while the architecture of smart contracts ensures the security of assets and easy fund management. Traders can create their investment vehicle with just a few clicks, choose their fee, and share their vault on social networks. Perpy is available on Arbitrum and aims to become a cross-chain copy trading hub on various decentralised trading platforms in the future.
The thesis is that crypto is populated with people who have access to capital but lack the expertise to trade cryptocurrencies. On the other hand, crypto also includes many savvy and informed traders who cannot necessarily launch a fund in a traditional manner. Perpy wants to provide an end-to-end non-custodial and fully on-chain platform that facilitates this requirement i.e. allowing investors with access to capital to copy trade and allowing well-informed traders to leverage their skills and provide their services in return for a fee.
Importantly, Perpy isn’t a decentralised perpetual exchange. As a result, the protocol doesn’t need to source any liquidity. Simply, it allows users to copy successful traders on GMX. Furthermore, it naturally allows traders who trade on GMX to provide their services. Let’s now dive deeper into the technicalities of the protocol and how things work under the hood.
The main structure of Perpy’s contracts is pretty straightforward. A factory contract generates vaults for traders, which serve as the platform for trading user deposits. Whenever a deposit is made, an ERC-20 contract issues shares equivalent to the deposited amount as proof of deposit. The vault monitors the trader’s performance through these shares and manages the distribution of fees.
Perpy also introduced the Trading Vault concept, which is a contract that facilitates trader interaction with decentralised perpetual exchanges such as GMX. Essentially, this allows traders to trade with user deposits on exchanges such as GMX.
From the user’s standpoint, following someone on Perpy is equivalent to depositing funds into a vault. The vault owner/trader can subsequently trade with these funds as they would with their own. However, to enable users to withdraw their funds at their discretion, certain constraints have been implemented in the initial version:
- The trader can only use market orders to allow for the availability of liquidity when a user wants to withdraw.
- After a trade is closed, the vault will have to trade back to USDC and not any other asset.
Under Progress Trade
If a trade is in progress, the investor will be able to “technically” deposit funds into the vault, however, the funds will be in a buffer of sorts i.e., not exposed to the trader’s vault yet. Once the active trade is closed, then the fresh allocation of funds will be added to the vault for trading.
Furthermore, a user can also program an automated withdrawal via Gelato.
Well, we’re in the real yield era. Protocols that can sustainably earn revenue during the bear market will come out unscathed. Perpy intends to generate revenue in mainly 2 ways.
- Performance fees: The trader can set performance fees for their trading vault, which range from 10% to 50%. Perpy receives 20% of the fees for the DAO. The performance fee is calculated based on the High Water Mark of the Trading Vault share price. As a result, performance fees will only be charged when the share price is above its historical high. Following a complete or partial trade closure, a portion of the profit generated by the trader that is equivalent to the performance fees is sent directly to the DAO and the trader in USDC. For example, suppose a Trading Vault begins with 1000 USDC, with a share price and High Water Mark of 1 USDC, and a 10% performance fee. If the trader generates a 100% return after closing the trade, a performance fee of 10% (1000 x 0.1 = 100 USDC) is deducted. The DAO receives 20% of this amount (20 USDC), while the trader receives the remaining 80% (80 USDC). The total TVL becomes 1900 USDC, and the share price and High Water Mark increase to 1.9 USDC.
- Exit fees: Each user will pay an adaptive exit fee. This entire fee goes to the protocol.
- The Trading Vault has no trade in progress: 0.3% will be the exit load
- The Trading Vault has a trade-in progress
- The user’s withdrawal decreases the size of the trade: 1.5% will be the exit load
- User’s withdrawal will close the trade in progress: 5% will be the exit load
The Perpy team have built a unique protocol. It’s important to look at the various important features that the platform offers.
- No fund lockup: An investor has complete control over their assets. They can decide to enter or exit a vault whenever they want. There’s no dedicated “fundraising” period.
- Persistent Vaults: The vaults are designed in a manner that ensures that it replicates the trader always. As such, there’s no requirement for re-entering when a new trade is opened.
- Smart trading engine: The trader gets access to a seamless, fast and complete trading terminal. Perpy offers advanced trading tools to aid the trader at all times.
Again, this is just touching the surface. Trust me, many other cool features have been implemented.
Let’s explore an ideal user flow, both for a trader and an investor now.
For a trader, they need to figure out the following:
- How to create a Trading Vault
- How to trade via the Trading Vault and use user funds
- How to track the earned performance fees
Let’s take a stab at these one at a time.
Initially, the trader will create a Trading Vault on the create page. They will be able to name their vault, select the asset which they want to trade and select the % of the performance fees.
Furthermore, the trader will have to link their Twitter account with their vault. Then they’ll have to match their wallet address with their Twitter account through a transaction. Upon successful linking of the Twitter account, the trader will be able to create the Trading Vault.
Once the Trading Vault is created, we can get to the fun bit and start trading.
To leverage and use Perpy, the vault will need to have at least 10 USDC. This is the minimum requirement.
On the dashboard, the trader will select the “Trade” button, and a trading engine will open that is similar to GMX.
Here, the trader can start doing trader things. They can long/short the chosen asset, decide how much leverage they want exposure to, and once the trade is open, they can decide SL and TP levels.
Learn more about this here.
Finally, the trader will need to track their performance and how much fees they’ve been able to earn.
On the dashboard, they’ll be able to view the performance of each Trading Vault.
Furthermore, they can view ArbiScan to view the transaction history and keep a track of received fees.
The investor (potentially you?) can explore the platform and look for various traders that can copy.
Once they’ve found someone in who they’re interested, they’ll be able to deposit USDC or ETH in that particular Trading Vault.
Once the deposit is successful, they’ll receive the appropriate share tokens, which essentially act as receipt tokens.
Voila, that’s it! Just so long as the investor sees their deposited amount on the front end, they’re following the trader.
Users can deposit if a trade is ongoing but will be in a buffer i.e. not exposed to the trader’s vault until the trade is closed. Gelato here is taking care of this process behind the scene. The user will not have to interact with Gelato at all.
The dashboard allows the investor to view and track the performance of their investment. This will be viewed as a gross amount.
Also, as you’d imagine, the investor will be able to view the trader’s profile and past track record, among other things.
To withdraw their funds, the investor can visit the Trading Vault page and submit a withdrawal transaction. Upon successful confirmation, the funds will be credited to the investor’s wallet.
However, if the trade is in progress, the investor will be able to execute a withdrawal, but they’ll have to pay higher fees. It is important to note that the investor could decide to schedule a future withdrawal with Gelato. This will ensure that they end up paying the bare minimum fees. In this case, the withdrawal will be processed once the trade is closed.
Partnerships & Integrations
I think it’s important to lay focus on the multitude of partnerships that Perpy has been able to strike. The devs want to build an all-encompassing dapp that allows for the implementation of unique copy trading strategies across various protocols and networks, creating a truly multi-chain decentralised application in the process. These partnerships will aid massively with future product developments and integrations.
As of writing this, they’ve struck partnerships for trading decentralised futures on perp DEXes with GNS, Vertex and Level. These partnerships will give the protocol coverage over Arbitrum and BNB. Level Finance will function as the cross-chain partner. As for trading options, they’ve successfully partnered with Buffer Finance for exotic options and Lyra for options trading.
What is the PRY Token?
Let’s learn about the PRY token now.
PRY is the native token on the Perpy platform. The token supply is hard capped at 1 billion. The token will act as a rev share, utility and governance token. Furthermore, the team has also implemented some deflationary mechanics to increase the value proposition.
Let’s look at the token utilities and deflationary mechanics.
- Real Yield: Those who stake PRY tokens will be entitled to receive 100% of the protocol revenue generated by performance and exit fees. However, out of this 100%, 10% will require approval from the DAO via voting to decide whether to invest in a trading vault, buy back PRY, or issue traditional distributions. As for the platform fee distribution, it will be completely determined by the token holders, and the aim is to engage the community in deciding how 10% of this fee will be allocated.
- Fee Rebate: PRY stakers will receive a flat fee rebate when using the platform. The reduction scale will be between 3 to 50%.
- Governance: PRY holders will influence the future of the protocol and participate in future governance proposals.
- Lens Integration: Upon integration with Lens, users will be able to make certain interactions with the protocol and burn PRY.
- Vault Advertising: This is the deflationary mechanic, that will allow traders to essentially promote their vaults on the platform. For this service, they will have to either stake or burn PRY.
- Priority Access: Trading Vaults 2.0 will be in a way, token-gated to allow large PRY holders to participate first.
The Perpy team is preparing for the upcoming public token sale on Camelot. The team has fixed the token price at $0.02 per token, which will represent a $20M FDV. 25% of the token allocation is reserved for this upcoming sale. This means the team is looking to raise $5M.
Find more details in this Twitter thread.
Finally, I’m excited about the upcoming token sale. I may want to get involved. NFA, of course. From the product’s perspective, the utility is as clear as day. It solves a problem and fixes a gap in the market. The system creates a win-win situation between the trader and the investor. Obviously, the protocol also benefits from the relationship between the traders and investors.
Furthermore, I hope you can gauge the scope of the opportunity here. Perpy’s vision is to become a one-stop shop, enabling traders and investors to create this sustainable and symbiotic relationship. To achieve this, the platform will partner will multiple perp DEXes and options protocols on various blockchains.
The protocol is live on the mainnet, so you can give it a go. Again, make sure you do your due diligence before taking any decision.
Well, that’s all for today frens! I hope you enjoyed this article. Until next time!