Marginal: The Future of Onchain Leverage

Marginal: The Future of Onchain Leverage

May 20, 2024

May 20, 2024

Marginal is disrupting onchain leverage trading by offering a novel protocol that will transform DeFi.

At its core, leveraged trading empowers traders to amplify their market exposure and potential gains using borrowed funds. However, such an exciting opportunity has its risks, and that's where traditional decentralized exchanges (DEXs) often fall short.

Marginal emerges as the innovative trading platform that addresses these gaps by providing a secure, fully on-chain, and user-centric leverage trading experience. Our platform opens up new possibilities for traders seeking to navigate the vibrant yet complex landscape of digital assets. Discover how Marginal is transforming leverage trading, making it more accessible and secure for traders across all levels.

The Current State of Leverage Trading in DeFi

In decentralized finance (DeFi), leverage trading allows traders to gain exposure to crypto assets without committing extensive capital. However, this frontier is not without its drawbacks. Traditional decentralized exchanges (DEXs) experience limitations in liquidity, which can hinder large trading positions from being executed efficiently, leading to price slippage.

Furthermore, the very foundation of DeFi trading—smart contracts—brings about its own set of risks. Flaws in smart contract design or coding can be exploited, leading to financial losses. Due to these vulnerabilities, traders are faced with limited risk management resources when it comes to ensuring the safety of their trading positions.

Moreover, the DeFi derivatives space remains tethered to a rather permissioned structure, often restricting the seamless creation of markets between any two fungible tokens. In contrast to DeFi's ethos, traders are sometimes curtailed by limited risk management options, particularly when facing the standard cash settlement method offered by most platforms.

However, with the advent of Uniswap V2 and V3's oracle functionality, a glimmer of hope arises. They facilitate a spot market necessary for leverage trading, albeit with room for improvement. A truly decentralized derivatives protocol would assimilate these principles, championing unstoppable, immutable markets, ripe for anyone to deploy at will.

Still, perpetual contracts need a more secure alternative to avoid the pitfalls of current models that predominantly adopt a cash settlement approach. This approach can falter and leave traders partially unpaid if a liquidity crunch hits.

That's why physical settlement, where the underlying asset itself is delivered upon settlement, presents a more secure alternative. It ensures liquidity providers back the trade, sticking closer to the promised delivery and reinforcing the trading position without compromising the trader's strategy. Marginal tackles these impediments head-on, crafting an environment where trading thrives on certainty and innovation.

The Mechanics of Marginal

At the heart of Marginal lies its Automated Market Maker (AMM) hyperstructure. Think of a self-sustaining system that runs perpetually, where the code is set in stone upon deployment.

Here, no external authority can tweak risk parameters or meddle with positions, ensuring a trader's strategy isn't jeopardized by sudden, unexpected changes. Marginal takes the hyperstructure approach to a derivative DEX, meaning that once pools are deployed, there is no one that can change the way the pools function.

Fundamentally, AMMs automate the process of buying and selling within the DeFi space, replacing traditional market-making with algorithms that keep the liquidity for trading pairs constantly available. Marginal heightens this experience uniquely—our platform is an immutable hyperstructure akin to Uniswap, meaning it's built to forever provide peer-to-pool leverage trading on a global stage.

The Role of Liquidity Providers (LPs)

Liquidity Providers, or LPs, are the silent heroes in our ecosystem. By pooling together two different tokens (X and Y), they provide the foundation for trades. It's a passive endeavor: once LPs supply their funds, they can simply watch the market do its work.

Plus, Marginal ensures LPs are armed with insurance mechanisms and robust protection against bad debt—a shield against the uncertainty of the market. According to Ox

How Do Traders Engage With Marginal?

For traders, engaging with Marginal is all about maximizing potential through leverage. By depositing collateral, they can create a leveraged position, effectively borrowing against the pooled liquidity to intensify their market exposure. This is margin trading on steroids—where leverage ratios elevate trading strategies, but with a catch: each position is anchored in physical settlement rather than cash, minimizing delta risk for LPs. That means when a position is closed, traders satisfy their debt needed to return the owed liquidity back and receive their payout in their original collateral token.

Marginal’s system is designed to accommodate any asset with sufficient Uniswap V3 spot liquidity. It liberates traders to access permissionless leverage on a wide array of tokens, even prior to their major exchange listings. If the value of a trader's collateral dips below a certain threshold, a slow liquidation process kicks in, thoughtfully priced through the 12-hour Uniswap V3 Time Weighted Average Price (TWAP). This gives traders a fair chance to manage their collateral's value against the leverage ratio, cultivating a market that’s forgiving of volatility.

Lastly, it's important to mention that LPs may face the prospect of lockups, akin to the utilization-based lockups experienced on lending platforms like Aave or Compound. This occurs as traders open up positions, committing liquidity over a period until trades are settled.

All these components lace together to form the deliberate mechanics of Marginal—a platform where the precision of margin trading meets the freedom of leverage ratios, tailored to amplify every trading strategy.

What Advantages Do Marginal's Hyperstructure Offer?

In essence, Marginal's hyperstructure is built on a foundation that empowers liquidity providers and traders. It offers a streamlined, efficient, and secure experience that stands out in the competitive DeFi landscape. From providing market efficiency to enforcing fair payouts, Marginal redefines the benchmarks for leveraging trading platforms.

A. Secure Passive Liquidity

The first pillar of Marginal's competitive edge is the concept of passive liquidity. When providers fund the AMM pools, they essentially set in motion a perpetual engine that ensures the market remains liquid and functional at all times. This engine drives market efficiency by reducing the spread between buy and sell orders, leading to better prices for traders. Moreover, this consistent liquidity helps to stabilize the market, dampening the volatility often seen in less liquid trading environments.

The icing on the cake for LPs is the blanket of insurance mechanisms and automated hedging within Marginal, ensuring that bad debt never happens.

0xTwap highlights how Marginal has engineered a safeguard to protect Liquidity Providers (LPs): “Marginal sets aside additional capital in a hodl strategy each time a position is opened. This extra capital acts as a hedge against the liquidity liability borrowed from LPs to collateralize the trader's position. When price moves extremely, these insurance funds perform better than the liability owed ("impermanent gain" mechanism).”

Emphasizing that the system ensures that LPs will always receive back at least their initially provided liquidity, regardless of market conditions or the timing of liquidations. 0xTwap continues: “The amount of insurance funds used are set in such a way that LPs are deterministically ensured to get at least the original liquidity lent out back regardless of the price at which liquidations occur. Meaning, LPs should never experience bad debt when positions are liquidated, even if it takes a while for a liquidator.”

B. Physical Settlement

Marginal's commitment to physical settlement over cash settlement protects traders against the unpredictability of market moves. This method bolsters the integrity of payouts, as it is backed by the actual assets rather than their cash equivalents. For traders, this means greater confidence in receiving their due payouts without fear of insolvency or shortfalls from the pool's funds—a rock-solid promise in the fluid world of DeFi.

C. Permissionless Leverage Trading

Thanks to Marginal's permissionless leverage trading, diving into new markets is now incredibly accessible. As explained by 0xTwap, “completely permissionless trading and market creation is what differentiates us. It's important because it means there is no whitelisting process required to create a pool with leverage on a new token pair. Like Uniswap, anyone can simply deploy the pool through the factory contract.”

The freedom to trade any token pair with existing on-chain liquidity liberates traders from the constraints of off-chain oracles and pre-listed markets. This democratizes market access and fertilizes the ecosystem for the growth of long-tail assets, providing traders with an ever-expanding universe of opportunities.

D. No Auto-Deleveraging: Ensuring Fair Trader Payouts

One of the most significant differentiators for Marginal is the deliberate exclusion of auto-deleveraging from our model. Where other platforms may forcibly close positions to preserve their liquidity pools, Marginal’s physical settlement structure ensures that traders always receive their rightful payout. Our commitment to trader reassurance extends the platform's appeal, especially for those who have experienced the abrupt halts of auto-deleveraging elsewhere. Traders on Marginal can operate with greater confidence, knowing that their wins won't be cut short by an automated reduction of their leveraged exposure.

What Features Set Marginal Apart?

Certain features distinguish Marginal from other DeFi platforms and also illuminate our commitment to decentralization and user safety. As the ecosystem evolves, Marginal remains steadfast in providing a trading experience that is as secure and novel.

1. No Delta Risk for LPs Compared to Competitors

One of Marginal's standout features is its approach to delta risk—the risk associated with asset price movements. While competitors may expose their LPs to potential losses if the market trends sharply in one direction, Marginal sidesteps this issue entirely. LPs are insulated from price volatility that can lead to capital erosion by structuring trades for physical rather than cash settlement. This key difference in methodology shields LPs within Marginal's ecosystem, promoting more stabilized participation as a liquidity provider.

2. Utilizing Robust Oracle Systems

Marginal harnesses Uniswap v3's advanced oracle systems to ensure accurate, manipulation-resistant price feeds essential for leverage trading. This reliance on decentralized oracles bolsters security and fairness, avoiding dependencies on singular data points that could compromise trading integrity. Furthermore, Marginal's user-friendly liquidity management vaults and pool launcher tools democratize access to DeFi, lowering entry barriers and promoting a diverse and robust onchain economy. These innovations encapsulate Marginal’s commitment to providing a secure, equitable financial hyperstructure.

3. Permissionless Leverage Before Major Exchange Listings

Being early is everything. Marginal offers an unprecedented level of accessibility by enabling permissionless leverage on tokens—even before they hit major exchanges. This opens the doors for traders to capitalize on potential early-stage growth opportunities, positioning Marginal users at the forefront of market movements with the agility to swiftly adjust their portfolio strategies in response to emerging trends.

4. Slow Liquidation Process and Liquidation Pricing

Understanding the volatile nature of cryptocurrency markets, Marginal's risk management strategies bring a more practical approach to liquidations. Instead of instantaneous liquidations that can compound a trader's losses and contribute to market panic, Marginal employs a calculated, slow liquidation process. By utilizing the 12-hour Uniswap V3 TWAP for pricing, the platform provides a cushion against momentary price swings, offering traders the chance to address margin calls in a more strategic and composed manner.

5. Volatile Tokens as Collateral and Deterministic Safety for LPs

Marginal is remarkably versatile, allowing the use of highly volatile tokens as collateral. While these assets may present significant risks in other settings, Marginal’s robust risk management framework is tailored to accommodate such volatility. The protocol's insurance mechanisms provides deterministic safety for LPs as they are guaranteed that the liquidity lent to traders is paid back to them at any liquidation price. Comfy LPs in turn, enable traders to capitalize on the full potential of their portfolios, employing diverse assets to back their positions. Traders can engage in bolder trading strategies while being mindful of maintaining the necessary margin requirement against their leveraged positions.

Experience the Power of Full Onchain Leverage Trading

We invite traders and LPs to start leverage trading with Marginal, a novel hyperstructure in the DeFi space that is changing the way traders and Liquidity Providers engage onchain. With unique offerings—from minimizing delta risk for LPs to enabling permissionless markets before major exchange listings—Marginal epitomizes the future of secure, onchain, and expansive trading opportunities. Marginal will offer an unique trading experience to users thanks to innovative features like slow liquidation processes and the wide variety of tokens that will be accepted as collateral.

Redefining what's possible onchain

Go long or short any token with leverage.

Go long or short any token with leverage.