A succinct walkthrough of the Increment protocol
Perpetuals pertain to a special type of futures contracts; unlike the traditional form of futures, the perpetual contract does not have an expiry date. As a result, holders of the perpetual contracts can hold the position for an infinite period of time. However, to ensure that the perpetual price and index price converge on a regular basis, periodic funding payments are made to or by traders who are long or short based on the difference between perpetual contract markets and spot prices. Perpetuals also allow traders to open positions larger than their account size, amplifying either the profit or loss made by the trader. Trading on margin opens up the opportunity for higher gains, but also increases the risk of greater losses.
Traders can easily find themselves losing more than they bargained for by overextending their account in margin trades. Only trade with what you can afford to lose.
Increment utilizes pooled virtual or synthetic assets as liquidity and Curve V2’s AMM as the trading engine to enable on-chain perpetual swaps. As the "virtual" part implies, there are only synthetic balances in the Curve V2 AMM pools, but they are backed by real liquid crypto assets. Liquidity providers deposit real funds as collateral and the system will mint the corresponding amount of virtual assets in the AMM for trading.
Liquidity providers earn fees in exchange for making the market and taking the opposite aggregated direction of the market, ie. market price changes determined by traders will affect the liquidity provider's position, but the profit or loss of traders will not directly affect the liquidity provider's profit or loss.
Traders can go long or short crypto markets with leverage by depositing the allowlisted collateral, and minting the notional amount of virtual or synthetic tokens to exchange them in the pools. By going long, a trader buys and holds the virtual base token (i.e. if the trading pair is BTCUSD, then the base token is BTC and the quote token is USD) with the expectation that the underlying asset will rise in value in the future. By going short, a trader sells the virtual base token for quote tokens and holds them with the expectation that the underlying asset will decline in value in the future.
Opening a position
Price discovery: Unlike oracle-based systems where the price of a market is acquired from elsewhere, such as from top centralized exchanges Binance, Coinbase, etc, the Increment protocol is an AMM system that creates its own pools of liquidity and determines it's own market pricing based on the pool dynamics.
Automatically concentrated liquidity: Unlike traditional order book systems where market makers are actively managing market depth and implementing market making strategies, the Increment protocol establishes an equal playing field for all liquidity providers by enabling the concentration of liquidity around the market price through autonomous smart contracts and Curve math. This creates a passive liquidity provision (LP) experience for all.
Dynamic fees: Based on a set range determined by governance, the trading fee on Increment changes relative to the balance of the pools and is facilitated through Curve math.
Multi-collateral: Increment supports multiple collateral types. Unit of Account (UA) is used as the accounting token of Increment, where USDC is initially accepted as the sole reserve token. Other ERC20 tokens can also allowlisted as collateral, but what matters is the USD worth of the collateral, since all markets are quoted in USD.
Cross margin: Increment is a cross-margin protocol, this means that the margin or collateral one user deposits is not attached to one market only but available to all markets. For example, when John deposits 1000 USDC in the Vault, he is allowed to use this margin in all markets, ie. he can then open a position in the ETHUSD market and one in the BTCUSD market all under one shared margin account. Isolated margin can be achieved by creating separate accounts (using a new wallet address).
On-chain system and governor: The Increment governance token (INCR) is used by the community to vote, govern, and curate essential infrastructure components of the Increment ecosystem as described in this previous governance discussion regarding token creation and distribution.
Increment implements OpenZeppelin Governor - a governance model of delegated voting. This governance contract along with a few other distinct modules establish a decentralized, on-chain framework allowing the community to modify system parameters, support new markets, or add entirely new functionality to the protocol. In other words, under this framework no single entity or administrator should have the privilege to make changes to the protocol without an on-chain vote and execution. For more details, see the governance section.
Parametrizable markets: The protocol features parametrizable markets that can be adjusted depending on the volatility level of each asset.
Increment offers higher security, throughput, and lower transaction fees by settling trades on zkSync Era, an Ethereum Layer 2 (L2) zero knowledge computation solution. The system maintains its fully decentralized, non-custodial protocol framework, while delivering a seamless trading experience.
Last modified 19d ago