After a few months of building, we are excited to announce Pika v3 is live on Optimism mainnet!
Achievements of Pika V2
Pika v2 was the first perpetual swap exchange launched on Optimism(late 2021). It has attracted over 16k users, 100k trades and $500m in trading volume since launch. While many users like the simplicity of Pika v2, we definitely see the opportunities int building a more robust decentralized derivatives exchange.
State of Decentralized Derivatives
The market share of decentralized derivatives exchanges is up 10x from one year ago but still only sits at 2% vs CEXs. By making improvements in speed, liquidity, and user experience, it is expected that DEX market share will grow exponentially to compete with centralized counterparties.
What’s New in Pika V3?
Support for Limit/Stop Orders
On top of market orders, Pika v3 now supports both limit and stop orders, with the implementation of an on-chain orderbook.
Profit Taking without Restrictions
In Pika v2, we had a 4 hour and 3% profit-taking threshold, meaning traders can only take profit 4 hours after opening the trade, OR the mark price has moved by 3%. This was implemented to prevent oracle front-running bots, taking advantages of Chainlink’s oracle update delay.
Pika v3 uses a hybrid price feed of the Chainlink oracle and a fast oracle which aggregates prices from top exchanges to decide the mark price. Whenever an order is submitted, the fast oracle will fetch the median price from Binance, FTX and Coinbase and update the mark price before executing the order. This prevents the oracle frontrunning, as the mark price is determined only after the order submission. To safeguard the accuracy of fast oracle, the Chainlink oracle is used with a bid/ask spread whennever the fast oracle is not updating or its price deviates too much from Chainlink. In addition, traders can set an allowed slippage for each order submission, to make sure the order is executed only if the mark price is within the allowed slippage range. With this change, traders can open and close trade without any restrictions.
Deep Liquidity and Low Slippage
Pika has its liquidity concentrated around the current oracle price, making it possible to achieve the same level of liquidity as top perpetual exchanges. This enables capital efficiency and minimum trade slippage without requiring too much exchange liquidity. By implementing a faster oracle, we have removed the concern of oracle frontrunning and enabled lower slippage in v3 than v2.
Instead of charging a flat interest fee in v2, Pika v3 implemented the dynamic funding mechanism, making longs pay shorts when there are more longs and shorts pays longs when there are more shorts. Since liquidity vault is always on the minority side, it will always receive a funding fee. This allows the liquidity vault to receive more fees when the delta exposure is increasing, and incentivises a more balanced long/short ratio to reduce risks for the vault.
Liquidity Vault Cap
Note the liquidity is capped at 1m USDC right now and will increase the cap after running for a few weeks.
Plans for Protocol Owned Liquidity
Since providing liquidity takes the counterparty risks of all traders on the platform, we believe it’s beneficial for Pika to move towards a fully protocol owned liquidity model in the long term, so that protocol could bear all the risks instead of passive LPs, and has the option to hedge the delta exposure on other exchanges(most likely CEXes) dynamically. To achieve that, we decided to allocate a certain portion of trading fees to commit to providing long term liquidity for the platform. The fee sharing structure in v3 will be 50% to liquidity providers, 20% to serve as protocol owned liquidity, and 30% to protocol revenue. On top of that, 480,000 OP tokens will be distributed to liquidity providers over the next few months(expeted to be announced and starting in upcoming weeks).
Rewards for Pika V2 LPs
In appreciation to all the LPs who have provided liquidity in Pika v2, we will use 20% of the fees generated from v3 to reward those with any loss in the vault greater than 20 USDC before July 16th (USDC rewards = loss - value of OP on airdrop day, where loss = deposit - withdraw - fee rewards).This reward assumes v3 is profitable and will be offset in the event of any PIKA airdrop. The reward is planned to be distributed monthly if the accumulative reward is more than 100k USDC(if accumulative reward is less than 100k that month, will wait till next month). The v3 protocol owned liquidity accumulation will only start after all the v2 LPs are fully rewarded. Though we communicated earlier only those who have loss before APE event was eligible, we are now expanding the reward to all the LPs who have a loss over 20 USDC in Pika v2. This will not be applied to future LPs for v3.
Migration from V2
The old version of Pika will still be available at: https://v2.pikaprotocol.com/ For traders, please close your positions before August 17th to avoid any potential loss of profit. For liquidity providers, you can either withdraw the liquidity or migrate the liquidity to v3 vault.
Trading on V3
Pika v3 has completed several rounds audits and is now live on Optimism mainnet. You can now provide liquidity or starts trading at:https://pikaprotocol.com/#/trade/. It is still in beta, so please use with care. You can also read more about Pika via https://pikaprotocol.gitbook.io/pika-protocol/.
We also want to give credits to GMX and Cap for inspiration on some of the implementations they have in preventing oracle frontrunning and limit/stop orders.
We have been building Pika for the last 1.5 years and we would not be here today without the support from Pika community members. Thanks all again for being here with us throughout bull and bear markets, to make Pika a better permissionless platform for the world!