Looping strategies and perps trading are two staples of Defi.
With their revamped V2, Contango is combining both concepts with the introduction of cPerps.
Learn how the project enables leveraged trading with flash loans, lessons learned from the project’s initial V1, and the likelihood of an airdrop…
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History of Contango
Contango is a perpetual protocol that offers perps trading via looping.
The project initially started as a DeFi native platform for trading expirable derivatives.
The Contango team originated as consultants at the same company, with experience in building trading apps and crypto exchanges.
Contango V1 was the team’s first attempt at creating a product in the DeFi space.
They faced challenges with liquidity in the bear market.
The team also faced integration challenges with fixed-rate markets, which were a significant component of V1.
Yield Protocol, which they had integrated with, decided to sunset their fixed rate product; this decision further complicated matters for Contango V1 and its users.
Contango’s Initial Premise; providing expirable positions without the use of liquidity pools or orderbooks
Introducing Contango V2
Funding rates in crypto can often be unpredictable and volatile.
Contango V2 offers a solution by providing more predictable and stable funding rates for traders.
This stability is crucial for traders who want to maintain their positions over longer periods without facing unexpected costs.
Contango V2 aims to address the liquidity challenges they faced with Contango V1.
cPerps (Contango perps) are built by automating looping strategies using flash loans.
How cPerps utilize looping flash loans to enable leveraged trading
cPerps tap into the deep liquidity of money markets, offering traders more options and better rates.
Compared to V1 which fixed rate markets are utilized, variable rate markets will be utilized in V2.
Contango Founder Kamel Aouane has highlighted the concept of recursive borrowing and lending, which has been a native way to go long or short in DeFi since the early days of MakerDAO.
It is beneficial to automate these strategies with flash loans, which allows tapping into deep liquidity from money markets like Aave, Compound, and MakerDAO.
He says that funding rates will be stable with Contango V2, noting its lower volatility compared to platforms like dYdX and Binance.
Kamel says that the current limitations of Contango V2 exist in terms of leverage especially when compared to platforms like GMX.
Contango V2 might offer a maximum of 6x leverage for certain assets due to the limitations of the loan-to-value on platforms like Aave.
A maintenance margin of 15% is a potential challenge, especially when compared to other exchanges like Binance or dYdX.
He expresses optimism about future developments in DeFi, such as:
Protocols offering higher loan-to-value ratios.
Faster liquidations on layer-2 solutions.
New designs in money markets that allow for higher leverage.
There is a potential for integrating with other money markets and chains, which would expand the range of assets available for trading on Contango.
Kamel differentiates between two sets of Contango users: Loopers and traders.
He explains that Loopers will be familiar with the LTV and liquidation levels, while traders might appreciate the more stable funding rates offered by Contango.
Early Response to Contango V2
The project has facilitated ~200 transactions and ~$1 million in trading volume in less than five days since launch.
The team has received particularly positive feedback from users who are familiar with looping strategies.
Users appreciate the convenience of Contango V2's UI, which offers charts, clear indications of liquidation prices, and a variety of trading pairs.
Contango trading UI
Potential Token Rewards for Early Traders
Kamel has confirmed the likelihood of a token in the future.
Before finalizing the exact mechanism for the token, the plan is to expand Contango to more chains and protocols to target a larger user base.
It has always been clear within the team that any volume generated from the start, from any version of Contango, will be rewarded.
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