DeSo Perpetuals
If you are unfamiliar with Openfund, we recommend watching the video on openfund.com to better understand the product.
Today, centralized exchanges like Binance have become dominant in spite of many inherent limitations.
In particular, centralized exchanges require intrusive verifications, require users to give up custody of their funds in order to place orders, and their listing processes are approval-based and often completely opaque to new projects.
Yet, in spite of these major issues, no decentralized exchange has been able to shake the dominance of centralized exchanges like Binance.
But why is that?
We believe this is due to two key limitations of current decentralized exchanges: the absence of cross-chain trading and a lack of comprehensive order-book functionality.
Current decentralized options like Uniswap fail to provide cross-chain trading and comprehensive order-book functionality, making them an inadequate substitute for virtually anything outside of the trading of Ethereum-native tokens.
For example, if you want to exchange one unit of a layer-1 coin like Doge for USDT on Uniswap, that is not possible today due to Uniswap's limitation to Ethereum-native tokens. And the same is true for virtually all layer-1 tokens other than Ethereum itself.
Meanwhile, the need for cross-chain trading will likely only increase as new blockchains like Solana, Near, Aptos, Sui, and DeSo invest millions in building out their ecosystems.
Considering all of the above, we come away with an important conclusion.
If a decentralized exchange can solve the cross-chain issue completely seamlessly, and if it can offer the full order-book functionality offered by centralized juggernauts like Binance, we believe it has the potential to become a universal nexus for all asset-trading activity.
This is our vision for Openfund, and here we explain our plan to achieve it step-by-step.
Enabling an On-Chain Order-Book via the DeSo DEX
In early 2023, the DeSo blockchain, backed by Sequoia and a16z, launched the DeSo DEX, the first truly decentralized order-book exchange. Limit orders are submitted and matched directly on-chain, and users can trade in a fully permissionless way, without giving up any personal information, using just a seed phrase login.
All this while maintaining full self-custody of their funds, thus eliminating the risk of a centralized exchange running off with their assets.
The DeSo DEX enables the first component of the Openfund vision: A DEX that can match the full order-book functionality available only on centralized exchanges today.
The main advantage of the DeSo blockchain is the fact that it can store and index content very cheaply.
In particular, order-book exchanges are very different from "liquidity pool" exchanges like Uniswap because every order submitted needs to be stored and indexed on-chain.
Concretely, storing a limit order's worth of data, about 200 bytes, on Ethereum would cost around $100 per order submitted, and an order-book DEX would likely break Ethereum's current storage model.
This is precisely why Uniswap runs on the "liquidity pool" model mentioned earlier, which only needs to store and update pool sizes in order for users to be able to transact (at the expense of matching efficiency and market-making cost when compared to the order-book approach).
In contrast, because DeSo is able to store and index orders for about 1/10,000th of a cent, an order-book exchange where every order is stored and indexed directly on-chain becomes possible for the first time.
In addition, the low cost of DeSo's content storage leads to novel use-cases such as fully on-chain, censorship-resistant web hosting, a feature Openfund also intends to utilize.
The cost of storing 1 gigabyte of on-chain state on popular blockchains. See full calculations in the appendix here.
Enabling Cross-Chain Assets via HeroSwap
In spite of the fact that the DeSo DEX allows for fully on-chain order-book trading on-par with centralized exchanges, the DeSo DEX remains of limited utility because only DeSo Tokens can be exchanged on it.
Note that when we refer to a "DeSo Token" we are referring to a token minted on the DeSo blockchain, similar to an ERC-20 token on Ethereum like $PEPE, and not to the $DESO coin itself.
The inability to trade cross-chain cryptocurrencies is one of the core issues that we mentioned was limiting Uniswap's utility as well. So how do we solve it?
This is where HeroSwap comes in. HeroSwap is a service also created by the DeSo core team that currently allows for virtually instant, anonymous cross-chain swaps between native layer-1 tokens.
This makes it uniquely suited to enable the trading of cross-chain assets on a DEX.
In particular, for every layer-1 token supported by HeroSwap, we will be adding a wrapped DeSo Token that is exchange-able 1:1 instantly and anonymously with its true layer-1 counterpart.
For example, Bitcoin will be 1:1 exchange-able with desoBTC, Ethereum will be 1:1 exchange-able with desoETH, and so on (names are TBD, but we will go with deso{Ticker} here to refer to the DeSo Token counter-part for a layer-1 coin).
Crucially, all swaps should be sub-second thanks to DeSo's upcoming Revolution Proof of Stake upgrade.
You can see this in action with $DesoDollar, a prototype stablecoin following this convention that swaps instantly between ERC20-USDC and ERC20-USDT via HeroSwap.
You can also try swapping between $DesoDollar and USDC via HeroSwap yourself.
For each deso{Ticker} asset, an on-chain profile on the DeSo blockchain will be created describing how it works, similar to what we have for DesoDollar today, and providing a direct list of all addresses backing the wrapped assets.
This means that, at any given time, users can have 100% confidence in the fact that their wrapped assets are 100% fully-backed by their "native" counterparts.
Notice that this is a critical guarantee that centralized exchanges are not capable of providing today because user balances are stored off-chain.
This means there is no way for an exchange like Binance to prove that its users' balances actually sum to the number of coins it has in its custody (because those balances are in a closed database that solely it controls).
In contrast, because everyone's deso{Ticker} balance is stored directly on-chain, an unprecedented level of transparency is finally achievable because you can simply sum all the deso{Ticker} balances and compare to the linked addresses in the profile for the relevant deso{Ticker} asset to make sure they match (e.g. see the sum of DesoDollar balances here).
Consider what this means: If swapping from Solana into desoSOL can be done anonymously in just a few seconds, then doing that swap is effectively easier and more efficient than depositing tokens into a centralized exchange, with the added benefit that you hold full custody of your desoSOL after the swap is complete, and have full transparency into the backing assets as well.
With HeroSwap providing an unprecedentedly simple and efficient means of moving assets to and from their wrapped DeSo Token counter-parts, Openfund can now put all of the pieces together to launch the first cross-chain order-book DEX.
Putting it Together: Trading on Openfund
Today, the Openfund exchange supports the trading of solely DeSo-native tokens via the DeSo DEX, and it lists all assets directly against $DESO as the base pair as opposed to a stablecoin.
Once HeroSwap integrates the swapping of key layer-1 tokens into their DeSo Token counter-parts, Openfund will undergo the following changes:
All assets will be listed against desoUSDT, which is instantly exchange-able for USDT on any chain (e.g. ERC20-USDT). desoUSDT will be the core base pair on Openfund, and it will replace $DesoDollar as the USD-equivalent currency.
Openfund will support the trading of all assets for which HeroSwap supports a DeSo Token swap. Initially, this will include Bitcoin (desoBTC), Ethereum (desoETH), Solana (desoSOL), USDT (desoUSDT), USDC (desoUSDC), SUI (desoSUI), and of course DESO itself.
In order to trade on Openfund, users simply need to swap mainnet Ethereum for desoETH, which will be shown as a "deposit" and "withdraw" flow in the app.
This experience will be virtually indistinguishable from the experience on a centralized exchange, except that it will be virtually instant, anonymous, allow for virtually unlimited size, and only require the creation of a seed-phrase wallet.
In particular, depositing ETH will convert mainnet ETH into desoETH in the user's wallet, while withdrawing will convert desoETH to mainnet ETH.
Importantly, however, users never need to be aware of the existence of desoETH. Instead, Openfund will simply show that they have an ETH balance in the app when there is desoETH in their wallet.
All of this conversion will be completed seamlessly behind the scenes using HeroSwap's white-label API, which Openfund is already integrated with today.
The end result is a decentralized exchange that works as seamlessly as a centralized exchange. BUT with the following major benefits:
All orders are placed and matched entirely on-chain via the DeSo DEX.
All funds are held in self-custody by users. Holding a balance of ETH on Openfund will simply mean that you hold desoETH in your self-custody wallet. At no point will Openfund have custody of users' funds, even when orders are placed and matched.
Because Openfund takes no custody, it can allow trading without the need to verify users, and without the need to request intrusive private information the way centralized exchanges do. Instead, the same openness and freedom to transact that other decentralized exchanges enjoy can now apply to a cross-chain order-book DEX.
Anyone can list an asset on Openfund permission-lessly. Because Openfund supports all DeSo Tokens natively, nobody needs to ask permission to have their token trade-able on the exchange.
This will play a big role in the fundraising component of Openfund, as we'll discuss in a bit. In addition, non-DeSo Tokens, like Ethereum ERC-20s, can also be "auto listed" by having HeroSwap support tokens on other chains.
For example, all ERC20 tokens can be supported as wrapped DeSo Tokens automatically and permission-lessly, as can tokens on Solana, Avalanche, Polygon, etc...
Once a layer-1 chain is integrated into HeroSwap, all of its native tokens become instantly and permission-lessly trade-able on Openfund.
An open liquidity network effect can form. Because all trades are happening on a fully permission-less blockchain, third-party devs are free to build new apps on top of the DeSo DEX's liquidity, and liquidity providers can engage in market-making without needing anyone's permission for API access.
It is difficult to understate the potential for a Cambrian explosion of innovation that may occur when anyone can tap directly into the transparent liquidity of a major order-book exchange, which has never been possible before.
Interestingly, HeroSwap will likely be the first major contributor to the DeSo DEX's initial liquidity, having already executed nearly $10 million in swaps between Bitcoin, Ethereum, Solana, DeSo, and various stablecoins.
In particular, while the DeSo DEX will use HeroSwap for swapping between DeSo Tokens and their layer-1 counter-parts, HeroSwap will likely lean on the DeSo DEX to support swaps between different layer-1 tokens.
For example, a swap from Bitcoin to Ethereum through HeroSwap can be executed as BTC -> desoBTC -> market sell desoBTC for desoETH on the DeSo DEX -> ETH. In this case, the DeSo DEX is gaining liquidity for the desoBTC->desoETH leg of the transaction, which HeroSwap is effectively packaging as a simple swap for the user.
This would remain virtually instant because the DeSo Token portion of the swap is virtually instant (thanks to DeSo's sub-second finality via its Revolution Proof of Stake upgrade).
In addition, because tihs order-flow is less price-sensitive than typical exchange liquidity, having HeroSwap perform these trades via the DeSo DEX immediately creates an incentive for market-makers to fill these HeroSwap orders, thus bootstrapping DeSo DEX liquidity even further.
Incentivizing Initial Liquidity via Novel Airdrop
It is important to note that simply adding the ability to permission-lessly and privately transact Bitcoin and other layer-1 tokens for USDT on Openfund will likely result in a significant increase in trading volume on its own.
No exchange, whether centralized or decentralized, offers direct access to these trading pairs without significant verification friction. The same goes for the other layer-1 pairs that will have a deso{Ticker} counter-part. This being said, we can do more.
In order to gain market-share, Openfund will charge a fee on each trade that will be paid directly to the $openfund token, thus giving it a source of real yield. This then allows us to use the $openfund token to promote liquidity directly by implementing a novel airdrop mechanic.
We propose the following parameters for this initial liqiudity airdrop:
A fixed number of $openfund tokens will be allocated to a liquidity airdrop. Say 10 million tokens to start, or ~10% of the current ~95M $openfund supply.
The airdrop will be perpetual using a Satoshi Vesting scheme (explained below, but optionally see here for a full explanation of Satoshi Vesting). The vesting scheme will be such that 5M tokens will be given away in the first year, then 2.5M the second year, etc... This infinite series sums to a fixed supply 10 million total tokens while providing a perpetual incentive to the platform.
Tokens will be distributed to the traders who produce the most volume, as well as traders who are on the inside of the spread of the top N coins by volume. This will incentivize both trading and depth.
- Notice that it is not possible to game the volume requirement because of the trading fee, and that the spread requirement is similarly not game-able, since people who make the inside of the spread on top-volume coins take on real risk that someone may execute against them.
As an added incentive to foster decentralized social content liquidity, traders who create an on-chain identity and post regularly will receive slightly more in airdrop tokens than traders who don't engage with their peers on-chain.
- All of the above incentives come together to create a double-whammy. Openfund will not only offer exclusive DEX support for the most popular layer-1 pairs, but it will also add extra incentive to trade these pairs via the airdrop scheme mentioned above.
The Fundraising Network Effect
In the short-term, the ability to trade all of the most popular cross-chain assets on an order-book DEX is a major value proposition on its own. But we don't stop there.
In addition to allowing for the trading of existing assets, Openfund will give anyone in the world the ability to launch their own assets, which will be able to instantly and permission-lessly fundraise and list on the on-chain order-book DEX.
The key thing to understand is that the value proposition of raising money on Openfund only becomes stronger the more that Openfund's DEX gains traction.
Consider a top crypto founder that's trying to decide where they want to raise funding and launch their token.
If fundraising on Openfund gives them access to 10x the investor visibility and 10x the liquidity of any other venue, instantly and seamlessly, then why would they fundraise anywhere else?
Put another way, once you have a large base of investors trading on Openfund, a lot of that investor base can easily be converted to investing in earlier-stage assets, thus moving the action "downstream" to the benefit of founders who use Openfund to raise money.
And crypto founders are only the beginning. As other sectors of the economy come to appreciate the value of fundraising globally and listing permission-lessly with crypto, we expect Openfund to one day enable whole new industries to get financing and liquidity that previously couldn't.
Put simply, Openfund starts by addressing a need to trade high-volume assets with low friction, but ultimately ends with a "downstream" disruption of venture capital and early-stage financing.
Listing Off-Chain Assets with Decentralized Leverage via On-Chain Perpetuals
For long-tail assets, we believe the DeSo DEX is likely to be the optimal liquidity solution, or at least close to it.
However, for major assets like Bitcoin and other top layer-1s, we expect there will be a fair amount of demand for on-chain leverage, which we expect to satisfy by using DeSo to power the first truly decentralized perpetuals exchange.
This will be possible with a relatively minor upgrade to the DeSo DEX's infrastructure.
Perpetuals are a type of crypto derivative that allow users to trade an underlying asset using only a price feed.
In the same way that corn futures allow traders to gain long and short exposure to the price of corn without any need for actual corn to be transacted, on-chain perpetuals will allow traders on the DeSo DEX to gain leveraged long and short exposure to virtually any liquid asset in the world as long as it has a sufficient amount of liquidity and a valid price feed.
Moreover, unlike trading futures or other derivatives, the user experience for buying and selling perpetuals on an underlying asset should be virtually identitcal to the experience of buying and selling the true underlying asset.
A full explanation of how perpetuals work is outside the scope of this document.
However, it is important that the reader understand that **on-chain perpetuals will allow Openfund to list and provide 100x+ leverage on any asset that both has a reliable price feed and that meets a certain threshold of liquidity, irrespective of where it trades.
We note that this universe of assets will likely extend far beyond crypto to include off-chain assets, including real-world commodities, real-estate, equities, and more.**
The end result is that any liquid asset in the world would be trade-able on Openfund, with leverage, creating a truly global platform that provides universal access to any asset to anyone in the world, with virtually no friction.
Conclusion
Imagine an exchange that can list any asset.
An exchange that can grant access to the highest-quality assets to literally anyone in the world, even the small farmer in a third-world country (with leverage).
Imagine a fundraising platform that allows anyone in the world to raise capital for their idea, and to subsequently list on that same exchange.
This universal exchange and fundraising platform is what we have the potential to ultimately achieve with Openfund.
If you're interested in learning more and following our progress, create an account on Openfund today, and let us know your feedback by posting to the feed.
Footnotes
In addition to Uniswap's cross-chain limitations, the scaling limitations of Ethereum force DEXes like Uniswap to operate on a "liquidity pool" model rather than the more efficient and far more popular order-book model offered by centralized exchanges like Binance.
This requires market-makers on Uniswap to give up custody of their funds and tie them to a particular pool, which makes providing liquidity on Uniswap very expensive compared to order-book alternatives.
Importantly, a "wrapped" alternative exists to enable Bitcoin trading on Uniswap, but the process of converting to and from real Bitcoin is so onerous that it can't be considered a true substitute for centralized alternatives, which support quick deposit and withdrawal of layer-1 assets. Moreover, virtually no other assets support wrapped options.
This being said, as we discuss, the concept of wrapping hints at a solution to the cross-chain problem if done right and at scale for all assets.
Likely because of Uniswap's lack of cross-chain support, the most popular assets on Uniswap at the time of this writing are WETH, USDC, USDT, and various "meme coin" Ethereum tokens such as Psyop, RefundCoin, Ben, and "Mr F was here" (no, these are not made-up).
No cross-chain crypto assets appear in the top-ten. In contrast, the most popular assets on Binance are more representative of what's actually popular among traders, including popular layer-1s like Bitcoin, Ethereum, Ripple, and a plethora of stablecoins. Here you can see top trading pairs for Uniswap and Binance respectively.
Notably, DeSo's storage advantages not only make it possible to build a storage-intensive order-book DEX, but also to build fully on-chain censorship-resistant websites, which is infrastructure that Openfund also intends to leverage.
When you visit any website today, the frontend is virtually always served by a centralized entity that can be censored or blocked in any particular country.
This is true of virtually every website, including those belonging to DEXes like Uniswap. But with DeSo and Openfund, we aim to change that.
Although it will be discussed in a later proposal, we want to mention here that DeSo is working on launching a new kind of infrastructure it calls The Decentralized Web & DeSo Domains.
Simply put, The Decentralized Web will allow for website content to be uploaded directly to the DeSo blockchain, replicated across all nodes on the network, and subsequently served to users via a common domain that works directly in any browser.
With this upgrade to DeSo, Openfund can put all of its frontend code directly on-chain, and this code can be served directly to users with no interaction with any centralized intermediary, and with no degradation in the user experience.
Users will load the website by querying any node on the DeSo network, and then the website will simply direct the user's browser to construct transactions locally, which they then submit to any node on the network.
This makes it as difficult to censor a frontend like Openfund as it is to censor a blockchain like DeSo or Bitcoin.
In addition, The Decentralized Web is not something that only Openfund can tap into.
We anticipate many crypto projects will initially appreciate the ability to host content directly on a layer-1 blockchain, followed shortly, we hope, by more and more mainstream platforms.