Key Features
The team behind Defrost has successfully migrated the Super Vault mechanism from the first to the second version of the platform to maintain enhanced yields for users.
As opposed to powering a stablecoin - as was the case with the V1 - the Defrost V2 sees Super Vaults behave as lending pools. In other words, the V2 Super Vaults can lend their assets to the margin trading smart contract.
The assets contributed to the Super Vaults will have no-loss features, while preserving yields, not only from the interoperated protocols, like AAVE and Benqi, but also from lending money to the leverage trading contracts.
Super vaults will behave like a 'smart pool', benefitting from higher yields when leverage traders borrow money while maintaining the basic yields from other interoperated DeFi protocols.
Please note that the non-loss feature is based on the timely liquidation of unhealthy positions which fall below the minimum collateral ratio. For more information regarding possible issues with this feature, please see the "Risks" section of the documents.
Unlike perpetual exchanges, which build and incentivize their own liquidity for transactions, the Defrost V2 uses liquidity from other DEXes, like Trader Joe. Thus, Defrost does not need to build its own liquidity pools from scratch, which might be difficult if no adequate incentives are provided to the liquidity contributors.
Instead, the Defrost V2 fully utilizes the well-established liquidity pools that power spot trades on major DEXes to build leverages for traders when longing or shorting crypto assets. The actual trades are done on the interoperated exchanges, rather than making synthetic positions like some of the perpetual exchanges do.
Interoperated liquidity will help to smoothly bootstrap the leverage trading, while being more likely to provide higher liquidity and lower slippages for traders, further enhancing the user experience.
Interoperated liquidity makes the V2 flexible in building leveraged trading pairs. For example, provided there is deep liquidity in AVAX/USDC and ETH/AVAX pairs on Trader Joe, users may long or short AVAX against USDC or ETH. Açternatively, they could also long or short ETH against AVAX or USDC.
This feature will allow for interesting leveraged trading strategies when speculating on price moves or hedging against risks.
Moreover, in the long run, it is possible to make Defrost V2 permissionless. Anyone may launch long or short crypto assets with leverages on any pairs that are traded on major DEXs on Avalanche. Of course, smaller liquidity pools may bring higher slippages when making these transactions.
Unlike DeFi perpetuals, which are often designed as synthetic products, leverage trades in Defrost V2 are always fully collateralized. When leveraged traders long or short crypto assets, the smart contracts always borrow real money and do real trades, to back the traders' leveraged positions.
The funds in the lending pools are lent to acquire a certain amount of tokens from an exchange and increase the position size, providing an easier, smoother process than traditional decentralized leveraged trading models. All trades and positions can be tracked on the Avalanche blockchain.
This further simplifies the contracts involved, without the need for a synthetic index to track the price of the underlying asset or funding rate to address the index bias. The system can also reduce the risk of price manipulation when the index deviates from the market price and causes unfair liquidations.
The Defrost V2 provides a friendly user experience, similar to centralized exchanges. Here the main focus will be on a simple, yet powerful, interface where users can intuitively deposit, calculate their returns, take on positions, and trade.
Last modified 8mo ago