Peer-to-Pool Perp Model

Adrena uses an Asset Backed (or peer-to-pool) Perp Model (similar to what GMX introduced). This system removes a lot of risks usually present in order-book based Perp DEXs. One can think of this model as a PvE model rather than the usual PvP model, enabled by Liquidity Providers (ALP and RWALP holders) that provide liquidity to traders to leverage their trades.

How It Works

In a typical order-book based Perp DEX, when a trader opens a position, the counterparty is another trader betting in the opposite direction. In the asset-backed model, traders' counterparty is themselves and the LP pool (depending on the direction of the trade).

Long Trades

The user borrows long exposure of the asset based on their leverage from the Liquidity Pool (there is no actual borrowing - the trader locks assets in the pool to gain long exposure).

• Trader is right → Trader profits. The Liquidity Pool was deprived of the long exposure that goes to the trader instead. The pool does not lose capital, and accrues fees.

• Trader is wrong → Trader eventually gets liquidated on their initial collateral. The locked long exposure is released. The pool accrues fees.

Short Trades

The user borrows stablecoins from the Liquidity Pool based on the platform's maximum profit (100%). Short positions have a limited upside - that's a limitation/security of this model.

• Trader is right → Trader profits. The Liquidity Pool pays out stablecoins to the trader but accrues fees.

• Trader is wrong → Trader eventually gets liquidated on their initial collateral. The locked short exposure is released. The pool accrues fees.

Key Characteristics

• LP revenues originate from fees and trader losses - when a trader is liquidated or closes at a loss, their collateral accrues to the pool

• The model may not be as capital efficient as order-book, but oracle-based pricing makes it popular

• Limited by the size of the Liquidity Pool

• Pool Asset Ratios are an important parameter - maximizing volatile assets while controlling overall long exposure

Risks for Liquidity Providers

As a Liquidity Provider (ALP and RWALP holder), you are partially exposed to trader PnL depending on trade direction. The pool's goal is to maximize fee revenue through high trading volume.