Overview
Introduction
Drake Exchange is a fully onchain perpetual exchange launching on Monad. It merges the performance of centralized venues with the transparency and composability of DeFi. Drake’s design combines hybrid liquidity, institutional-grade risk controls, and strategy vaults, opening up new opportunities for traders and liquidity providers alike.
Core Components
Hybrid Order Router for optimal execution.
On-chain OrderBook for transparent price discovery.
Dynamic AMM strategy vaults that act like institutional market makers.
Unified Margin and Risk Engine with cross and isolated margin options.
Funding Rate Strategy Vault (frUSDC) for systematic yield capture.
Competitive Advantages
Oracle-aligned pricing with adaptive spreads.
Guaranteed liquidity through hybrid execution paths.
No impermanent loss for LPs; risk is counterparty exposure.
Layered protections, including borrowing fees, OI caps, and ADL safeguards.
Why It Matters
Traders gain access to deep liquidity and efficient execution.
LPs can earn structured yield streams without impermanent loss.
The system remains solvent and transparent by design, with all events enforced on-chain.
Trading Overview
Trading on Drake revolves around flexible order types, hybrid execution, and strict but efficient risk management. This ensures professional-grade trading while preserving accessibility for new users.
Order Types
Market: immediate execution at the best available venue price.
Limit: resting orders on the book until matched;
Stop Loss / Take-Profit / OCO: triggers a market order when trigger price are hit.
Validation: ownership, margin sufficiency, and price bands checked before acceptance.
Execution Routing
Hybrid Router splits orders between the order book and AMM vault.
Split fills ensure large orders execute with minimal slippage.
Emergency/reduce-only modes protect LP capital.
AMM Strategy Vaults
Single-asset USDC strategy vaults quoting around oracle mid ± spread.
Counterparty to unmatched trader positions.
LP revenue from trading fees, borrowing, funding, spread capture, and trader losses.
No impermanent loss; exposure is actively managed.
Margin & Risk
Isolated Margin: per-position collateral, siloed risk.
Cross Margin: pooled collateral with portfolio discounts.
Risk Engine: enforces OI caps, spread adjustments, liquidation, and ADL.
Liquidations
Isolated: single-position closes once margin falls below maintenance.
Cross: staged liquidation process escalating to portfolio level if needed.
AMM ensures closure even if order book depth isn’t sufficient.
Trading Functions
Order Lifecycle
Orders that can execute immediately are sent through the Hybrid Router, and those that cannot are stored on-chain until triggered.
Fill prices calculated as weighted average across venues.
Fees deducted from collateral, leaving size and entry price intact.
On-chain history logs all actions, including cancels, liquidations, and ADL events.
Margin System
Isolated: risk ring-fenced per position.
Cross: pooled margin, higher efficiency but shared risk.
Collateral discounts applied to volatile assets; stablecoins near full value.
Liquidations
Isolated: liquidate single under-margined position.
Cross:
Per-position liquidation attempted first.
Full portfolio liquidation if margin ratio remains below threshold.
Residual equity returned to user; losses absorbed by vault if exceeded.
Risk Engine
Funding Fees: longs pay shorts when OI is long-biased; shorts pay longs in reverse.
Borrowing Fees: continuous interest scaling with volatility and vault utilization.
OI Caps: limit exposure per asset and direction.
Price Bands: orders outside bands rejected.
Spread Adjustments: vault spreads widen under imbalance.
ADL: last-resort deleveraging of large profitable positions on dominant side.
Underlying System
Hybrid Order Router
Inputs: vault utilization, OI imbalance, oracle mid, and book depth.
Venue priority: book fills first; vault backstops or shares flow.
Output: deterministic split executed atomically.
OrderBook
Per-market on-chain order book using balanced trees.
Supports Limit, Stop, Take-Profit, OCO orders.
Price-time priority maintained; fills loop until no cross remains.
Queries provide real-time best bid/ask and depth.
Dynamic AMM Strategy Vault
Vault structure: USDC-only deposits, dUSDC share tokens.
Counterparty role: vault PnL moves opposite aggregate traders.
Pricing: oracle mid ± fixed/dynamic spreads.
Revenue: trading fees, borrowing, funding, spread capture, counterparty PnL.
Protections: router throttles vault exposure under stress; OI caps limit concentration.
Distinction vs constant-product AMMs:
No x*y=k curve.
No impermanent loss.
Operates like an institutional MM, not a passive pool.
Oracle Aggregator
Sources: multiple networks; keepers update on-chain.
Aggregation: normalize, discard stale values, compute mid.
Consumers: AMM pricing, margin checks, liquidation triggers, funding rates.
Vault System (ERC-4626)
Deposits mint dUSDC; share value tracks vault assets and unrealized PnL.
Redemptions: two-step request → redeem with time delay.
Locked deposits: NFT lockups with discounted entry or boosted returns.
Strategy strategy vaults
Funding Rate Vault (frUSDC)
Mechanics:
Deposit USDC → swap to asset with positive funding.
Post as margin → open equal short perp.
Net delta ≈ 0; collect funding from longs.
Returns increase frUSDC share value.
Benefits:
Stable, direction-neutral yield.
Market stability through funding compression.
Composable tokenized collateral for DeFi.
Institutional analogue: automated cash-and-carry arbitrage.
Risks:
Funding reversals can cause losses.
Mitigated by vault’s dynamic exposure controls.
Use cases:
Passive yield for stablecoin holders.
DAO treasury allocation.
Protocol collateral with embedded yield.
Distinction vs constant-product AMMs:
No impermanent loss.
Returns from funding, not swap volume.
Operates like an automated hedge-fund vault.
In-House MM Strategy Vaults
These strategy vaults use predefined strategies to simulate professional market makers within Drake’s system, strengthening liquidity and execution quality.
Rule-based algorithms manage quotes dynamically.
Earn revenue streams similar to AMM strategy vault: fees, funding, borrowing, spread capture.
Reduce reliance on external market makers by providing continuous liquidity.
Improve price stability in less liquid markets.
Composable as structured vault products layered on top of AMM infrastructure.
Dark AMM Swap Path
The Dark AMM path internalizes liquidation and collateral swap flows, preventing disruptive external impact.
Liquidations executed against vault path rather than external markets.
Minimizes cascading effects during high-volatility events.
Provides smoother closeouts for large positions under stress.
Protects traders from extreme slippage during liquidation events.
Shields LPs by absorbing forced flow in a controlled mechanism.
Structured Strategies
Drake supports composable vault strategies beyond frUSDC, enabling hedging and index-like products.
Hedge strategies: protect LPs or treasuries from directional risk exposure.
Index-style strategy vaults: replicate DeFi “equities” through diversified exposure.
Yield optimization strategy vaults: recycle trading flows into sustainable returns.
Designed for DAO integration or as building blocks for other protocols.
Fully on-chain, enabling transparency and composability.
Glossary
AMM (dynamic): Oracle-quoted vault with spreads; no impermanent loss.
dUSDC: ERC-4626 share token for AMM strategy vaults.
frUSDC: Funding Rate Strategy Vault token.
OI: Open Interest.
MR: Margin Ratio.
OCO: One-Cancels-the-Other order.
Venue split: Allocation of taker flow between AMM and Order Book.
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