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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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