01 Exchange — Launching SQUOL, Perpetuals, and Decentralized Derivatives on Solana

The First Derivatives Exchange on Solana to support both Perpetuals Futures and Power Perpetuals (SQUOL) is Launching this Month

01 Exchange
5 min readJan 13, 2022

#SQUOL stands for SOL²

Over the last few months, 01 has gone through the DeFi Alliance accelerator, closed a strategic seed round led by Alameda Research and Multicoin Capital (full announcement in a separate article), launched its own NFT collection, and attracted over 15k+ unique users to its devnet release, where it showcased orderbook-based Everlasting Options for the first time in crypto history. It established deep partnerships with Project Serum, Atrix, Pyth, Friktion, Chest, Liq, Syndica, Wormhole, among many other top Solana protocols.

01 Exchange is a full-suite decentralized derivatives exchange that will offer a single venue to trade, for the first time on Solana and in DeFi, both Perpetual Futures and Power Perpetuals, enabling powerful cross-margining across both Futures (Perps) and Options-like (Powers) positions, powered by a fully on-chain limit orderbook experience through Serum.

(Read until the end for the full Mainnet release schedule, and to understand why we’ve adapted Everlastings to Powers)

🏛 Decentralizing The Centralized Exchange

01 originally started as an experiment by a group of traders and friends to see whether it would be possible to take all the features a centralized exchange offers, and fully decentralize them.

Existing decentralized exchanges (DEXs) have many design trade-offs and flaws. dYdX, the largest perpetuals exchange on ETH, relies on centralized servers to host their orderbook — at the expense of decentralization. Other DEXs pioneered the virtual Automated Market Maker (vAMM) — at the expense of limit orderbook flexibility and price slippage.

As traders, we wanted something better. We wanted the capital efficiency of limit orderbooks, the power of cross-margining & cross-collateral, and the ability to trade across both futures and options on a single venue, all without compromising on decentralization.

We wanted to have our cake and eat it at the same time.

📈 Perpetual Futures, and the 01 Difference

With the vision to decentralize centralized exchanges, our team could not see a DEX future without perpetual futures.

So, we built the most robust and scalable derivatives platform capable of supporting up to 100 different markets, and up to 50 different collateral tokens, all cross-margined and cross-collateralized.

Composing directly on top of the Serum orderbook means that 01 Exchange is fully decentralized from top to bottom.

Thanks to Solana’s incredible high throughput and low transaction fees, traders will be able to execute trades instantly, and have them be confirmed on the blockchain within seconds.

💫 From Everlasting Options…

In early November, we also experimented with Everlasting Options on public Devnet. Throughout the experiment, the team realized that the Evers design still had a few flaws.

First, while Evers removed the necessity to select expiries, users still had to choose a strike. A dynamic strike price could be a solution, but that would lead to complications when pricing the instrument. Second, while Evers made it significantly easier to trade options thanks to the perpetuity of the instrument, it still required a relatively large activation energy for newcomers to understand how the option price moves. Lastly, Evers run the issue of losing its convexity when too deep in or out of the money, making the instrument not much different from a normal Perpetual Future.

After backtesting Power Perpetuals, introduced by Dave White here, in-house for the first time, we realized that the elegance of this new asset class could provide much of what Everlastings provide, but in a much simpler, and efficient package.

⚡️ To Power Perpetuals #SQUOL

We will be releasing a much more in-depth SQUOL explainer article in a few days

In summary, Power Perpetuals are perpetual future derivatives indexed to some power of an underlying asset’s index price. The funding rate, instead of simply being mark — index now becomes mark — index ^ P where P is some power. In the case of #SQUOL, P = 2 and the underlying is SOL squared. The easiest way to understand it is if the price of SOL 3x’s, then the price of SQUOL 9x’s.

01 will start by releasing Squared perpetual markets.

  • #SQUOL provides option-like exposure, without the necessity to select strikes like in Everlastings. This means traders are exposed to an instrument with convex payout (i.e. if the price moves in your favour, you gain a lot, whereas if the price moves against you, you lose a little)
  • Power perpetuals are fairly intuitive to understand. When the price of the underlying doubles, the Squared Power Perp quadruples, and so forth. Premium continues to be paid like a regular perpetual future position, from longs to shorts.
  • Power perpetuals provide the ability to hedge impermanent loss, as well as traditional options
  • Thanks to Solana’s throughput, and Project Serum’s fully decentralized on-chain orderbook, we are able to provide the first ever limit orderbook-based #SQUOL experience

🗓 Mainnet Schedule

We know this has been a long time coming, and that we’ve been teasing Mainnet since late 2021. But this time, it’s real.

01 will take on the following progressive Mainnet rollout schedule:

PHASE I. Release of Perpetual Futures markets, Yield-Bearing deposits, and Borrowing on January 27th

Users will be able to trade cross-margined and cross-collateralized perpetual futures, up to 20x leverage, while earning yield on all their deposits. Non-traders will also be able to deposit to earn yield.

Borrowers can take on loans directly from 01’s collateral pool, which in turn generates yield for depositors.

PHASE II. Release of the First ever Limit Orderbook-based Power Perpetuals markets #SQUOL

The decision to release Power Perps/ SQUOL sequentially after regular Perpetual Futures is to ensure a smooth rollout, while stress-testing all protocol engines. Moreover, this gives time for market makers to fully familiarize themselves with the instrument. We’re incredibly excited about this milestone, as this will be a first for Solana, DeFi, and crypto.

PHASE III. Trading Competition launch in partnership with some of the biggest names and firms in crypto

This will be an opportunity for all traders of all levels to take part in what will be one of 01’s biggest event to date.

🤝 Get involved early!

Follow us and join the community to stay updated on the exact release dates!

Tweet what you’re most excited about and @01_exchange and #SQUOL

Site: https://01.xyz/

Twitter: https://twitter.com/01_exchange

Discord: https://discord.gg/01exchange

Telegram Announcements: https://t.me/onboard01