Perpetual swaps aggregators in the crypto world might unexpectedly resemble the role of prime brokers in traditional finance (TradFi). This comparison sheds light on how traditional concepts can be reimagined in the decentralized finance (DeFi) space.
Let’s start with understanding what a prime broker is. Typically, a prime broker facilitates trade for institutional clients, like hedge funds. The client sends their trades to the prime broker, who then executes these on an exchange. Prime brokers also offer significant leverage to their clients – sometimes to an extreme degree, as exemplified by the case of Bill Hwang.
The operational model of a prime broker involves maintaining relationships with exchanges and keeping enough capital to carry out client trades. They adhere to exchange rules, enabling large clients to execute substantial trades without worrying about the logistical aspects.
For instance, if you’re managing a portfolio for WhaleChad Capital Management, you wouldn’t want to be bogged down by the administrative side of your trades. You have more critical tasks like analysis and risk management. Prime brokers simplify this process for their clients.
Now, let’s draw the parallel to perps DEX (decentralized exchange) aggregators (PDA). Unlike standard DeFi spot aggregators, which simply exchange one token for another without leverage, PDAs are different. Perpetual swaps involve leverage and require an account on the exchange with deposited collateral. This isn’t a one-off transaction like with spot aggregators; it involves managing an open, leveraged position.
Here’s where the similarity with prime brokers becomes apparent. A PDA, acting as a DeFi prime broker, would establish connections with perps DEXs (such as BFX) through API links and smart contracts. Users deposit into a PDA’s vault, which then allows them to route their trades to the most optimal exchange.
The user experience simplifies to depositing funds and then executing orders across various perps DEXs. The PDA adheres to the risk management rules of the exchange where the order is placed, mirroring a user trading directly. The process of closing a trade on one DEX and opening another on a different DEX becomes seamless.In essence, a DeFi prime broker, or PDA, manages the intricate logistics, ensuring orders are filled based on the best available conditions. This concept elevates beyond the traditional DEX aggregator role, potentially reshaping the DeFi perpetual swaps landscape – a development we’re keenly exploring at BFX.
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