Will Surf, the BTC second-layer perpetual trading platform, become the new Bitcoin "liquidity magnifying glass"?

Surf Protocol is the first second-layer derivatives trading platform for Bitcoin, and it is also the decentralized trading platform with the largest transaction volume in the BTC ecosystem.

Since April, the GAS on the Bitcoin chain has soared. Just when everyone was excited that the Bitcoin ecosystem was about to enter the "third wave of heat", they were poured with cold water. Because of the lack of liquidity in the overall market, the performance of the Bitcoin ecosystem was significantly inferior to the previous two waves.

From a macro perspective, the global crypto market has been affected by many factors recently, especially the interference of war factors, resulting in abnormally weak market performance. Against this background, investment elites led by Wall Street have tightly grasped the liquidity in their hands. Since the US SEC approved the Bitcoin spot ETF in January this year, the market has been destined to be led by Bitcoin in this round of bull market, and its trend will be closer to the US stock market for a long time.

On the other hand, the third wave of Bitcoin ecology seems weak, and because its ecosystem lacks "liquidity magnifiers" such as smart contracts and DeFi, meme hype such as inscriptions cannot fully stimulate market potential. In addition, based on past experience, the month of Bitcoin halving usually shows a downward trend, so it is difficult for the Bitcoin ecology to show strong vitality in the absence of liquidity, and related markets such as rune inscriptions are also relatively weak.

Against such background, the Bitcoin ecology urgently needs infrastructure and DeFi construction that can help improve liquidity.

Surf Protocol, a BTC second-layer perpetual contract DEX led by ABCDE, is one of them worth looking forward to. Surf Protocol is the first Bitcoin second-layer derivatives trading platform, and it is also the decentralized trading platform with the largest transaction volume in the BTC ecosystem.

BlockBeats data shows that as of the time of writing, Surf Protocol's total transaction volume is close to $300 million, TVL is close to $30 million, and the number of transaction addresses has exceeded 10,000.

Surf Protocol is a trading platform that provides up to 50x leverage, where users can trade and earn the principal of liquidity providers. Surf Protocol has created a unique margin model in satoshis, which allows liquidity providers (LPs) to also serve as trading margin. At the same time, Surf Protocol also provides a unique single-coin liquidity supply model, so that users do not have to worry about LP price fluctuations, but only need to earn traders' fees and risk traders' principal losses from liquidation.

With a trading volume of nearly $300 million, Surf Protocol has established a major position in the field of Bitcoin's second-layer perpetual decentralized trading platform (Perp Dex). In addition, Surf Protocol has been selected for the Binance MVB Accelerator. With the support of the Binance MVB Accelerator Program, Surf Protocol attracts nearly 1,000 traders per day and an average daily trading volume of more than $10 million.

Surf Protocol: Quietly Revolutionizing the Future of DeFi Trading

Many investors who turned to Web3 out of distrust of the traditional financial system unexpectedly encountered the "Lehman" moment of the currency circle. A year and a half has passed since the collapse of FTX, but the trust crisis it left behind is still there. The market's desire for transparent and intermediary-free trading methods is also growing. After the importance of DeFi has gradually been highlighted, it has also driven the demand for decentralized derivatives.

Traders and investors need to hedge risks and conduct strategic operations, and derivatives, as risk management tools, can meet this need. In a decentralized environment, such tools are more flexible and efficient. Secondly, unlike traditional derivatives markets, decentralized markets can be accessed without permission, breaking geographical and regulatory restrictions and allowing global transactions, which greatly expands the potential user base. Utilizing the characteristics of blockchain technology, smart contract automated transactions can design more innovative derivatives, such as prediction markets and perpetual contracts, thereby broadening the diversity and flexibility of products.

Although the decentralized derivatives market is still in its early stages of development, its low entry threshold and flexibility have attracted more and more participants, and market liquidity is increasing. Decentralized platforms have obvious advantages in compliance and user privacy protection. User assets are always under their control, and the transaction process is transparent and traceable, which greatly reduces the trust threshold. With these advantages and potential, decentralized perpetual contracts DEX is regarded as the "new blue ocean" of the derivatives market, which is expected to meet the diverse needs of a new generation of investors and achieve exponential growth.

Obviously, Surf Protocol is working on this. As the first derivatives trading platform based on Bitcoin's second layer, Surf Protocol not only allows users to trade with Bitcoin as collateral, but also achieves "no impermanent loss" by introducing a single-coin pledge liquidity pool. Surf Protocol gently reshapes expectations, puts user needs and market stability first, and quietly revolutionizes the future of DeFi trading.

In addition, the reason why Surf Protocol is currently the largest decentralized trading platform for BTC is due to its several innovations: self-built oracle, and single-coin pledge liquidity pool.

Self-built Oracle

As mentioned above, unlike traditional centralized trading platforms, on-chain contract trading platforms such as Surf Protocol provide higher security: all funds are directly stored in the user's wallet without being transferred to the trading platform, thereby reducing the risk of account freezing or hacking.

To ensure compatibility with as many assets as possible while ensuring the reliability and correctness of prices, Surf Protocol built its own oracle system, and price synchronization is now at the millisecond level.

In addition, Surf Protocol's oracle also accesses the data of mainstream trading platforms and configures unique weights for each trading pair, effectively avoiding price manipulation or errors that may be caused by a single data source. The design of this mechanism not only ensures the fairness of transactions, but also improves the trust of the entire platform and the security of users' funds.

Through the implementation of these technologies and strategies, Surf Protocol not only ensures the accuracy and timeliness of transaction data, but also greatly improves the competitiveness and attractiveness of its decentralized trading platform, providing users with a safe, transparent and efficient trading environment.

Single-coin pledge liquidity pool

The traditional mechanism currently used by most DEXs in the industry is the automated market maker (AMM), which requires LPs to provide dual-currency pairs to maintain trading liquidity. This may be a challenge for users who lack a specific number of tokens, and to some extent reduces the experience of users who provide liquidity. For example, in the Bitcoin second-layer ecosystem, LPs tend to hold more BTC assets than USDT.

The traditional method of providing liquidity often results in uneven distribution of liquidity, resulting in traders facing large slippage problems. In contrast, perpetual automated market makers (AMMs) evenly distribute liquidity at all price levels. While this approach ensures broad coverage, it can lead to inefficiencies as liquidity is allocated to untapped price points and slippage persists across the price spectrum

To address this issue, Surf Protocol has adopted a single-coin collateral model (SCL) that allows LPs to provide liquidity using only one asset. The SCL pool enhances liquidity concentration and mitigates slippage by dynamically adjusting the weights in the pool and forming a tight liquidity curve around the current price determined by the oracle. This approach ensures that liquidity is more efficiently utilized and reduces transaction costs.

Surf Protocol has innovated the traditional LP provision method from the underlying design to eliminate the risk of impermanent loss. Its single-coin collateral liquidity pool can be said to be the first of its kind in the Bitcoin ecosystem. The launch of this model not only allowed Surf to launch a similar model after GMX, a top derivatives trading platform in the last bull market, but also enabled Surf Protocol to be selected for the Binance MVB Season 7 Accelerator Program.

For example, as an LP in a traditional AMM pool that includes both BTC and ETH. If the price of BTC rises dramatically relative to ETH and you decide to withdraw your liquidity, you will receive a ratio of the two tokens that reflects the new price ratio, which may result in a loss because your asset is worth less than if you held BTC outside the pool due to price fluctuations. This is known as impermanent loss.

In contrast, in the SCL pool, you only provide liquidity with one asset, which greatly reduces your exposure to such price fluctuations. For example, if you only put BTC into the SCL pool, your position remains BTC, and even if the price of ETH fluctuates, the pool's mechanism will adjust to maintain value, thereby protecting you from the direct impact of impermanent loss caused by the divergence of the value of the paired assets.

By adopting the concept of delta-neutral vaults, Surf Protocol solves the beta risk problem in traditional pooled perpetual decentralized exchanges. In this model, LPs can focus on earning transaction fees and managing losses caused by trader activities without having to worry about the market sensitivity of their portfolios.

At the same time, through its BTC Vault, Surf Protocol also solves the liquidity challenges currently faced by Bitcoin's second layer, and LPs also gain more opportunities to earn income, expand the size of the liquidity pool, and increase trading depth. This vault also supports BTC as the main asset, which greatly increases the convenience and attractiveness for users who want to use Bitcoin directly for DeFi operations.

LP income source

Therefore, as an LP in Surf Protocol, there will be three sources of income:

1. Trader liquidation/loss: This is the same as most DeFi platforms and derivatives trading platforms. One of the main sources of income for LPs comes from traders' liquidation or losses. According to Surf Protocol statistics, about 70% of traders are in a loss state, so this is one of the stable sources of income for LPs.

2. Fee sharing: LP will receive a certain percentage of the transaction fee while providing liquidity. This income model is directly related to the trading volume of the platform. The larger the trading volume, the more LP will receive in fees.

3. LP points: Surf Protocol introduces an LP points system to reward users who actively provide liquidity. These points can eventually be exchanged for Surf's future tokens, providing LP with additional incentives and value growth potential. This points system not only increases user engagement, but also enhances the platform's user stickiness and capital lock-in.

The LP token price of each delta-neutral vault is calculated according to the following formula: LP token price = total assets in the pool / number of LP tokens issued

To make it clearer how the LP token price is calculated, we can use a specific example to explain. Suppose in a Bitcoin pool, 100 BTC are initially used as collateral assets. Subsequently, because LP received an additional 2 BTC as fees and profits from transactions as counterparties, the total number of BTC in the pool increased to 102.

In this case, if the pool issues 100 LP tokens, then each LP token represents 1 BTC in the pool plus an additional 0.02 BTC in revenue. Therefore, the price of each LP token would be 1.02 BTC. This means that when LP holders want to deposit or withdraw BTC from the pool, their operations will be calculated at a price of 1.02 BTC per LP token. In this way, the price of LP tokens reflects the actual value of the assets in the pool and the additional income generated by the transaction.

From the data, Surf Protocol's single-coin staking model has indeed attracted a large number of liquidity providers, helping LPs reduce the complexity and risk of participation. After the Surf Protocol mainnet was launched, $7 million in liquidity was subscribed within the first 2 minutes. Two weeks later, its total locked value (TVL) reached $25 million, making it the third largest on-chain TVL increase that month.

Current progress

Currently, Surf Protocol has airdropped $Merl tokens to users whose trading volume exceeded $10,000 between April 11 and April 30 to give back to its active users. The deadline for the airdrop is set for May 15, and the snapshot time is April 30. The total size of this airdrop is as high as $100,000. The generosity of the airdrop exceeded the expectations of many participants and surprised many users.

Because of this generous airdrop, some community users who originally planned to only conduct risk-free point swiping, by holding long and short positions at the same time, hedging arbitrage, unexpectedly received thousands of Merl tokens. This means that the cost and operation is just to use a few thousand dollars to open a 50x leverage to complete transactions and interactions. The actual return from this airdrop far exceeded expectations, reaching more than 2-3 times.

To further enhance its user base and promote its services, Surf Protocol has recently launched a series of marketing campaigns with multiple mainstream wallets, including Trust Wallet, Bitget Wallet, and Bybit Wallet, planning to issue more than 500,000 Lucky Cards as incentives. These collaborations not only help Surf Protocol expand its influence in the Bitcoin community, but also bring practical benefits to a wider user base.

In addition, Surf Protocol is not only the first native derivatives project on the Merlin Chain mainnet, but also plans to expand to more blockchain networks in the future. Currently, Surf is being tested on the Base network, a step that is part of its multi-chain strategy to enhance the accessibility and diversity of its products and meet the needs of different blockchain users.

As for the performance of the platform itself, Surf Protocol has currently achieved $200 million in trading volume and $30 million in total locked value (TVL), and has attracted tens of thousands of traders. These numbers demonstrate Surf Protocol's success and market recognition as an innovative decentralized derivatives trading platform, and also reflect the continued expansion of its community.

Team and Financing

Surf Protocol's team is composed of senior founders and core members from top institutions in the industry. Their rich experience and professional background have laid a solid foundation for the development of the platform. The team includes former Amber co-founder Tony, who has extensive experience in foreign exchange and interest rate derivatives trading in investment banking in Hong Kong and Singapore; current CTO Cyson, who was the founding engineering director of SEI; and former Huobi Futures COO Tom. The expertise and industry insights of these team members provide Surf Protocol with strong technical support and strategic guidance, driving the platform's continued innovation and growth.

In October 2023, Surf Protocol successfully obtained US$5 million in financing from ABCDE Capital and Amber Group, providing stronger financial guarantees for its future development. At the same time, in March 2024, Surf Protocol was selected for the Binance MVB Season 7 Accelerator Program, and is the only project selected in the derivatives track.

Surf Protocol has launched a points system and a rebate system. Surf Protocol has designed a variety of ways to obtain points to encourage various types of users to participate. Lp will also support more currencies and income methods in the future. So for users who have not yet participated, how can they get Surf Protocol?

How to get the airdrop points system

Surf Points (SP) are the credentials for future Surf Protocol airdrop tokens. Through SP, users can redeem specific rewards within the preset reward distribution cycle. Surf has also launched a leadboard, which may provide additional points incentives for leaderboard point ranking snapshots. There are currently four ways to obtain SP:

1. Trading Points: accumulated through trading activities, points are proportional to trading volume;

2. LP Points: provide points to liquidity providers to encourage continuous provision of liquidity;

3. NFT Points: pledge Surf Protocol OG cards to obtain NFT points;

4. Referral Rebate Points: obtained by recommending new users to join the platform;

How to Get Trading Points

The formula for obtaining Trader Points is: Trader Points=X×Amount Of Trading Volume (USD) (Note: "X" is currently 2 and will be dynamically adjusted according to the total trading volume.)

Professional traders can earn SP on Surf Protocol Practice trading, but remember to set a stop loss point. For traders who can use grid strategies, grid trading can also be used. Such a strategy can also obtain considerable returns when the market is sideways.

For friends who do not understand trading, the simplest way is to adopt a hedging strategy, that is, to hold a long and a short account at the same time, open a position at the same position, avoid the capital risk caused by market fluctuations, and collect trading points at the same time. According to the current maximum multiple of 50 times, with a cost of 200 US dollars, the transaction amount can reach 10,000 US dollars (the transaction amount is equal to the margin multiplied by the leverage multiple), which is easy to reach the previous airdrop standard, which is very friendly to low-income households and greatly reduces the threshold for participation.

As shown in the figure, after entering the official website, click on contract trading. After linking the wallet, you can select the trading pair in the upper left corner, choose to go long or short, click the limit price to set the price of 61211.87, or the appropriate current price, and increase the margin and position quantity to complete the transaction.

During the event, all gas fees will also be fully refunded, so you can increase your trading volume during the event.

How to get LP points

The LP provider points formula is:

(Note: Currently, the value of "Y" is 50, and will be dynamically adjusted according to the total mortgage amount.)

As shown in the figure, on the official website page, click on the vault and select the currency you want to pledge on the right. Currently, you can choose BTC, WBTC, MBTC and Solv BTC. We can also see that the APY of different vaults will be different according to the type of vault on the left.

How to get referral points

Referral rewards are: Referral Points = 0.1 × Total Traders Points of All Invited Users

Surf Protocol's current invitation rebate mechanism enables users to enjoy rate discounts and earn rebates through the rebate program.

As shown in the figure, enter the rebate (rebate page link) page, click Recommend, click "As a referrer", and you can create a 4-8 alphanumeric invitation code.

How to get staking points

Participants who own a Surf PROTOCOL OG card are entitled to accumulate NFT points. Participants can monitor their accumulated NFT points by visiting stake.Surf.one and connecting their BTC wallet. It should be noted that as long as the participants meet the relevant conditions for point accumulation, they are eligible to accumulate NFT points regardless of whether they connect a BTC wallet.

Holders of Surf PROTOCOL OG cards are automatically eligible to accumulate NFT points. This is achieved through a process of daily random snapshots, and 100 basic staking points are automatically allocated for each Surf PROTOCOL OG card held.

It should be noted that rewards are calculated based on the length and number of NFTs held. For participants, once they are listed on the market or have a record of transferring OG cards, they may lose the qualification to accumulate points.

　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.