Drake Exchange is a recently launched perpetual futures crypto trading DEX (Decentralized Exchange) with several unique trading strategies and 50x leverage. In this article we dive into what Drake is and why they are different from other DEXs.

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What is Drake Exchange?

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Drake Exchange is a decentralized perpetual futures trading platform built on Base and Monad which enables 50x leverage trading, novel peer-to-pool liquidity and gas-free transactions. Liquidity providers deposit USDC into a central vault that powers trades across the platform.

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Drake has also introduced a Funding Rate Earn Vault and isolated margin trading accounts for risk management.

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• Peer-to-Pool liquidity model: USDC deposits to provide leverage trading liquidity in return for yield rewards

• Leveraged trading: Use USDC, ETH and BTC for collateral and borrow from the liquidity pool to achieve up to 50x leverage on positions

• Cross margin: Pool different collaterals to reduce liquidation risks

• Collateral swaps: Convert ETH/BTC collateral into USDC to hedge against price drops while maintaining the original position

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The DEX began building in mid-2023 with their first social media appearance on October 2, 2023. Since then they have been building and they recently won first place in Base's "2024 Onchain Summer Buildathon". Since then they have been aggressively educating users while preparing for launch on Monad mainnet.

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Drake merges traditional centralized exchanges' intuitive, high-performance qualities with the benefits of decentralized exchanges.

The team behind Drake brings a wealth of experience from running a successful hedge fund that excelled in arbitrage strategies on CEXs.

As Drake continues to evolve, we’re committed to introducing new features that empower both seasoned traders and newcomers alike. Whether you're looking to refine your trading strategies or earn yield through innovative approaches, Drake aims to equip you with the tools to succeed.

Drake Exchange Mission

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What is Peer-to-Pool Liquidity?

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Peer-to-pool liquidity is a model that ensures Drake Exchange always has the necessary liquidity to support leverage trading. In return for depositing USDC into the liquidity vault pool, users earn revenue yields from the following trading activity on Drake:

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• Trading Fees: Fees collected when a new trader position is opened (the default fee when opening a trade is 0.1%)

• Borrowing Fees: Fees paid by traders for borrowing USDC from the liquidity vault

• Trader Losses: If a trade is closed at a loss, the negative PnL is added to the vault. This is a unique yield as liquidity providers benefit from all losing trades.

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This diversified income model generates more consistent returns and higher yields from fragmented model pools.

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Open interest and trading volume scales more effectively than traditional order books. Unified USDC vaults generate significantly higher yields compared to models that rely on separate liquidity pools for each trading pair.

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Trading on Drake Exchange

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Traders deposit their personal collateral (USDC, ETH and BTC) and they borrow USDC from the liquidity pool to open leveraged positions and increase their exposure.

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• If a trade is profitable then the PnL is paid out from the liquidity vault.

• If a trade results in a loss then the liquidity vault retains the negative PnL and adds to the balance

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Isolated Margin Trading

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Isolated margin trading enables a trader to allocate specific amounts of funds as collateral, only the funds used to open a position are at risk. An isolated margin portfolio calculates margin requirements for each position independently.

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Isolated margin trading enables users the flexibility to allocate specific amounts of margin to individual positions. It helps traders control risk by isolating margin for individual trades to ensure that one single loss on a position doesn't impact your entire balance.

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This approach allows for precise risk management, giving you control over the leverage you use for each trade. It’s particularly valuable for traders who want to carefully limit their exposure to any single position or asset, ensuring that one trade doesn’t impact the rest of their portfolio.

Isolated Margin on Drake Exchange

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For isolated margin accounts, Drake supports using only the settlement currency as collateral. This allows users to allocate additional margin to an open position.

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Cross Margin Trading

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Cross margin trading utilizes the entire balance of a trader's account as collateral. Total available margin in your account can be used to open new positions.

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Cross margin is attractive for traders because it frees up capital that is typically tied down in isolated margin accounts. By pooling margin across all positions, risk of individual positions being liquidated is reduced.

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• Streamlined account management: Traders only have to review one single margin account to monitor margin utilization and risk exposure

• Enhanced leverage: Cross margin enables greater leverage because margin requirements are calculated based on the risk of the entire portfolio rather than individual holdings

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While cross margin offers significant advantages in terms of efficiency and risk management, it also comes with its own set of challenges. Since your margin is shared across all positions, losses in one position can impact the margin available for others, increasing your overall risk if not managed carefully.

Cross Margin on Drake Exchange

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There are two kinds of liquidation risks involved in cross margin trading:

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• Position liquidation: When the margin ratio of portfolio falls below 110%, open positions can be liquidated.

• Portfolio liquidation: When the margin ratio falls below 105%, the entire portfolio will be liquidated.

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Collateral Swaps

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When a user is long on BTC, while using both BTC and ETH as collateral, as BTC's price rises then the position is in profit and collateral value increases. If BTC drops in price, both your position and collateral can lose value.

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With collateral swaps, a user swaps BTC and ETH collateral to USDC to lock in profits from a price increase while keeping the long position open. By converting to USDC, collateral value is protected even if BTC and ETH prices fall.

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Currently, Drake routes swap orders through the Uniswap and Aerodrome AMM pools, ensuring efficient and reliable execution for your trades.

Collateral Swap on Drake Exchange

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Conclusion

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Drake Exchange has deployed several novel approaches to leverage trading and perpetual contracts. Their peer-to-liquidity vaults are a fresh way to fund leverage trading and earn yields. Building on Base and Monad exposes them to new communities who will be looking for places to park their assets.

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