Bitoro is a leveraged trading protocol and aggregator for the perpetual futures market. Its principle goal is to unify the currently fragmented market under one platform that provides optimal prices, fees, liquidity, incentives, and unparalleled ease of use for traders.

Perpetual Futures

Perpetual futures, or perps, are a type of derivative contract that allow traders to speculate on the future price of an asset indefinitely. Traders don’t have to own or take delivery of the underlying asset in order to trade perps. Instead, traders buy and sell contracts which derive their value based on the spot market price of the underlying asset.

Traders can take one of two positions in a perp contract: long (buy) or short (sell). Taking a long position means the trader believes the price of the underlying asset will increase, hoping to profit from buying the contract low and selling high. Conversely, taking a short position indicates the trader expects the price to decrease, aiming to profit from selling the contract high and buying back lower. Unlike traditional futures contracts that have a predetermined settlement date, perps are designed to mimic the spot price of the underlying asset, as closely as possible, through a mechanism known as the funding rate. The funding rate is periodically exchanged between long and short positions to anchor the perpetual contract’s price to the underlying asset’s market price. This mechanism incentivizes traders to take positions that reduce price discrepancies. When the perpetual contract trades at a premium to the spot price, longs pay shorts, and when the contract trades at a discount, shorts pay longs, motivating price alignment.

A unique aspect of perpetual futures is their ability to offer high leverage, enabling traders to amplify their potential gains (or losses) with a relatively small capital outlay. However, this high leverage also introduces the risk of liquidation if the market moves against the trader’s position and the maintenance margin cannot be met. The initial margin is the minimum capital required to open a position, serving as a security deposit, while the maintenance margin is the minimum account balance needed to keep the position open. If the account balance falls below a certain threshold close to the maintenance margin (varies based on the exchange) due to adverse price movements, a margin call is triggered. If the trader fails to meet the margin call requirements in time, the position is forcibly closed in a liquidation event to prevent further losses.

Bitoro Protocol

The Bitoro Protocol is a hybrid, orderbook and AMM based, perpetuals trading protocol. The protocol offers traders highly levered positions with the prospect of zero price impact on trades.

Bitoro Orderbook

Orderbooks are records of bids (buys) and asks (sells) for an asset or an asset contract. Users trade directly with a counterparty based on their bid and ask prices. Bitoro’s orderbook is facilitated by Orderly Network. Orderly is collaborating with leading market makers to build a central limit order book (CLOB) trading infrastructure. The CLOB will enable trades between users on different chains under a single order book. Integrating Orderly’s infrastructure ensures deep cross-chain liquidity, tight spreads, and favorable prices for traders on the Bitoro platform.

Bitoro AMM

Automated market makers (AMMs) are an algorithmic exchange mechanism which are highly prevalent in the blockchain ecosystem. First generation AMMs are underpinned by liquidity pools: crowdsourced pools of crypto assets used to execute trades. An asset’s price relative to another is determined using an invariant formula, stipulating that the total asset reserves in a liquidity pool must remain unchanged.

While these models work well for spot trades since users trade an asset for another directly against the AMM’s liquidity pools, they are unideal for perpetuals. Perpetual contracts are synthetic assets which mimic the market price of an asset rather than represent the asset itself. This difference coupled with the ability to make levered trades compel AMM based perpetuals exchanges to employ alternative models. Most notably, Perpetual Protocol uses a novel virtual automated market maker (vAMM).

The AMM side of the Bitoro protocol will operate using a vAMM. As the name suggests, the underlying assets in the vAMM are virtually represented, and are set by the creator of the vAMM based on the current market price of the assets relative to one another. The constant product formula, x ∗ y = k, is applied to enforce the price of the assets in the vAMM. The x and y values are the amounts of the two assets in the AMM and k is meant to remain constant as x and y change. The actual trading collateral is stored in Bitoro’s smart contract vault.

Let’s look at an example that illustrates how vAMMs work and support levered trades. If the current market price of USDC to ETH is 2,000 to 1, the creator of the vAMM could set the initial balances to 200,000 vUSDC and 100 vETH. In this example, the initial k value is 20,000,000. If Alice wants to go 20x long on ETH with 100 USDC, she must deposit 100 USDC into the vault as her initial margin, which results in the vault crediting the vAMM 2,000 vUSDC. Consequently, to keep the value of k constant, the vAMM dynamically adjusts its state to 202,000 vUSDC and 99.0099009901 vETH, and the Bitoro Protocol sets Alice’s vETH balance to 0.9900990099 vETH: the difference between the initial and current vETH balances. Now, Bob wants to go 10x short on ETH with 200 USDC as his initial margin. He deposits the margin into the vault, and the vault debits the vAMM 2,000 vUSDC. The vAMM adjusts its state to 200,000 vUSDC and 100 vETH, and the Bitoro Protocol records Bob’s short of 0.9900990099 vETH.

In order to keep the prices of perp contracts aligned with the underlying asset’s market price, the same funding rate mechanism can be used for vAMMs as order books. One unique property of vAMMs compared to traditional AMMs is the absence of impermanent loss. Impermanent loss refers to the difference in value over time between provisioning liquidity to an AMM and simply holding the assets in a wallet. This occurs when the AMMs price diverges from the market-wide price of an asset, enabling arbitrageurs to profit directly from the funds of the provisioners. Since vAMMs don’t need to source liquidity and rely on synthetic asset pools, traders are the only parties affected by the asset price.

Bitoro Aggregator

Aggregators are ubiquitous in multiple segments of the DeFi landscape. The Bitoro Aggregator is a perpetuals aggregator which will source liquidity from multiple DEXs, including our own, finding the best trading route based on various factors which determine the composite cost. Bitoro’s aggregator will be a unifying technology which consolidates liquidity from multiple DEXs into a single cohesive platform.

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