Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
Looping is commonly known as the OG way of levering up on-chain. Whenever DeFi traders loop up on Aave or other borrowing/vault markets like Maker, the net result is creating a perp position. Now there is a new way to go long or short on-chain with a product called cPerps by Contango, built on top of Aave, on Arbitrum and Optimism.
The mechanism used under the hood to build cPerps is similar to the automated looping strategies of Instadapp and DefiSaver, aka recursive lending, via flash loans. There are a number of benefits to this cPerps (Contango Perps) design.
- Contango does not have liquidity providers (LPs) because cPerps will leverage the +$20B liquidity of spot and variable money markets, currently limited to the $258M of liquidity on Aave v3 on Arbitrum and $107M on Optimism.
- The funding rate of ETH/USD on Contango is 20x less volatile than dYdX.
- Traders can compare APRs (the equivalent of funding rates) across chains before opening a position (ie Aave V3 on Arbitrum vs Optimism).
- Unlike other perps AMM designs, trader profits are not offset by LP losses. Contango never takes the other side of cPerps trades.
- Contango builds across multiple chains, on top of proven DeFi giants, like Uniswap, Aave, Compound, Maker.
With Contango, perps traders (aka loopers) will find a familiar professional trading interface to open, modify, monitor and close their leveraged position, including automation features to take profits, stop losses and limit orders.
Contango V2 currently supports the following trading pairs across Aave V3 on Arbitrum and Optimism:
- ETH/USDC
- ETH/DAI
- ETH/USDT
- ETH/WBTC
- WBTC/USDC
- WBTC/USDT
- wstETH/USDC
- wstETH/USDT
- wstETH/ETH
- ARB/USDC
- rETH/ETH
- rETH/USDC
With cPerps, traders are exposed to some common risks in using any perps platform, such as smart contract risk in Contango plus any underlying markets such as Aave. Contango cPerps have been audited but there always exists the chance auditors missed a potential exploit. Traders are exposed to market risk, meaning sudden movements in price that can result in potential liquidations. Although the underlying Aave variable rates are more stable than perps funding rates on similar platforms like dYdX or GMX, there is interest rate risk, meaning sudden movements in the rates that can affect funding and result in potential liquidations.
Today, I’ll show how I might enter a long position for rETH/ETH on Contango and potentially earn a future Contango airdrop. I will long rETH/ETH because it’s a pair that’s very correlated and hence stable in price. rETH is a productive asset that appreciates in value over time based on the rewards generated by Rocket Pool node operators so it’s an easy position to manage for this demonstration.
How to Get Started Trading cPerps on Contango
Before we get started, please be aware of these risks.
- Smart contract risk in Contango and Aave V3 on Arbitrum or Optimism
- Oracle manipulation risk
- Front-end spoof attack on app app frontend
- An economic design exploit in Contango or any underlying money market protocol
- Pegged tokens like rETH can depeg
- Market risk, meaning sudden movements in price that can result in potential…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
