Since April, gas fees on the Bitcoin network have soared. Just as excitement was building for the Bitcoin ecosystem’s impending “third wave of enthusiasm,” a cold splash came in the form of insufficient overall market liquidity, causing Bitcoin’s performance to lag behind the previous two waves.

From a macro perspective, the recent global crypto market has been affected by various factors, particularly the disruption caused by war, leading to an unusually weak market performance. In this context, investment elites, led by Wall Street, have been tightly holding onto their liquidity. Since the US SEC approved a Bitcoin spot ETF in January this year, the market has been poised for Bitcoin to lead this bull run, with its performance increasingly mirroring that of US stocks for an extended period.

On the other hand, the Bitcoin ecosystem’s third wave has seemed lackluster due to the absence of “liquidity magnifiers” like smart contracts and DeFi. This has hindered the market potential of innovations such as inscriptions and other meme-based speculation. Additionally, historical trends show that Bitcoin’s halving months typically exhibit a downward trend, making it difficult for the Bitcoin ecosystem to demonstrate strong vitality amid liquidity shortages, and related markets such as inscriptions have remained relatively weak.

In this context, the Bitcoin ecosystem urgently needs infrastructure and DeFi development to enhance liquidity. Surf Protocol, a BTC Layer-2 perpetual contract DEX led by ABCDE, is a promising contender in this regard. As the first Bitcoin Layer-2 derivatives trading platform and currently the largest decentralized trading platform by volume in the BTC ecosystem, Surf Protocol shows significant potential.

According to BlockBeats data, as of the time of writing, Surf Protocol’s total trading volume is close to $300 million, with a TVL approaching $30 million and over 10,000 trading addresses.

Surf Protocol is a trading platform offering up to 50x leverage, where users can trade and earn liquidity providers’ principal. Surf Protocol has pioneered a margin model denominated in satoshis, allowing liquidity providers (LPs) to also serve as trading margin. Additionally, Surf Protocol offers a unique single-token liquidity provision model, enabling users to earn trading fees and the principal from liquidated positions of risk traders without worrying about LP price fluctuations.

With nearly $300 million in trading volume, Surf Protocol has established itself as a major player in the Bitcoin Layer 2 perpetual decentralized exchange (Perp Dex) space. Furthermore, Surf Protocol has been selected for the Binance MVB Accelerator, attracting nearly 1,000 traders daily and achieving an average daily trading volume of over $10 million under the support of the Binance MVB Accelerator program.

Surf Protocol: Quietly Revolutionizing the Future of DeFi Trading

Many investors, driven by distrust in traditional financial systems, have turned to Web3, only to encounter the crypto equivalent of a “Lehman moment” with the collapse of FTX. Despite the year and a half that has passed since this event, the trust crisis it left behind persists. The market’s demand for transparent, intermediary-free trading methods has grown, highlighting the importance of DeFi and spurring the demand for decentralized derivatives.

Traders and investors need to hedge risks and execute strategic operations, and derivatives serve as essential risk management tools. In a decentralized environment, these tools are more flexible and efficient. Unlike traditional derivatives markets, decentralized markets are permissionless, breaking down geographical and regulatory barriers and allowing global trading, thereby significantly expanding the potential user base. Leveraging blockchain technology, smart contract automated trading can design more innovative derivative products, such as prediction markets and perpetual contracts, enhancing product diversity and flexibility.

Despite being in its early stages, the decentralized derivatives market’s low entry barriers and flexibility attract an increasing number of participants, improving market liquidity. Decentralized platforms excel in compliance and user privacy protection, with users retaining control over their assets and enjoying transparent, traceable transactions that significantly lower trust barriers. With these advantages and potential, decentralized perpetual contract DEXs are viewed as the “new blue ocean” of the derivatives market, poised to meet the diverse needs of a new generation of investors and achieve exponential growth.

Surf Protocol is clearly focused on this. As the first Bitcoin Layer 2-based derivatives trading platform, Surf Protocol not only allows users to trade using Bitcoin as collateral but also introduces a single-token staking liquidity pool to eliminate impermanent loss. By prioritizing user needs and market stability, Surf Protocol is quietly reshaping the future of DeFi trading.

Innovations Driving Surf Protocol’s Success

Surf Protocol has become the largest decentralized trading platform for BTC due to several key innovations: its self-built oracle system and single-token staking liquidity pool.

Self-Built Oracle System

Unlike traditional centralized trading platforms, on-chain contract trading platforms like Surf Protocol offer higher security as all funds are directly stored in users’ wallets, reducing the risk of account freezes or hacks. To ensure compatibility with as many assets as possible and maintain reliable and accurate pricing, Surf Protocol has developed its own oracle system, providing millisecond-level price synchronization.

Surf Protocol’s oracle integrates data from mainstream trading platforms, assigning unique weights to each trading pair to effectively prevent price manipulation or errors that could arise from relying on a single data source. This mechanism ensures fair trading and enhances the platform’s trustworthiness and user asset security. These technical and strategic implementations ensure accurate and timely trading data, significantly boosting Surf Protocol’s competitive edge and appeal as a decentralized trading platform by offering a safe, transparent, and efficient trading environment.

Single-Token Staking Liquidity Pool

Most DEXs in the industry use the traditional automated market maker (AMM) mechanism, which requires LPs to provide dual-token pairs to maintain liquidity. This can be challenging for users lacking specific tokens, reducing the user experience. For instance, in the Bitcoin Layer 2 ecosystem, LPs tend to hold more BTC assets than USDT. Traditional liquidity provision methods often lead to uneven liquidity distribution, causing traders to face significant slippage issues.

In contrast, perpetual AMMs distribute liquidity evenly across all price levels. Although this ensures broad coverage, it can lead to inefficiencies as liquidity is spread across unused price points, maintaining slippage across the entire price spectrum. To address this, Surf Protocol adopts a single-token staking model (SCL), allowing LPs to provide liquidity using only one asset. The SCL pool dynamically adjusts pool weights and forms a tight liquidity curve around the oracle-determined current price, enhancing liquidity concentration and reducing slippage. This ensures more efficient liquidity use, lowering trading costs.

By fundamentally redesigning traditional LP provision methods, Surf Protocol eliminates the risk of impermanent loss. Its single-token staking liquidity pool is a first in the Bitcoin ecosystem. This model’s introduction has not only led top derivative trading platforms like GMX to adopt similar models but also secured Surf Protocol’s place in Binance’s MVB Season 7 Accelerator Program.

Example: Single-Token Staking vs. Traditional AMM Pools

As an LP in a traditional AMM pool comprising BTC and ETH, if BTC’s price rises sharply compared to ETH, withdrawing your liquidity would yield a proportion of both tokens reflecting the new price ratio, potentially resulting in a loss. This impermanent loss occurs because the value of your assets decreases compared to holding BTC outside the pool. In contrast, in an SCL pool, you provide liquidity with only one asset, significantly reducing exposure to such price fluctuations. For example, if you only stake BTC in the SCL pool, your holdings remain in BTC, and even if ETH’s price fluctuates, the pool mechanism adjusts to maintain value, shielding you from direct impermanent loss caused by asset value divergence.

By adopting the delta-neutral vault concept, Surf Protocol addresses the beta risk in traditional pooled perpetual decentralized trading platforms. In this model, LPs can focus on earning through trading fees and managing losses from trader activities without worrying about their portfolio’s market sensitivity. Additionally, through its BTC Vault, Surf Protocol addresses the liquidity challenges faced by Bitcoin Layer 2, offering LPs more opportunities to earn, expanding the liquidity pool, and increasing trading depth. This vault supports BTC as the primary asset, greatly enhancing convenience and appeal for users looking to engage in DeFi operations directly with Bitcoin.

Sources of LP RevenueSources of LP Revenue

In Surf Protocol, LPs (Liquidity Providers) have three primary sources of revenue:

Trader Liquidations/Losses: Similar to many DeFi platforms and derivatives trading platforms, one of the main sources of income for LPs comes from traders’ liquidations or losses. According to Surf Protocol’s data, about 70% of traders are in a loss position, making this a stable source of income for LPs.

Fee Sharing: While providing liquidity, LPs earn a share of the transaction fees. This income model is directly related to the platform’s trading volume—the higher the trading volume, the more fee income LPs receive.

LP Points: Surf Protocol has introduced an LP points system to reward users who actively provide liquidity. These points can eventually be converted into Surf’s future tokens, offering additional incentives and potential value growth for LPs. This points system not only increases user participation but also enhances the platform’s user retention and capital locking.

LP Token Price Calculation

The price of LP tokens for each delta-neutral vault is calculated using the following formula:

To illustrate how LP token prices are calculated, let’s consider a specific example. Suppose a Bitcoin pool initially has 100 BTC as pledged assets. Subsequently, LPs earn an additional 2 BTC from fees and profits by acting as counterparty to trades, increasing the total BTC in the pool to 102 BTC.

In this scenario, if the pool has issued 100 LP tokens, each LP token represents 1 BTC plus an additional 0.02 BTC of earnings. 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 transactions will be calculated at a rate of 1.02 BTC per LP token. This way, the price of LP tokens reflects the actual value of the assets in the pool and the additional earnings generated from trading.

Performance and Adoption

Surf Protocol’s single-asset staking model has indeed attracted a significant number of liquidity providers, helping LPs reduce participation complexity and risk. Upon the mainnet launch of Surf Protocol, $7 million in liquidity was subscribed within the first 2 minutes. Two weeks later, the total value locked (TVL) reached $25 million, making it the third-largest TVL increment on-chain for that month.

Current Progress

Surf Protocol recently conducted an airdrop of $Merl tokens to users who achieved a trading volume exceeding $10,000 between April 11 and April 30. The airdrop period concluded on May 15, with a snapshot taken on April 30. This airdrop, amounting to a generous $100,000, surpassed the expectations of many participants, providing a pleasant surprise to numerous users.

Due to this generous airdrop, some community members, who initially planned to engage in risk-free point farming through hedging with both long and short positions, unexpectedly received thousands of Merl tokens. This outcome meant that their actual return, achieved through transactions and interactions involving a few thousand dollars at 50x leverage, far exceeded their expectations, yielding returns of 2-3 times or more.

To further expand its user base and promote its services, Surf Protocol has recently collaborated with several mainstream wallets, including Trust Wallet, Bitget Wallet, and Bybit Wallet. These marketing activities include the distribution of over 500,000 Lucky Cards as incentives. These partnerships have not only helped Surf Protocol increase its influence within the Bitcoin community but also brought tangible benefits to a broader user base.

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 testing on the Base network as part of its multichain strategy, aiming to enhance the accessibility and diversity of its products to meet the needs of users across different blockchains.

As for the platform’s performance, Surf Protocol has achieved a trading volume of $200 million and a total value locked (TVL) of $30 million, attracting tens of thousands of traders. These figures demonstrate Surf Protocol’s success and market recognition as an innovative decentralized derivatives trading platform, while also reflecting the continuous growth of its community.

Team and Funding

Surf Protocol’s team consists of seasoned founders and core members from top institutions within the industry. Their extensive experience and professional backgrounds have provided a solid foundation for the platform’s development. Key team members include:

Tony, a former co-founder of Amber, who has rich experience in foreign exchange and interest rate derivatives trading in the investment banking sectors of Hong Kong and Singapore.

Cyson, the current CTO, who was previously the founding engineering director at SEI.

Tom, the former COO of Huobi Futures, brings significant expertise in futures trading operations.

These team members’ professional knowledge and industry insights offer robust technical support and strategic guidance to Surf Protocol, driving the platform’s continuous innovation and growth.

In October 2023, Surf Protocol secured $5 million in funding from ABCDE Capital and Amber Group, providing strong financial support for its future development. Additionally, in March 2024, Surf Protocol was selected for the seventh season of the Binance MVB Accelerator Program, making it the only derivatives project to be included in this round.

Surf Protocol has launched a points system and a rebate system designed to encourage various types of user participation. The platform’s design includes multiple ways to earn points, which incentivizes engagement from a broad user base. In the future, LPs will also support more cryptocurrencies and earning methods.

How to Get Started with Surf Protocol

For users who have not yet participated in Surf Protocol, here is a step-by-step guide on how to get involved:

Create a Wallet: Ensure you have a compatible cryptocurrency wallet. Surf Protocol has collaborated with wallets like Trust Wallet, Bitget Wallet, and Bybit Wallet, so these might be good options to consider.

Connect to Surf Protocol: Visit the Surf Protocol platform and connect your wallet.

Provide Liquidity: Choose the pools you want to provide liquidity to. Ensure you understand the risks and potential returns associated with each pool.

Earn Points: Engage with the platform by trading, providing liquidity, or participating in staking. This will allow you to earn points, which can later be converted into Surf tokens.

Utilize Rebates: Take advantage of the rebate system to maximize your returns. Check the platform for specific activities that offer rebates and participate accordingly.

Stay Updated: Follow Surf Protocol’s announcements and updates to stay informed about new earning methods, supported cryptocurrencies, and upcoming features.

By participating in these activities, users can maximize their benefits from Surf Protocol and contribute to the platform’s growth.

How to Earn Trading Points

The formula for obtaining Trader Points is: Trader Points=X×Amount Of Trading Volume (USD) (Note: Among them, “X” is currently 2 and will be dynamically adjusted based on the total trading volume.)

Strategy for Earning Trading Points

For Professional Traders:

Active Trading: Engage in regular trading activities. Ensure you set stop-loss points to manage risk.

Grid Trading Strategy: This strategy can yield significant returns even during market consolidation. It involves placing buy and sell orders at regular intervals to profit from small price fluctuations.

For Novice Traders:

Hedging Strategy:

Open both a long and a short position at the same price level to mitigate risks from market volatility.

For example, using $200 as margin at a 50x leverage, you can achieve a trading volume of $10,000 (margin multiplied by leverage), easily meeting airdrop eligibility criteria.

This strategy is accessible to users with lower budgets, significantly lowering the participation threshold.

As shown in the picture, 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 long and short, click the limit price to set the price of 61211.87, or the appropriate current price, and increase the margin and position quantity. The transaction is completed.

During the event, all gas fees will also be fully refunded, so you can increase your transaction 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 based on the total mortgage amount.)

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

How to get referral points

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

Surf Protocol’s current referral rebate mechanism allows users to enjoy rate discounts and earn rebates through the rebate program.

As shown in the picture, enter the rebate (rebate page link) page, click Recommend, and click “As a recommender” to create an invitation code consisting of 4-8 letters and numbers.

How to Earn Staking Points

Participants holding Surf Protocol OG Cards are eligible 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 participants meet the relevant conditions for point accumulation, they are eligible to accumulate NFT points regardless of whether they are connected to a BTC wallet.

Additional Tips

Daily Snapshots: The platform takes random snapshots daily to determine point allocation. Ensure your OG Cards are securely held in your wallet during these snapshots.

Point Calculation: The longer and more OG Cards you hold, the more points you accumulate.

Staying Informed: Keep an eye on announcements from Surf Protocol to stay updated on any changes or additional opportunities for earning points.

By following these steps, participants can effectively earn and maximize their NFT staking points, which can later be used to redeem rewards within the Surf Protocol ecosystem.

Disclaimer

1. This information is sourced from [theblockbeats]. The original article titled “Will Surf, the BTC second-layer sustainable trading platform, become the new Bitcoin “liquidity magnifying glass ?”is authored by theblockbeats. For any disputes regarding the reprint, please contact the Gate Learn team.
2. The opinions expressed are those of the author and do not constitute investment advice.
3. Translations are provided by the Gate Learn team and should not be copied, distributed, or plagiarized without proper attribution to Gate.io.