A decentralized derivatives protocol with Automated Market Maker(AMM) and a built-in Liquidity Reserve.

<aside> ⚠️ Because of the rapid development and learning from user suggestions, some sections in this whitepaper are outdated. Most notable changes

  1. Strike would be focus on perpetual swap only.
  2. The AMM is redesigned and the new design has no exposure to price fluctuation or impermanent losses, which means the staker's fund are much safer than previous design.
  3. Because of complexity, the multi-collateral staking is pushed back to later releases.
  4. Because of complexity, the Leveraged Token is pushed back to laster releases.

</aside>

Abstract

Strike Protocol (or "Strike") is a decentralized derivatives protocol with Automated Market Maker(AMM) and a built-in Liquidity Reserve. The prices of the derivatives are set automatically by AMM which is backed by multiple collateralized tokens, including SKE tokens (Strike's native ERC-20 tokens, or "SKEs") and DAIs (or other stable coins).

The advantages of Strike are:

  1. Like Uniswap, traders can trade with AMM Smart Contract directly without the need of counter-parties. The AMM provides guaranteed on-chain liquidity and solves liquidity issues experienced by most decentralized exchanges (DEXs) and derivative protocols.

    The prices of the derivatives are set automatically by an AMM with a constant product curve and spread. The AMM is designed to be market neutral by using the spread to compensate possible losses.

  2. SKE holders can become liquidity providers by staking their SKEs and DAIs together in the Liquidity Reserve, which backs and secures the AMM. Stakers ensure the AMM is backed by sufficient collateral to absorb significant price fluctuation and in turn are rewarded with staking rewards and a portion of transaction fees. Multi-collateral staking makes the collateral in the Liquidity Reserve less volatile and the whole protocol safer.

  3. Traders can take leveraged long or short positions (in ERC-721 format) directly with AMM or purchase ERC-20 Leveraged Tokens from the Leveraged Token Factory, which allows interoperability with other Decentralized Finance (DeFi) protocols.

  4. Strike is built on top of Ethereum and inherits its best properties, including being non-custodial, trustless, permissionless, and censorship-resistant.

1. Background

<aside> 💡 TODO: This section provides a brief overview of AMM in Uniswap and native-token collateral backed positions in Synthetix. There is nothing earth-shattering in this section and readers should be mainly nodding along. Perhaps one can elaborate more on futures.

</aside>

2. Mechanism

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Presented above is Strike’s system architecture. Section 2-1 lays out the details of how liquidity and rewards are achieved through Staking. Section 2-2 introduces the construction of derivatives such as futures on Strike. Section 2-3 explains how traders trade derivatives on Strike.

2-1. Staking to Provide Liquidity