Key Features

Separation of Index and Settlement Token

Chromatic Protocol introduces the separation of the underlying index and settlement token, enabling market creators to craft innovative market configurations. By utilizing external price feeds provided by an oracle as the index and leveraging ERC-20 tokens as settlement tokens, a diverse array of futures markets can be established. For instance, futures markets such as USDT-ETH/USD, ARB-ETH/USD, or wETH-ETH/USD, composed of Settlement Token-Index pairings, can be created in a permissionless manner. Chromatic Protocol is the most versatile among existing decentralized futures protocols, offering the ability to generate a wide range of markets.

Predefined TP/SL through Smart Contracts

Addressing the challenge of ensuring trustless payoffs in the DeFi environment, Chromatic Protocol leverages smart contracts for secure and automated execution of payoffs, instead of relying on intermediaries found in traditional finance. Before opening a position, takers predefine their take-profit and stop-loss levels, which are then specified in the smart contract as the maker margin and taker margin, respectively. When the index reaches the take-profit or stop-loss price, the smart contract automatically triggers the closure of the position. This approach prevents liquidity pools from being depleted instantaneously during periods of extreme market volatility, ensuring the stability of the protocol. Furthermore, this eliminates the need for third-party intermediaries or insurance funds typically employed in traditional futures markets to mitigate volatility risks, resulting in extremely high capital efficiency.

Partitioned Liquidity Pools with Dynamic Fee Impact

The most innovative feature of the Chromatic Protocol is the partitioned LP with dynamic fees. It provides liquidity pools divided into a total of 72 bins for both long and short positions, each with a distinct trading fee rate. Similar to Uniswap V3, makers have the flexibility to provide liquidity to the bins of their choice and receive ERC-1155 tokens in return. When a taker opens a position, they utilize liquidity starting from the bin with the lowest fee rate.

Within this structure, makers have the freedom to employ various strategies. For example, they can choose to provide liquidity to bins with lower fees but higher utilization, or opt for bins with higher fees but lower utilization. They can also choose to provide liquidity directly to the pool and mint new ERC-1155 tokens, or acquire bin shares through purchasing ERC-1155 tokens on a secondary market. Additionally, the liquidity supply price for makers automatically adjusts based on the oracle price and the fee rate, eliminating the need for relocation of liquidity supply prices. This encourages the participation of more liquidity providers by enabling sophisticated strategies without relying on bots.

The diverse and sophisticated trading and hedging strategies enabled by the partitioned LP with dynamic fees benefit takers by offering reasonable fees. Ultimately, it leads to the discovery of appropriate futures prices(oracle price plus fee impact) based on the equilibrium of market demand and supply.