Level Finance is a decentralized perp DEX that has become the mainstay of the BNB Chain ecosystem and has recently been migrated to Arbitrum. The main focus is on real return and liquidity providers and the payment of rewards to stakeholders.
DeFi applications have become increasingly sophisticated in recent years and increasingly reflect TradFi services, but let’s not forget that they also have the enormous advantage of being completely transparent and self-monitoring.
Two of the most notable narratives driving growth and absorbing capital in DeFi have been the rise of perp DEXs and liquid staking derivative protocols. So why? Because they serve a proven market demand.
Market maturity naturally leads to more trading activity, and derivatives markets always thrive above established markets. These typically become larger than the underlying market due to ease of use and display, without any of the complications of ownership.
On the other hand, the SEC’s recent statements have brought back fear and uncertainty for central stock market users. Because users holding their assets in CEXs assume significant counterparty risk, many crypto investors prefer self-responsibility of their assets by taking security and protection into their own hands.
Level Finance and risk management
The most important introduction of the Level Finance team is Slices. Referred to as RMLP (Risk Management and LP Seniority), this design framework changes how liquidity providers interact with the protocol.
Tranches come from TradFi, which is most commonly associated with other debt instruments such as MSBs (Mortgage-Backed Securities) and bonds. A tranche is a portion of a larger pool of securities divided by risk or other characteristics to make them more attractive/marketable to a particular group of investors.
In Level Finance, LPs choose which tranche they want to provide liquidity to. This separates exposures and separates that risk into LPs with higher risk tolerance, addressing long-term risk, one of the chronic issues faced by all criminal DEXs.
This is how the Perp DEX liquidity wheel works: more liquidity means less price impact, which leads to more trades, more trades increase trade fees, higher trade fees encourage more liquidity to be provided, and the flywheel completes itself.
Level Finance features
Level Finance is a decentralized criminal DEX focused on transparency, personal surveillance approach, ease of use, advanced risk management and ownership. The facilitated attitude found in the LLP (Level Liquidity Provider) index emerges throughout the entire protocol. Users can trade spot and leveraged with both Market and Limit orders. Tradable assets on the BNB Chain include BTC, ETH, and BNB, and Arbitrum includes BTC, ETH, and ARB.
Level Finance interface
The Level Finance interface offers a familiar TradingView chart, a trading dashboard where users can choose their order types and trading direction (long or short). Users can also find the current liquidity available for their desired asset – which applies to leveraged positions, which varies depending on the use of the asset. The backed collateral reflects the assets in the LLP.
Level Finance uses Chainlink Oracles for price flows and Chainlink and Pynth Services for liquidations. Users can also find a complete breakdown of Level’s AUM (Assets Under Management) on the Analytics page. A nice feature in Level is the LLP Tracker, which allows users to view the profitability of any wallet that provides liquidity. It details the fees charged, the Trader versus PnL, and the change in valuation of the underlying assets.
How to earn income with level?
Protocol’s primary sources of income come from position fees, liquidations and related fees, borrowing fees, clearing fees, and printing and burning fees for LLPs.
Investors pay 0.1 percent to open and close a leveraged trade, which is the industry standard, and the print and burn fees associated with LLPs encourage ideal asset ratios, with the fee reduced for underweight assets and increased for overweight assets. Level generally implements the standard business model of criminal DEXs, but differentiates itself with its revenue-sharing strategy.
The income generated by Level is shared between different actors in the ecosystem. LLPs 45 percent, LVL stakes 10 percent, DAO Treasury 30 percent, LGO stakes 10 percent and 5 percent is reserved for development, i.e. team. Overall, 95 percent of platform fees go to users. This is why Level Finance is classified as a utility/goods.
