Registration starts today for the alpha release of VariabL which consists of a Virtual Trading Challenge (where ETH can be won). VariabL is an exchange that allows for trading of next-generation financial products built on the Ethereum blockchain. Leveraging blockchain technology, VariabL aims to offer access to the first on-chain derivative markets at a low cost, with no need for deposits, and a high degree of security. As we have made an effort to be inclusive towards crypto-traders that are not familiar with the Ethereum ecosystem, there is no prerequisite to join the Challenge.

To register for the alpha, please visit here.

VariabL is the first product released by StabL team. Its development will help us offer StabL tokens on the Ethereum blockchain. If you are interested in knowing more about our general approach, please read our blog introducing StabL.

VariabL: Exchange for on-chain derivative products

Derivative Products

Derivative products are financial products that are created when traders are matched together in a zero-sum game contract whose result depends on a market event such as the value of an index. Concretely, it means that traders are betting against each other. For instance, the index can be the USD price of ether; some traders will bet on a price increase (longers) and some other will bet on a decrease (shorters).

Primary Market

Market that offers positions to traders in derivative contracts that don’t exist yet. When traders are matched, a contract is created and each trader is given a position in this contract. The value of each position depends on the future market event.

Secondary Market

Secondary market is the market where traders can sell or buy positions in these contracts.

Leveraging Ethereum

Ethereum allows us to bridge the gap between primary and secondary markets, making it easy to create smart contracts or transfer ownership of an asset. To buy a position that already exists or to create a new contract only requires one Ethereum transaction.

Ethereum also enables us to tokenize these positions. Our positions will be tokenized following the token standard (ERC20). This means that these positions will have the ability to be used in other Ethereum applications (Gnosis for instance). We are also exploring compositions of derivatives (using derivatives tokens as cash/collateral in our contracts to create new derivatives).

Our First Products: Leveraged Contract For Difference settled in ETH

The first series of derivatives we will release on VariabL will be simple and robust, to validate and sharpen our main hypotheses, saving fancy features for the future. The objective is to use these simple products to gain a better understanding of what traders want. This allows us to remain focused.

Index: Price of ether in USD.

The first products we offer are derivatives on the USD price of ether. We will offer leveraged long positions (bet on a price increase) and leveraged short positions (bet on a price decrease). The price of ether that we will use is computed as the Volume-pondered average of the main ETH/USD exchanges (GDAX, BTCE, Bitfinex, Kraken).

Settled in ETH.

Buy-ins and pay-outs will be paid in ETH.

Symmetrical USD leverages:

Longers (traders that think the price of ether will increase) and shorters (traders that think the ether price will decrease) that will be matched together will have a symmetrical USD Leverage. If they are matched together around a 4 leverage product:

If the price of ether does +10%, the longer position value will increase by 40% and the shorter position value will decrease by 40%

The Virtual Challenge will offer 2X and 4X leveraged positions.

Fixed Duration

Our first contracts will have a fixed duration. For instance, in the Virtual Trading Challenge, the contracts will last 3 days.

After 3 days, the contracts will be liquidated and the pay outs will be sent to the position owners.

Non tradable positions

We have made the decision to not tokenize our positions yet. If a trader has bought a position in a contract, he won’t be able to sell this position. He will have to wait until the contract is liquidated.

Liquidation prices

Our contracts have an upper liquidation price and a lower liquidation price. For instance, on a leverage 4 contract, if the price of ether does + 25%, the shorter has lost the entire value of his position and we must liquidate the contract before maturity.

Onchain Orderbook

We have not implemented state channels yet for our orderbook and thus, orders will need a block to be mined in order to become effective — we also made sure your take orders are reserved while waiting for the mining process. We will not offer high-frequency trading at the beginning

Apart from this, you can either take an order for a quantity (market taker), or you can chose a limit price and a quantity; in one transaction, our system will take orders under your limit and place the remaining quantity at the limit price your have chosen (market maker).

Premiums in the orderbook:

The prices of our product are expressed in premium percentages. If you choose to long at a limit premium of -2%, it signifies that you are ready to pay a maximum of 98 ETH to get a long position of 100 ETH. Similarly if you input 2%,it means that you are ready to pay maximum 102 ETH to get a long position on 100 ETH.

VariabL: A semi-decentralized Exchange

We have decided on being semi-decentralized, using the Ethereum Virtual Machine for its best properties and having a centralized server to process non critical computations. The objective is to offer a User Experience that is as close to traditional exchanges as possible, while keeping trustless properties for the most important parts (settlements and value management). We will issue a more detailed blog post about this.

Using Ethereum as the backend of our exchange will enable us to offer very low fees as opposed to centralized exchanges.

Most importantly, we will never hold any of your value; the value will always be held by smart contracts from the orders placed until the liquidation of the contracts. Almost every exchange has been hacked, and that has often originated from a breach in wallet/key management. Our infrastructure protects you and every user from these attacks.

Demo of VariabL

The User Interface is not final, but we want to give those of you who were not at EdCon a chance to see our product. If you want to play with it for real: Register for the alpha.

Let’s pick a first address in Metamask (Account 2) which will be used to fill the leverage 4 long Demand Book (which means I will place orders for long positions at +4 leverage). Because the Book is empty, I will set my own Premiums using the “Custom Premium” option.

Filling the Longer Demand Book

I set the amount to 2ETH, plus a 1% premium I am willing to make for a leveraged long position. I will fill this book with enough demands for Shorters to make matching bids.

Now let’s switch to “Account 1” to fill the Short x4 Demand Book(i.e. for leveraged -4 positions). You may notice that the amounts and premiums percentages displayed have changed when they are in the Offer Book; this is normal.

Switching account and product

The Short Demand Book is then filled with premiums that are lower than the best Longer offered Premium, meaning they ask a higher premium received.

Filling the Short Demand Book

The Books change dynamically with the chosen product.

Switch product

Now let’s take a short position, with an amount greater than the cheapest offer available (the one at the top in the Offer Book), which should create two contracts. We will take, in one transaction, the cheapest offer and partially the second cheapest one.

Take Order Shorter

The sum of the contract initial deposits is equal to the amount provided by the taker. Let’s also notice the remaining amounts in the Offer Book have been updated, as well as the Mini Wallet balance.

Lastly, let’s watch our contracts being automatically liquidated, thanks to our offchain infrastructure. (We compute the liquidation data offchain and send it onchain where it is verified as valid.)

Liquidations of contracts.

It looks like the future of exchanges, doesn’t it?

Hope you liked it! If you want to participate to our Virtual Trading Challenge that will happen on VariabL: Register now.