Antimatter Finance Analysis – Perpetuals Disruptor or a Shot in the Dark?

AntiMatter Finance

Antimatter Project Brief:

AntiMatter set out to create a derivatives market (specifically perpetuals) for crypto assets that’s more intuitive and easy to use than other/existing platforms. It offers a way to purchase perpetual future contracts on crypto assets by enabling users to mint, trade and redeem call/put options in the form of ERC20 tokens. Unlike traditional perpetuals, the put and call options in AntiMatter have separate buy/sell prices with a given spread between them. Each option-pair token is defined by the native asset (say Ether), the nominated currency (say USDC), the call price (i.e. $1000) and the put price (i.e. $2000). The specific combination of these parameters is then created as a contract (with ERC20 properties) that enables minting, redeeming and trading the put/call options as separate tokens.

The premise here is that a put/call pair always bears the same value in aggregate. In the example above, if Eth price is $1400, the call is worth $400 and the put is worth $600. As Eth price moves these values move too, but their sum remains $1000. Therefore you can mint call/put pairs by depositing the dollar amount of the spread ($1000 in this example) using a combination of the native token (Eth) and the currency (USTD). The Put and Call can then be traded freely. At any time, the owner of an option can redeem it by burning the option and exercising it (for example burning the call option while depositing $1000 and receiving 1 Eth, or burning a put option while depositing 1 eth and receiving $2000). This mechanism enables holding perpetual positions without the risk of liquidation (this advantage comes with a price if the form of risk as will be explained below).

Antimatter includes a utility token named Matter, which is used for protocol fees and governance.

Project Analysis:

Concept and business case:

AntiMatter’s concept in its current form (V1, which is still in testing as of the time of writing) is not without merit. Its main value propositions over other perpetuals platforms are the elimination of the risk of liquidation, the ability to trade the positions as tokens and the limited risk due to the preset spread. The disadvantages are the limits on potential gains, clunky (and gas heavy) minting process, unintuitive structure and some systemic risks the Antimatter mechanism creates (see below under Risk). Ironically, the first version of Antimatter (V0) suffered mainly from over complication which defeated the purpose of the project, however V1 features a mechanism that’s easier to understand. With that being said, I believe the main challenge to AntiMatter’s business case is the assumption that lack of simplicity is a significant pain point for Perpertual traders. Unlike some of the “blue chip” DeFi use cases such as token trading and basic lending which are common financial activities for both professional financiers and the general public, perpetuals and derivatives in general are considered advanced tools for finance professionals only. In fact, there’s a whole binary options industry that evolved in the last decade and was rekt by regulators world-wide for the very reason it aggressively touted financial derivatives to the unprofessional public, disguising a gambling platform where the house always wins as a legitimate investment tool. As for more financially savvy traders, they are likely to prefer a traditional order-book matched perpetuals protocol such as dYdX.

Execution:

Antimatter’s code is open on github and a quick review shows the team knows its way around smart contracts. While this is not a professional audit, the attention to detail is apparent and tokenomics, governance and security are all professionally addressed. The team does seem to spread itself a bit thin: During development the team implemented cross-chain functionality code that apparently became so popular they decided to spin it as a separate project called ChainSwap (for which they raised VC funds in separate and are about to IDO soon with the ChainSwap token, confusingly named “Token”). It would be fair to also credit the founders for responding quickly to user feedback on their first, less user-friendly version and reiterating quickly with a version that addresses many of the issues raised by users.

Tokenomics:

The $Matter token tokenomics are clearly communicated on the project’s deck (a proper whitepaper was nowhere to be found) and the schedule and allocations seem in line with the relevant smart contracts on-chain. Current supply is roughly 10M (out of a total of 100M)  and expected to gradually grow to 36M in the first year, then to 63M on year 2 when inflation will moderate to a slower pace reaching the total supply in 8 years. 10M to the team, 15M private sales, 1M public sales, 10M foundation and 50M future protocol rewards all seem fair or at least within current standards. The aggressive inflation in the first two years however should be taken into consideration. A threefold supply growth in year one followed by a doubling in year two will be hard to catch up to by way of demand (which as mentioned above is yet to be proven) to enable early price growth.

AntiMatter Finance Matter token circulating supply first two years

Risks:

In addition to the typical DeFi new protocol risks (hacks, bugs etc.) there is a systemic risk which I’ve taken up with the team on their Telegram but haven’t received a response to date: On Antimatter V1 the underlying collateral (funds held by each perp contract that guarantee all option token holders will be able to redeem their options at any time) is held in both the underlying native (Eth in the example at the start of this article) and currency (USDC) in proportions that correspond to the ratio between existing puts and calls (which can vary as puts and calls are redeemed/burned independently). A sudden drop in the native asset’s value can dramatically decrease the value of the pair’s asset pool. If as a result of the price drop a large number of option holders try to redeem their options, there is a possibility of some holders being denied the redemption for lack of funds, leaving them with a worthless option token and a drained asset pool. While it could be argued that such an incident is unlikely, I believe the team should address this scenario and provide some fallback mechanism

Summary:

Antimatter set out to offer a simpler mechanism for Perpetual options that will allow less sophisticated traders to participate in this market with better clarity and limited risk (through the elimination of liquidation and limiting gains/loss to a predefined spread). At this stage there are question marks hanging above both the existence of a market for this brand of perpetuals and the degree to which Antimatters’ implementation achieves these traits (namely, simplicity and limited risk). Adding to the risk is the teams apparent lack of focus as displayed through the recent spin-off to ChainSwap without formally closing down/elaborating on the future support of Antimatter, and the founders history of quick jumps between DeFi projects. It would be interesting to track AntiMatter’s adoption rate as V1 is rolled out and test the team’s perseverance in seeing AntiMatter through to success.