A Fresh Angle in Perp Trading: Contango Rolls Out LUSD Pairs

Introduction 

Contango is leaving its mark on DeFi with its innovative perpetual contracts, known as cPerps. These perps are built through automating looping strategies using flash loans. This is achieved using some of the biggest spot and money markets in DeFi. 

In this article, we delve into Contango's unique offerings, the mechanics of cPerps, and the exciting integration of LUSD-denominated pairs.

What is Contango? 

In the middle of 2022, Contango launched as the first non-custodial DeFi market to offer expirables, a derivative that allows traders to buy or sell assets at a specific date and price in the future. In October 2023, Contango v2 was born, moving away from fixed-rate to variable rate markets. 

Originating from traditional finance terminology, "contango" refers to a market condition where futures prices are above spot prices. Contango has emerged as a non-custodial DeFi platform, initially by pioneering the launch of expirables in mid-2022, and later evolving into Contango v2 in October 2023.

A short explanation of what Contango v2 is from DeFi Dad. Link.

Contango v2 builds their cPerps (Contango Perps) by automating a 'looping strategy', also known as recursive borrowing and lending, a concept deeply ingrained in the DeFi culture. This strategy, previously executed manually in DeFi for leveraging or yield farming, has been seamlessly automated by Contango using flash loans.

Looping is at the core of Contango’s strategy. Traditionally used by DeFi enthusiasts to achieve leverage or farm rewards, this technique involves multiple rounds of borrowing and lending. Something which is also popular among Liquity users, who can take up to 11x leverage on ETH. Contango has taken this practice to offer traders a robust trading interface combined with detailed indicators and automation tools.

Contango’s architecture spans across major blockchains including Ethereum Mainnet, Arbitrum, Optimism, Polygon, Gnosis and Base. By integrating with top-tier money markets like Aave, Spark, Radiant, Agave, and others, Contango ensures liquidity from day one on any new chain it expands to.

Other key highlights of Contango

1. Deep liquidity: cPerps utilize the current $20B liquidity from existing spot and money markets.
2. Stable Funding Rates: Contango's funding rates are significantly less volatile compared to other DeFi perp platforms.
3. No LPs required: Unlike some perp AMMs, Contango doesn’t counterbalance traders' gains with LPs' losses.

[Bonus] Currently, Contango charges 0 fees on the order size, every time a position is opened, modified, or closed.

Contango and LUSD 

To achieve leverage, the above steps are executed by Contango via flash loans.

Contango has recently expanded its offerings by introducing LUSD-denominated pairs. This includes pairs like LUSD/USDC, LUSD/USDT, ETH/LUSD, WBTC/LUSD, wstETH/LUSD, rETH/LUSD, and others. The leverage in these pairs is efficiently executed using flash loans. See the listing announcement here. 

These pairs can be traded across 3 chains (Mainnet, Optimism and Arbitrum) using two different liquidity sources: Aave and Sonne Finance. 

Conclusion

In summary, Contango represents another exciting innovation in DeFi. Its cPerps give users efficient leveraging strategies through smart utilization of flash loans and looping techniques. With a focus on simplicity and efficiency, Contango has successfully automated complex DeFi practices into a seamless trading experience.

With key components like deep liquidity and low volatility of funding rates and the current 0 fees, users might explore the opportunity to leverage the stability and utility of LUSD-denominated pairs on Contango. 

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