In conversation with Sonic, CEO of aiPX

aiPX will be the first perpetual decentralized exchange on Flare. Sonic, the CEO is leading a team of 20 to build and deploy the exchange, an iteration of Level Finance, forked from the hugely successful GMX platform, with some additional features for an improved UX.

“We curated a group of twenty dedicated builders to work on aiPX; ten on the operation side and ten developers”. Sonic, the CEO, describes the team as small but efficient. Sonic hails from a cyber security background, key to the success of this project.

“Perpetuals,” explains Sonic, “allow you to trade assets with leverage. For example, if you have $10 that you want to trade, by using perpetuals you can create a 10x leverage, with the result that you have a position of $100. You also get the benefit if you have a successful trade of the 10x.

“Of course, if you are unsuccessful then you lose your original collateral.”

As on-chain structured products, 'perpetuals' fulfill the role of a financial derivative, where traders can gain exposure to an underlying asset's price fluctuations without needing to hold the underlying asset itself. Traditional finance might refer to these perps as 'rolling futures'.

The AI in the title comes from the copy trade system where Sonic and his team plan to allow users to trade using calibrated bots in the future.

“There are a lot of really interesting ways to incorporate AI into trading bots nowadays. One concept we are exploring is being able to trade based on news. So, you could open and close a position based on a headline. We won’t have that at launch but it is in the pipeline. It’s complex so we want to make sure everything works before we incorporate that.”

The aiPX platform is based on GMX and Level Finance, which are considered the gold standard of decentralized perpetual exchanges and have attracted the highest number of traders, boasting market-leading volumes and reputation. They are currently only available on a couple of blockchains so part of the differentiation of aiPX going forward would be its blockchain agnostic approach..

“We want to build a really solid product for the users on Flare before we start thinking about any other chains. Right now, we are talking with code auditors to review our platform before we launch our internal test net. Then we plan on running a semi-closed public test net to get some of our community members involved.”

Sonic and his team had initially developed a decentralized perpetual exchange called Takepile on the Fantom network. This gave them both good experience as well as a strong community.

"But market conditions were volatile and we wanted to find a chain that could offer uniquely secure data for our platform operations. Our community was very vocal about coming to Flare.”

aiPX ran their testnet on Flare’s Coston2 network during the month of October with 50 participants after development of the protocol was completed and is in the final stages of an audit from Cyberscope.

aiPX will take advantage of the Flare Time Series Oracle’s decentralized price feeds for collateral calculations and liquidation thresholds.

“Imagine the price of Bitcoin is $30,000. When you open a position with leverage, say you go ‘10x long’ Bitcoin at $30,000, you’re effectively placing a bet that Bitcoin’s price will go up above $30,000 and reserving a fraction of what it would cost to buy the 10 Bitcoin to get that value exposure., You open your long BTC position and you set a liquidation point to limit your loss if your trade goes against you. You might choose the liquidation point to be $29,000. If the price goes down and hits $29,000 then your position would be liquidated and the funds you’ve reserved, that we call ‘collateral’,  would be forfeited. We are leveraging Flare’s native oracle, the FTSO, to help us achieve all of this, keeping track of users’ trade positions and asset prices in a decentralized, trustless way. This will help to make sure the exchange is running efficiently.”

Risk management comes down to the liquidity providers. aiPX will have different pools where the users can deposit into what aiPX calls tranches.  The tranche system allows liquidity providers to choose their level of risk tolerance between a senior, mezzanine and junior tranche. Liquidity providers earn AIPX tokens for providing trading liquidity to the protocol. A senior tranche offers a lower yield with lower risk to provided liquidity, while a junior tranche offers the highest yield with a higher risk than the senior or mezzanine tranches. When positions are opened on aiPX, liquidity is utilized from the junior tranche first, making it an option with potentially more variance to liquidity providers. The aiPX team believes that by offering a choice in levels of yield and risk, aiPX will be attractive to liquidity providers on Flare.

“That means users get the lowest APR with the lowest risk – which allows users to choose. This is a differentiator as not many decentralized perpetual exchanges can offer that as yet.”

Other features include leveraged trading, token swaps, staking for protocol, and revenue sharing which are all underpinned by user governance.

“We don’t have an order book system which might be found on a centralized exchange so we need a way to find accurate pricing – the FTSO allows us access to accurate data on other coins too such as Flare or Ethereum.”

Initially, liquidity pools will be denominated in wrapped assets such as WUSDT or WFLR. This allows the porting of assets from another blockchain onto Flare. Flare can then read the wrapped asset and account for it in the same way as on the original blockchain, for the same value. When they release in 2024, aiPX will support FAssets, expanding the tradable tokens on the protocol.

aiPX will offer users a seamless trading experience directly from their wallets.

“All the user needs to do is to connect their wallet to our website. We don’t maintain custody of their assets – which we argue is a huge benefit of decentralized exchanges especially when one remembers FTX where people lost money as they ultimately didn’t have control over their assets.

“The only time we are ever in control of a user’s asset is when they have opened a position. Going back to my earlier explanation, when a user has collateral of $100, it’s still in the user’s wallet but it is reserved on the exchange so they cannot double spend elsewhere. But when they close out, and hopefully have not lost money, that $100 goes back to their wallet and their custody.”

In terms of community, Sonic is pleased to see that it is growing organically, especially since their announcement to build on Flare.

“We have a lot to offer the community. We are an experienced team working for almost 2 years on this project. We’ve been here in the bull market and also the bear and we’re excited to launch aiPX.”