A Comprehensive Deep Dive into Level Finance: Reshaping the Landscape of Decentralized Perpetual Trading

Introduction

Level Finance (website) is a crypto exchange, offering decentralized and non-custodial perpetual trading. Designed with a focus on clear risk management solutions, it serves a broad spectrum of market participants, including traders, liquidity providers, and potential shareholders. The platform, built from an original codebase by experienced entrepreneurs and contributors, is set to change the way digital assets are traded and managed. One of the key features of Level Finance is its decentralized and non-custodial nature. The platform provides complete transparency, allowing access to all trader positions, balances, and the entire liquidity and treasury of the protocol. This level of openness is a significant leap forward in the crypto trading world.

Another notable feature is the self-custody and elimination of intermediaries. Level Finance supports most major wallets, enabling users to have full ownership and self-custody of their assets. This reduces the third-party risks often associated with centralized exchanges or institutions. The user-friendly interface of Level Finance is also worth mentioning. It simplifies the trading process, making it easy for traders to execute trades while effectively managing their leverage and liquidation price.

Level Finance stands out with its unique value proposition. It offers permissionless markets, tangible utility, real cash flow, and real yield. Users can leverage up to 50x with either Market or Limit Orders, experience minimal price impact trading, and benefit from an innovative Liquidity and Risk Management Solution. The purpose of this article is to introduce Level Finance as a Perpetual trading platform in the crypto landscape. We aim to inform potential users about the unique features and benefits of using Level Finance for their trading needs. By providing a clear understanding of what Level Finance offers.

Advanced Liquidity and Risk Management Solutions

One of the key features of Level Finance is its permissionless markets. All exchange trades and swaps are self-executed with smart contracts, ensuring that users can access and manage their positions even if the user interface goes down. This approach ensures equality among all traders, with no prioritized access, a stark contrast to some practices in traditional finance or centralized exchanges. Level Finance also offers real utility, real cash flow, and real yield. The platform's utility is rooted in its decentralized, fully permissionless, and non-custodial perpetual DEX. Liquidity providers, traders, and other stakeholders can generate real yield from platform revenue and participate in governance, fostering community ownership of the DAO Treasury.

The platform allows users to margin trade with up to 50x leverage, including non-stablecoin assets. In addition to market orders, Level Finance offers on-chain limit orders for both perpetuals and swaps, enhancing trading flexibility and enabling more complex strategies. Level Finance uses Chainlink Oracles to offer minimal price impact trades, leading to improved execution for perpetual trading. This means that trades made by a user do not significantly move the market price, unlike with CEX order books or spot DEX AMMs such as Uniswap. However, trades may still incur slippage, which is caused by external market movements between the execution and confirmation of a trade on the blockchain.

Lastly, Level Finance offers an innovative liquidity and risk management solution. Recognizing the crucial role of liquidity providers (LPs) in the platform's functioning, it allows them to choose their level of risk exposure when providing liquidity. Drawing inspiration from the rating of mortgage-backed securities or bonds, Level Finance uses tranching to separate LP positions into separate vaults, each with programmatically defined risk exposures. This approach provides LPs with a unique way to manage their risk while contributing to the platform's liquidity.

Anonymously-led Level Finance

Level Finance’s core leadership team and advisors have chosen to remain anonymous.The team, which has been at the helm since the summer of 2022, has successfully bootstrapped the project without any external funding.

In terms of financial backing, Level Finance has secured several strategic investments. The first, a $100,000 injection, came from an experienced exchange operator who chose to remain anonymous. The second, a substantial $500,000 investment, was made by a strategic investor with a strong belief in and active participation in decentralized derivative markets. The third investment, amounting to $400,000, was made by a pioneer in Miner Extractable Value (MEV) related research who previously operated an Ethereum mining pool. This pool accounted for 5% of the entire network computing power during Ethereum’s proof-of-work days. It's highlighted that the investors will contribute more than just financial support. They will also provide liquidity in the LLP pool and serve as strong advocates for the project, further solidifying Level Finance's position in the market.

Understanding Risk Management & LP Seniority on Level Finance

Level Finance separates liquidity pools into tranches with varying risk profiles for liquidity providers. This system, known as Risk Management & LP Seniority on the Credit Table (RMLP), allows liquidity providers to choose their level of risk exposure. Each tranche represents a specific pool of assets available on the platform, such as BTC, ETH, BNB, ARB, and stablecoins. Level Finance offers three tranches for liquidity providers: the Senior Tranche (AAA) with the lowest risk and lowest APR, the Mezzanine Tranche (AA) with medium risk and medium APR, and the Junior Tranche (BB) with the highest risk and highest APR. All tranches earn fees from traders on the platform, and these fees are automatically compounded into each liquidity provider token, leading to an increase in the price of each token.

There are several risks that users and stakeholders need to be aware of. These include tranche liquidity risks, liquidation risks, and smart contract risks. Tranche liquidity risks arise when liquidity providers are exposed to price movements in the underlying assets of each tranche and take on the counterparty risk of traders on the platform. Liquidation risks occur when an open trade position is liquidated when either the user’s collateral cannot cover the margin fee or is lower than the maintenance margin. Smart contract risks are inherent in decentralized applications due to vulnerabilities in their codebase. Level Finance has taken steps to mitigate these risks, including undergoing several audits and having a live bug bounty program.

Deciphering Level Finance's Dual-Token Structure

Level Finance operates with two primary tokens, each serving distinct purposes within the ecosystem: the LVL utility token and the LGO governance token.

the LVL token

The LVL token is the protocol utility crypto token of the LEVEL ecosystem. It has a maximum supply of 50,000,000, which is continually reduced via LGO Dutch Auction. The token can be received by buying from various sources, becoming a liquidity provider, trading to earn LVL through the Loyalty Program, inviting friends to LEVEL, or acquiring through LVL Batch Auctions. The token is allocated to liquidity providers, the team, and DAO/Strategic. LVL token holders can stake their tokens in two different venues, each offering unique benefits. In the LVL DAO Staking pool, holders can stake their LVL to earn LGO, which gives them governance rights over the DAO and management rights of the DAO Treasury. In the LVL Yield Staking pool, holders can stake their LVL to earn protocol fees. 10% of protocol fees generated daily are distributed to this LVL staking pool in the form of Senior LLP, which can be redeemed for any Senior LLP asset (BTC, ETH, BNB, USDT).

the LGO token

The LGO token is the governance token for LEVEL. It has a maximum supply of 1,000 and an emission rate of 0.5 LGO per day. The token can be received by staking LVL in the LVL DAO Pool or acquiring through LGO Auctions. LGO token holders form the LEVEL DAO, where they manage the entire ecosystem and treasury through governance proposals. They are the de-facto stakeholders of the entire LEVEL ecosystem. The LEVEL DAO acts as the decision-maker for LEVEL’s strategic future, including protocol expenditure, treasury management, the nomination of contributors, the control over fees, features, and functionalities of the protocol, as well as security and other matters.

The LEVEL DAO also assumes the responsibility of an Asset Manager for the ecosystem, overseeing all management and access to the DAO Treasury. 30% of protocol revenue is distributed to the DAO Treasury, continuously creating additional value for DAO participants. These fees are added to the DAO Treasury in the form of Senior LLP, which then continues to earn yield for LGO stakers. Every two weeks, there is a 2-day redemption window for LGO holders to redeem their LGO tokens for liquid assets available in the DAO Treasury (BTC, ETH, BNB, and USDT). Once redeemed, those LGO tokens are burned.

Current Performance and Future Potential in the DeFi Landscape

Level Finance has shown promising traction in the decentralized finance (DeFi) space. As of the latest data, the total value locked (TVL) in the platform is $25.67 million, indicating a significant level of usage and active participation in the platform's offerings.

The Level Finance token (LVL) has a market cap of $22.25 million and a price of $3. The fully diluted valuation stands at $148.17 million. The 24-hour LVL volume is $527,680, and the LVL liquidity is $505,504. The annualized volume is $2.699 billion, and the annualized fees and revenue are $45.36 million and $24.95 million, respectively. The treasury holds $11.82 million. In terms of future potential, the platform's unique offerings, such as permissionless markets, real utility, real cash flow, real yield, leverage up to 50x with either Market or Limit Orders, minimal price impact trading, and an innovative Liquidity and Risk Management Solution, position it well in the competitive DeFi landscape. The growing TVL and robust tokenomics suggest a promising trajectory for Level Finance.

However, it's important to note that the DeFi space is highly competitive. Level Finance's competitors include MUX Protocol ($61.81m TVL), ApolloX ($42.61m TVL), NestFi ($10.62m TVL), Linear Finance ($9.61m TVL), Hakka Finance ($4.59m TVL), GMX ($584.51m TVL), dYdX ($355.81m TVL), Gains Network ($52.77m TVL), ApeX Protocol ($32.45m TVL), and Keep3r Network ($27.3m TVL).

Final Thoughts

Level Finance’s commitment to transparency, risk management, and user empowerment sets it apart in a competitive market. The platform's unique offerings, such as permissionless markets, real utility, real cash flow, real yield, and up to 50x leverage, provide a compelling value proposition for traders, liquidity providers, and potential shareholders. The platform's traction, as evidenced by its growing TVL and robust tokenomics, is promising. However, the DeFi space is highly competitive and dynamic, and Level Finance will need to continue innovating and delivering value to its users to maintain and grow its market position.

The anonymous nature of the team and advisors, while not uncommon in the crypto space, may be a point of consideration for some potential users or investors. However, the strategic investments and partnerships that Level Finance has secured indicate confidence in the platform's potential and the team's ability to execute their vision.

However, users should be aware of the risks associated with Level Finance. These include tranche liquidity risks, liquidation risks, and smart contract risks. Level Finance offers a unique blend of features and benefits that cater to a wide range of users.