The Rise of DEX Derivative Protocols: Aark Digital

The FTX scandal of November 2022 pushed the entire crypto ecosystem to the brink of collapse. But what would soon follow was the significant shift from centralized exchanges(CEXs) to decentralized exchanges(DEXs).

By Q1 2023, decentralized derivatives protocols such as dYdX, GMX and GNS were beginning to gain momentum. In March alone, DEX derivative trading reached a record $68.7 billion, with dYdX protocol leading the pack.

One thing is clear: the era of derivative DEX trading has arrived with different protocols competing to outdo one another.

A key player in this space is Aark Digital, a perpetual derivative exchange running on the Arbitrum blockchain.

Since its founding, Aark Digital has recorded significant milestones, from launching the first smart-contract backed peer-to-peer DEX derivative on Arbitrum to securing massive funding from OKX Ventures, one of the largest investment funds in web3.

Investigating Aark Digital's Rise

As an innovative “leveraged everything” Perpetual DEX platform, Aark Digital appears to have a viable market infrastructure that captivates the interest of stakeholders and sustains the unique interplay between traders, liquidity providers, and market makers, who mitigate risk through arbitrage opportunities.

But does it have the ability to become the new face of DeFi?

Aark Digital’s Partnership with FRAX

One might be tempted to answer the above question in the affirmative. After all, its recent partnership with Frax Finance is calculated to solidify the platform’s position as a leading and ambitious perpetual DEX.

With plans to leverage the legendary Frax ecosystem within their platform, one should be able to deduce its aim to become an industry-leading LSD perpetual DEX, specifically designed for professional traders and liquidity providers on the Arbitrum network.

Ranking

As of the time of writing, it ranks 10th in terms of derivatives trading volume across all networks on DeFiLlama, with a peak of third within the first week of launching. It expects to see a more consistent, or “sticky” volume, due to the aligned incentives for all major participants.

Leveraging One of DeFi’s Strongest

The above announcement details the addition of FRAX and the coming integration of SFRXETH as LP/collateral assets on its platform.

One way it is solidifying its current position as the leading DEX on Arbitrum in terms of perps volume is by continuing to draw FRAX and SFRXETH users into Arbitrum as they pursue the juicy yields from Aark LP.

Based on the partnership, once a certain TVL threshold is reached, the Frax Foundation will provide FXS rewards to Aark traders. This is because fees derived from this "incentivized trading" will go in part to FXS and SFRXETH holders. This will probably be the first time where incentive tokens drive value back to the ecosystem they stem from.

In addition, by offering liquidity providers a juicy 20% APR for single-sided LPs, it so far already boasts the highest APR available in the Defi space. This medium was designed to allow FRAX holders on Arbitrum to benefit for an even juicier 30% APR by using 2x leverage on Aark’s DEX.

Sticky Yield Flywheel

The ingenuity of the Aark Flywheel model safeguards liquidity providers, boosts higher trading volumes, and dynamically scales open interest, setting Aark apart.

More so, as most conventional platforms limit their Open Interest to Total Value Locked (TVL) ratio at 1:1, Aark surpasses this with over ten times the OI relative to its TVL, resulting in significantly heightened returns for liquidity providers. This model was designed to create a self-reinforcing mechanism that attracts both liquidity providers and traders.

“We’re committed to capital efficiency and aim to redefine industry standards,” said Aark Digital Founder in a recent interview. "We want to set the bar for perpetual DEX moving into 2024”.

The Long Game

With a total trading volume so far of nearly $700 million, the Aark platform has been audited by both Hacken and Secure3, both reputable audit firms that have worked to secure some of the most disruptive platforms and protocols in the industry.

During this tough time in the markets and with many projects falling short of their promises, depleting funds and even exit scamming, the team behind Aark is able to make clear their plans to stick around for the foreseeable future, with the support they received early on in term of funding, which was a sign of investors’ confidence in its mission.

Funding

Aark has received funding from several prominent investors, including Delphi Digital and OKX Ventures, the investment arm of leading Web3 technology company OKX. In August, Aark Digital also integrated the OKX Wallet into its platform, enabling OKX users to access more than 50+ trading pairs on Aark Digital via web extension.

Funding has turned out to be one of its core strengths. Take, for example, OKX, which is by far one of the biggest VCs in Web 3 technology, pouring a massive yet undisclosed amount into it in July. The reason is a simple one: the cutting-edge innovation the company continues to dish out.

For example, it is arguably the first peer-to-pool derivatives Decentralised Exchange (DEX) to pioneer delta-neutral liquidity pools, which are designed to increase liquidity pool size and capital efficiency and collateral options for DEX users.

OKX, which boasts of over 300 portfolios spanning five continents, and a fund size of nearly $1bn, did prioritize investing in Aark Digital thanks to its innovative solutions and its ability to attract a large and active community of traders and liquidity provider