What is Contango? Option for Purpose with ‘expirable futures’
What is Contango?
Contango is a decentralized exchange that offers timed futures contracts without an order book or a liquidity pool. When a trader opens a position, the protocol borrows in the market at a fixed rate, swaps it in the spot market, and then lends it back in the market at a fixed rate. To close a position, the protocol reverses these steps.
To achieve this, Contango leverages DeFi protocols that offer fixed-rate loans and loans, such as Yield and Notional.
What is the unique selling point?
Contango aggregates futures positions based on the economic interest rate parity formula. The cash flow of futures positions is replicated through the fixed-rate market by borrowing and lending at a fixed rate from multiple spot exchanges.
The specific mode of operation of Contango is described in the table below.
To provide leverage, Contango uses the flash swap function on Uniswap. Flash swaps allow users to withdraw the entire reserve of any ERC20 token at no cost, as long as the user pays or returns the token at the end of each transaction.
Specifically, Contango receives ETH from the flash swap, then lends it on fixed-rate markets, uses the zcDAI obtained from the lending as collateral to borrow DAI, and returns that DAI to Uniswap, only in a transaction.
Contango allows traders to use capital more efficiently. Specifically, the higher the collation ratio (CR) and the contract duration, the better the price to open long/short positions.
Where, for a long position, the higher the interest rate on the quote currency, the less money the protocol borrows and, therefore, less debt. For a short position, the higher the interest rate on the quote currency, the more money the protocol lends itself to, and thus, more profit.
In the case of a 100% mortgage rate, the price improvement will be equivalent to the quote currency borrowing rate. Assuming that borrowing and lending rates are equal, price improvement is equivalent to margin lending at a fixed rate.
Contango integrates with Yield, allowing users to borrow and lend at a fixed rate through Yieldspace’s smart contract. Currently, Contango is in the process of integrating with Notional to launch on Ethereum L1.
Every position on Contango is tokenized as an NFT, allowing other projects to easily build on Contango. In addition, users can hedge a trading strategy, or use NFT as collateral to borrow other assets.
When the contract expires, Contango delivers the asset to the user at the price set when the position was opened, eliminating the risk associated with price manipulation.
The Contango team started testing on-chain futures contracts in 2021 and developed a minimum viable product (MVP) called Vanila Protocol.
- Token Name: Contango
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- Total Supply: 1,000,000,000 Token
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- Co-Founder – Bruno Bonanno: He has 18 years of experience as a software engineer, proficient in many programming languages such as Java, Solidity, TypeScript…
- Co-Founder – Kamel Aouane: He developed an algorithmic trading platform, founded a technology company in 2009. He is fluent in C + programming languages, and SQL and has 5 years of experience working with crypto.
- Co-Founder – Egill Hreinsson: He has 2 years of experience as a software engineer.
Contango successfully raised $4 million in a seed round led by ParaFi in July 2022.
Additionally, the funding round included participation from Alpha Venture DAO, dlab, along with some of the industry’s leading investment funds and trading firms such as Coinbase Ventures, Spartan Capital, Cumberland, GSR, Amber Group, and CMS.
Contang0 is a non-custodial DeFi exchange offering expirable futures without order books or liquidity pools. When a trader opens a position, the protocol borrows on the fixed-rate market, swaps on the spot market then lends back on the fixed-rate market. Contango offers physical delivery and a minimal price impact for larger trades.
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