The Future of Derivatives: Private Perpetual Swaps on AMMs

Private perpetual swaps are the next evolution. They replace public order books with peer-to-contract trading, eliminating front-running and MEV by default.

AMMs like Uniswap V4 provide the infrastructure. Their customizable hooks enable isolated, leveraged pools that settle directly against liquidity, bypassing centralized price feeds.

This model inverts risk. Traders face the AMM's liquidity, not a counterparty, shifting systemic risk from default to impermanent loss management.

Evidence: Protocols like Hyperliquid and Aevo demonstrate demand, but their reliance on centralized sequencers creates a vulnerability that on-chain AMMs solve.

Public mempools are toxic for derivatives. Every limit order or liquidation on a public AMM like GMX or dYdX broadcasts intent, creating a predictable price impact that front-running bots exploit.

Privacy enables efficient price discovery. Opaque order flow, via systems like Flashbots SUAVE or zk-rollup sequencers, removes the frontrunner's edge, allowing the true market price to emerge without parasitic arbitrage.

The cost is quantifiable. Studies of Ethereum MEV show front-running extracts 5-15% of DEX trader value; for leveraged positions, this 'tax' compounds with each rebalance or stop-loss.

Evidence: The migration of high-frequency trading from public CEX order books to dark pools proves the model. Protocols like Penumbra and Elixir are building the AMM-native equivalent.

Public mempools are toxic for derivatives. Every limit order or liquidation signal broadcast to the network is a free alpha feed for searchers. This toxic order flow forces traders to pay higher effective spreads to avoid being front-run, a cost that scales with position size.

Private execution is non-negotiable. Protocols like Penumbra and Elixir demonstrate that off-chain order matching with on-chain settlement is viable. This model, akin to a dark pool for AMMs, severs the link between intent and public broadcast, eliminating the informational edge for MEV bots.

The trade-off is censorship resistance. Moving order flow off-chain introduces a reliance on operator sets or relayers. The winning architecture will balance privacy with credible neutrality, avoiding the pitfalls of centralized limit order books while solving the transparent trap of vanilla AMMs.

Private execution is non-negotiable. On-chain perps like GMX and dYdX leak alpha via public mempools, enabling MEV extraction. The solution is a shielded mempool or a private RPC network, similar to Flashbots Protect or BloxRoute, that submits orders directly to block builders.

Liquidity must be abstracted from risk. Traditional AMMs like Uniswap v3 conflate the two. A private perps AMM separates them: passive LPs provide delta-neutral vaults (à la Gamma Strategies), while a dedicated risk engine dynamically manages perp positions and hedges on CEXs or Synthetix.

Settlement requires intent-based architecture. Users express desired outcomes, not explicit trades. A solver network, inspired by CowSwap and UniswapX, competes to fulfill these intents via the most efficient route across DEXs and CEXs, abstracting complexity and optimizing for final price.

Evidence: dYdX v4's Cosmos app-chain migration proves monolithic L1s constrain throughput for high-frequency derivatives; dedicated settlement and execution layers are mandatory for viable private perps.

Public order books are a feature. They provide a free, immutable data feed for risk engines and composable liquidations. This public state enables protocols like GMX and dYdX to build robust, permissionless liquidation networks that outperform opaque off-chain matching.

MEV is a solvable tax. Protocols like Flashbots and CoW Swap demonstrate that transaction ordering can be managed. On-chain perps inherit these solutions, making front-running a predictable cost, not an existential threat, unlike the hidden costs in traditional finance.

Privacy is a trade-off for trust. A private swap requires users to trust the operator's solvency and fair execution. The transparent collateral and price feed of an AMM-based perpetual, like those on Hyperliquid or Aevo, removes this counterparty risk entirely.

Evidence: The Total Value Locked in transparent, on-chain perpetual protocols exceeds $4B, demonstrating market preference for verifiable security over theoretical privacy.

AMMs will absorb perpetual swap volume from CEXs and on-chain order books. The capital efficiency of concentrated liquidity in Uniswap v4 and Curve v2 models enables competitive spreads for high-leverage products.

Privacy is the non-negotiable feature for institutional adoption. Zero-knowledge proofs, via Aztec or zk.money, will anonymize positions and PnL, solving the front-running and information leakage plaguing transparent chains.

The settlement layer shifts to intent-based systems. Solvers on UniswapX or CowSwap will source the best execution across fragmented liquidity pools, abstracting complexity from the end user.

Evidence: dYdX’s migration to its own Cosmos appchain proves the unsustainable cost of perpetuals on a general-purpose L1, creating the vacuum AMM-based solutions will fill.