A traditional brokerage may offer loans, leveraged investments, and futures asset trading. In the crypto world, Drift Protocol works as a decentralized exchange (DEX) that does all this with digital assets.
Drift Protocol runs on Solana, which stands out as a very flexible blockchain for exchanges. One of the reasons is scalability: you can perform many operations per second, without compromising performance. The project has some peculiarities that make it quite popular.
Complete DEX
Drift Protocol is a DEX that trades different types of assets, such as loans. It works like this: users deposit cryptocurrencies as collateral for credit requests on the blockchain. Then, they withdraw the requested coins and pay them back, with interest.
You can also use leverage on loans. This can be very useful if there is a need to have a larger volume of resources for an investment.
Unlike traditional banks and other decentralized exchanges, Drift Protocol makes it possible to invest in perpetual futures. They are assets derived from another (called derivatives), without a defined period for liquidation.
Derivatives and perpetual futures
Derivatives are derived from other assets. They can be very varied: there are products that derive from soy, corn, oil, dollars, shares and cryptocurrencies. Today, there are already DEXs that trade them on-chain.
In the financial market, futures contracts are a type of derivative. They are based on the purchase and sale of a certain product. Buyers and sellers undertake to negotiate established quantity and price over an agreed period before closing the agreement.
Perpetual futures, traded on the Drift Protocol, are contracts that do not have a specific trading completion period. Investors hold the assets for as long as they deem prudent. This type of trading is still rare in the world of cryptocurrencies.
How Drift Protocol works
In the DeFi world, Drift Protocol works as a series of smart contracts that validate derivatives trades. The role of the Solana blockchain is to do all transactions and data storage. Smart contracts manage the buying and selling processes.
This is only possible with the use of Automated Market Makers (AMMs). These are robots instructed to look for the best buying and selling offers on the chain with great speed and precision.
The Drift Protocol also has the Just-in-Time (JIT) mechanism. It works like this: AMMs can compete against each other to help provide short-term liquidity to the platform. This is a great innovation because it speeds up the fulfillment of purchase and sale orders.
Liquidity provision
Another innovation of the Drift protocol is the so-called Backstop AMM Liquidity (BAL). Backstop is a type of loan approved by the customer greater than the requested amount, used if the customer does not receive other forms of financing.
With it, it is possible to choose which market will provide liquidity and monitor traders' positions in trading. For liquidity providers, BAL generates extra income, with the resources obtained in the system.
DRIFT token
The DRIFT token is a governance token, meaning holders have voting power. This means they can decide changes or enhancements that better meet the needs of the protocol in community meetings.
In total, 1 billion tokens will be made available over 5 years, starting in 2024. Of the total, 53% will go to the community, 25% to the development of the protocol and 22% to strategic participants. The airdrop has already distributed 12% to backers.
Learn more about cryptocurrencies
The Drift Protocol is an opportunity to diversify the portfolio of blockchain applications. At NovaDAX, you invest in the DRIFT token and dozens of other cryptocurrencies. Access the website now!
