SECTION 1: APPLICANT INFORMATION
Applicant Name: Huf
Project Name: Pear Protocol
Project Description: Pear Protocol has built an innovative trading dApp, which is live on Arbitrum Mainnet. Users are able to trade long-short ‘pair-trades’ e.g. Long $SOL / short $MATIC with leverage, in a seamless, capital efficient, and composable way.
Project Links:
Website: https://beta.pear.garden/
Twitter: @pear_protocol
Docs: https://docs.pearprotocol.io/
Discord: discord.gg/pearprotocol
GitHub: Pear Labs · GitHub
Contact Information:
TG: @hufhaus
Twitter: @hufhaus9
Email: huf@pearprotocol.io
Do you acknowledge that your team will be subject to a KYC requirement?:
Yes
SECTION 2a: Team and Product Information
Team experience
Huf (Founder)
11 Years in Investment Banking and 5 years in crypto full time. Directly advised CIOs at some of the largest Asset Managers and Family Offices in the world.
Bob (COO)
10+ years of traditional finance experience working for one of the UK’s largest brokerage firms. Extensive management and operations experience having advised multiple international companies.
Marvel (CTO)
5+ years of full stack experience in crypto, cutting across DeFi, NFT & Crypto tooling. Skilled in Web2 & Web3 software development with focus on smart contract development (Rust, Solidity) & security.
Angel (Product Lead)
7+ years in development and design for Web3 startups with a focus on creating DeFi dApps. Previously ran a software development agency, managing global projects with diverse tech requirements. Specialist in UI and UX.
What novelty or innovation does your product bring to Arbitrum?
We are the first dedicated UI and UX for pair trading (either on a CEX or a DEX). For the first time, users can select any two assets and express them as a long-short trade in one click (e.g. SOL / ETH, PYTH / LINK, FIL/ADA). We are positioning ourselves as the ‘narrative trading’ platform.
Arbitrum has established itself as the home of perpetual trading and portfolio risk management (e.g. option protocols and lending facilities). Pear Protocol becomes another tool in a trader’s arsenal to generate returns irregardless of market conditions. Our current users include retail trader communities who want to express narratives (e.g. long WIF / short BONK), through to more sophisticated crypto funds looking to generate market neutral runners in a risk optimised and thematic manner.
The 2 largest innovations we bring to Arbitrum are:
-
The ability to tokenise a long perp and a short perp as one trade. We abstract away the complexity for traders who otherwise have to manually open individual longs and individual shorts, chart ‘pair’ trades themselves on another venue, and also have to manually calculate their net PnL. Thus, we are the first and only pair trading platform on any blockchain. These tokenised long-short trades can also be minted as an ERC-721 and freely used as collateral within NFTFi, thus unlocking a further level of capital efficiency.
-
We source liquidity from multiple venues including GMX v2, Vertex’s SDK and soon via a solver network, operating under an intent-centric RFQ framework. We will be the first front-end deployment of this technology on Arbitrum.
Is your project composable with other projects on Arbitrum? If so, please explain:
Yes, currently we are integrated with GMX v2 and the Vertex SDK and source both the long perp and short perp liquidity from these two venues.
In the product roadmap we will also be able to create borrow markets against a tokenised trading position within NFTFi platforms such as Pine or DeFrag.
Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?
There are no other comparable protocols within Arbitrum or other blockchains. Everything we have built has required newly written code.
How do you measure and think about retention internally? (metrics, target KPIs)
Internally we track and analyse the following metrics:
We track the following metrics (1-3) to analyse retention. Please note we are in closed beta so the numbers below are not an accurate representation of ‘live’ protocol usage.
1) Daily Active users
In particular, we look at the breakdown between “New Users” and “Active Users”. Here we will be looking at the absolute number of users and comparing the percentage of users that are new. This % of active vs. new users can be mapped as price series trend data to draw conclusions about user retention, and will be overlaid with transaction count and transaction volume.
[see Image 1 in the comments section]
2) Daily active users (DAU) vs. Weekly active users (WAU)
These metrics inform us of the growth trends in platform usage, and also the degree to which users are returning to the platform. We are conscious that during the launch phase these metrics may well be front-loaded and skewed since activity will be at it’s highest post launch. However, during the 12 week campaign trends will begin to emerge and we can also start to draw some seasonality conclusions i.e. what level of platform usage do we see by returning users during bull , bear and ranging markets respectively.
3) 1 week trading volume vs. number of transactions
Tracking the Trading Volume across different timeframes and dividing by number of transactions will give us an insight into user behaviour. Specifically, it will tell us the average trade size over periods between 24hr - 1 week. Combined with trends in total number of unique traders, this way we’ll gather an insight into our user profile and how this is evolving over time. A lot of variance in the average transaction size would tell us that our user profile is constantly changing, whereas a more steady average transaction size combined with the above 2 datapoints can indicate user retention.
Relevant Usage Metrics:
We are technically a Decentralised Exchange for trading perpetual futures. As such, our relevant usage metrics are:
-
Trading Volume: a daily time series, measured in USD
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Total number of transactions: A record of the number of unique transactions recorded. We note one ‘pair’ trade as 1 transaction.
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Open Interest: The total size of positions open (both long and short)
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List of Traders: A comprehensive record of addresses or entities engaged in trading activities. This list should include trader addresses and the volume of trades executed.
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Trader Net P&L Improvement: The change in traders’ profit and loss accounts, reflecting on the platform’s fairness and attractiveness to traders.
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Liquidations: A daily time series measured in USD.
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Protocol fees : A daily time series measured in ETH and the USD equivalent
Do you agree to remove team-controlled wallets from all milestone metrics AND exclude team-controlled wallets from any incentives included in your plan:
Yes
Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal?
No
SECTION 2b: PROTOCOL DETAILS
Is the protocol native to Arbitrum?:
Yes, the product is native to Arbitrum.
On what other networks is the protocol deployed?:
No other networks.
What date did you deploy on Arbitrum mainnet?:
September 8th 2023.
GMXFactory: 0x1DDCa7eaec57d24561e3Ba9A5A0c043868127018
VertexFactory: 0x09a97Bf56dCF9ec1cda98315d8DF9a45BD1b955f
Do you have a native token?:
We plan to launch a token in Q2 2024.
Past Incentivization: What liquidity mining/incentive programs, if any, have you previously run? Please share results and dashboards, as applicable?
We are yet to run any incentivization programs since our token has not been launched.
Current Incentivization: How are you currently incentivizing your protocol?
We have received a GMX Builders grant (40k $ARB released) and are using this to incentivize trading on our Isolated margin product. Users will be rewarded with ARB tokens when trading on Pear, in the form of a 75% fee rebate on realised fees. These are anticipated to be distributed by the end of March 2024.
The 40k $ARB grant was awarded based on the following assumptions about users, volumes and fees.
The average trade size on GMX is $28,400
Conservatively assume the average trade size on Pear Protocol for a commonly traded pair like ETH/BTC is a fraction of this amount = $5,000.
In reality, pair trading is seen as ‘less risky’ and may see higher volume per transaction but we wish to be conservative.
On GMX v2, this trade would generate $8.67 of fees for GMX
Pear Protocol platform fee is $12.50
Total fees paid by user would be $21.17
We then looked at the total number of active users on GMX and Vertex to build an estimate for trading activity on Pear.
GMX: 1200 - 2000 active users/day
Vertex: 300 - 500 active users/day
[see Image 2 in the comments section]
Averaging, we see around 1600 active users on GMX, and 400 active users on Vertex. 2000 in total. Assume Pear can capture only 60 active users (3%). During our beta feedback period we noticed that a daily active user places on average 1.5 pair trades.
Based on comparisons to other DEXs, we thus have 60 unique users who collectively execute 90 transactions (60 users*1.5 transactions)
90*$21.17 = $1905.3 per day
Over 60 days this equates to realised trader fees of $1905.3 * 60 = $114,318
A rebate of 75% equates to $85,738, which coincides with the ask for $40k $ARB (1 ARB = $2.14 as of 13/03/2024)
Translated back in volume terms, to generate $114,318 in realised fees, we would have to do a total volume of $27m across 60 days of trading.
$27m across 60 days would require $450,000 of volume per day (<0.03% of the 24h volume of dYdX, Vertex, GNS and GMX combined).
In summary, we have analysed the user and volume activity of the various perp execution venues on Arbitrum for the much smaller GMX builder grant that we received to build on top of GMX v2.
Importantly, this GMX builder grant period with $ARB incentives has meant that we have already coded and tested the platform logic in our smart contracts to capture user fees paid, calculate rebates and tested the claim $ARB contract on both the front and the back end. We would extend this methodology for this larger LTIPP if successful.
Protocol Performance:
We are currently in closed beta but current performance can be found within our Dune Dashboard.
Closed beta had a number of restrictions including being limited to 200 whitelisted wallets, and initially with a cap of $25 per user. Despite these restrictions we have now traded in aggregate of $1,000,000 of organic volume with over 2800 perp transactions as tracked by the rows in the ‘legs executed’ columns. The charts for cumulative volume traded on both Isolated and Cross Margin mode signal the demand to pair trade. Less quantifiable but we have over 120 tickets in discord with detailed beta feedback from a diverse set of users. The conversations and 1:1s have solidified our confidence in our product-market fit.
[see Images 3&4 in the comments section]
Protocol Roadmap:
Our next key dates are:
1. 29th March 2024 - full public launch of v1 of Pear Protocol
This marks the launch of Pear Protocol v1 with no whitelist and no caps on trading size. Users will be able to execute in Isolated mode (liquidity sourced from GMX v2) and Cross Margin mode (liquidity sourced via Vertex Orderbook). Key launch events include:
-
Release of a series of educational videos on pair trading (already created)
-
Paid media with Blockworks including 0xResearch, Blockworks Webinar and DAS London 2024
-
Twitter amplification via Spaces, RT’s and threads from our key integration partners
-
KOL campaign with crypto twitter traders whom have appeared on our “Crypto Narratives” Podcast
-
Launch of a point based system to qualify for [$PEAR] tokens
b) Q2 2024 - Token Generation Event (TGE)
After a period of 4-6 weeks of active trading on the platform, we will be conducting an LBP as part of our token generation event. There are no investor unlocks for at least 6 months leaving scope for positive price appreciation.
Our staking contract will also go live shortly after, whereby users can stake their [$PEAR] tokens and earn 80% of the protocol fees. This has been designed to increase participation in the ecosystem and to further decentralise the project.
c) Q3 2024 - launch of Pear Protocol v2
The largest next milestone will be the launch of Pear Protocol v2. Pear has secured a key partnership with SYMM to be the first front-end development of their pioneering AMFQ technology on Arbitrum. This means that users will be able to submit an intent on any of the 250+ underlying perp markets available, allowing for more esoteric pairs like WIF/BONK to be traded.
This brings an innovative new model for perpetual trading to Arbitrum, whereby perp orders are fulfilled by professional market makers (Solvers). Pear has been working on this since November 2023 and a working prototype is available. Most importantly, this product development brings the ability to trade a wide tail of assets, which up until now have been exclusively available to trade on leverage via CEXes. This new architecture thus combines the deep liquidity of off-chain liquidity with the security that comes from on-chain settlement and self-custody.
2025 product priorities include:
-
Pair trading vaults for users to deposit into, fostering a more socialised approach to generating pair-trading returns
-
Thematic baskets where users can go long a basket of say, AI tokens vs. short another asset like $ADA.
-
Advanced execution types including VWAP and TWAP to appeal to larger institutional funds that are looking for efficiently engineered market-neutral trading.
Audit History & Security Vendors:
Currently completed a Private Audit with Shieldify (PDF shareable on request) and due to begin our Public Audit with Sherlock.
Security Incidents:
No Security Incidents to report.
SECTION 3: GRANT INFORMATION
Requested Grant Size: 350,000 $ARB
Justification for the size of the grant:
The LTIPP runs for a period of 12 weeks, or 84 trading days. We’ll be applying a similar framework for thinking about users and volume as we did in our GMX builder grant application, but seen through a volume lens. Focusing on volume allows us to calculate the corresponding protocol trading fees incurred by Pear Protocol’s users, and thus allows us to calculate a realistic number of $ARB to be used strictly as a fee rebate.
To recap our earlier assumptions:
- Pear Protocol charges a platform fee of 0.25%
- GMX and Vertex have on average 2000 unique users a day
- Total volume traded on GMX, GNS, Vertex and dYdX averages $1.5bn / day
- Pear Protocol believes it can capture some % of these 2000 users and thus some % of this daily traded perp future volume.
Post launch, we currently have over 200 whitelisted users who are keen to use the platform. We shall assume only 25% of them are active in the 12 week campaign (50 users). Furthermore, we assume that through our marketing partnerships with Vertex and GMX that we can acquire 2% of the 2000 active unique daily users they have, adding another 40 users. Thus we arrive at a total of 90 (50+40) daily active users.
Pair trading is a strategy that appeals to 3 types of traders:
-
Retail communities that wish to express narratives e.g. “Soylana Manlets” going long SOL/ETH, “Link Marines” expressing long LINK/PYTH , or “ETH maxis” trading our most popular pair, ETH/BTC.
-
More sophisticated traders looking to capture market-neutral positions in a long-short manner with leverage.
-
User funnels that arrive via our KOL campaigns seeking to generate returns and copy-trade using a referral link.
Combined with extrapolated data from our closed beta and based on existing volume being done on GMX and Vertex, we estimate we can capture just over $4,000,000 of daily traded volume.
This equates to <1% of the 24h combined average volume of GMX and Vertex (of roughly $500m / day). Another reference point here is IntentX, who launched using the same underlying trading engine as our v2 product (SYMM) , who achieved $500,000,000+ of organic volume on Base (L2) within 6 weeks of launch, albeit as a brand new platform.
Just over $4mm of volume a day, over 84 trading days would be a cumulative total of $350,000,000. With $350,000,000 of volume, Pear Protocol traders will incur $875,000 of fees. If successful, we would use the 350,000 $ARB ($700k equivalent) to provide an 80% rebate to traders using the protocol. A full breakdown is available in the spreadsheet below.
https://docs.google.com/spreadsheets/d/1-wG8MhI3DyJxTtGzTzru98fpAn9Df0aKDKwXxfk5Tww/edit?usp=sharin
Note: Since the LTIPP is 200% oversubscribed, we have reduced the original ask (700k ARB) by 50% to give a better opportunity to all applicants for the benefit of the wider Arbitrum ecosystem.
Grant Matching: N/A
Grant Breakdown:
All $ARB received as part of the LTIP will be used to reward active traders who have paid realised fees to use Pear Protocol. The breakdown will be as follows:
Fee rebates to lessen the cost of trading (improving Reach): 350,000 $ARB
This has been designed with sybil resistance in mind.
Funding Address: 0x88103C9fA3cE4FF45e4C1Ea3688F40d1DfdA6B02
Funding Address Characteristics: Fireblocks MPC Wallet
Treasury Address: 0x56eCA7280Dd0AcBcBFf11dE3ddd31094641c9021
Contract Address: 0x56eCA7280Dd0AcBcBFf11dE3ddd31094641c9021
SECTION 4: GRANT OBJECTIVES, EXECUTION AND MILESTONES
Objectives:
- Increase the total transacted volume on Pear Protocol
Currently we are in closed beta with 109 unique users, who have transacted $1,123,594 of volume since November 2023. Most of this period was with a restriction of $25 of collateral per transaction, and a maximum trade size of $200.
- Target KPIs are 90 daily unique users, $4,160,000 of daily volume
What mechanisms within the incentive design will you implement to incentivize “stickiness” whether it be users, liquidity or some other targeted metric?
The targeted metrics are number of users and daily volume traded, which combine to from total volume traded. A concern for both us, and Arbitrum DAO is to incentivise ‘stickiness’ both in users and volume during and post the LTIPP.
There are 2 mechanisms we have put in place to achieve this.
#1. Revenue Share in protocol fees via staking
#2. Fee reductions and rebates on ongoing trading activity
- Revenue Share
Pear Protocol generates $USDC fees per trade that is opened and closed. 80% of these fees are available to be claimed by stakers of the $PEAR token on a weekly epoch basis. The weekly epoch design mirrors the claim period we have designed for the $ARB tokens. An image can be found in the comments section.
- Fee reduction on trading activity
Our current fee structure is 0.25% to open a combined pair trade position (0.125% per leg) and 0.25% to close a position (0.125% per leg). There is a discount that is applied to these fees if the same wallet interacting on Pear Protocol holds a certain number of staked $PEAR tokens.
This is done to incentivize and retain crypto whales and bigger trading firms who are more sensitive to trading fees.
These fee reductions will be automatic, although the front end will let a user know how much they have saved in fees based on their $sPEAR token holding, and the same page should have a call to action to buy and stake more $PEAR.
Example 1
| $PEAR Staked | Fee Discount |
|---|---|
| 10,000 | 5% |
| 50,000 | 10% |
| 100,000 | 20% |
| 250,000 | 30% |
| 1,000,000 | 40% |
| 2,500,000 | 50% |
Fee rebates will be also offered to VIP customers (paid from Pear Treasury). We will be adding tiers of those VIPs based on their monthly volume (one month = one epoch).
Example
| Tier | Monthly volume | Your Fee Rebate rate |
|---|---|---|
| 3 | ≥ $1M | 5% |
| 2 | ≥ $3M | 10% |
| 1 | ≥ $10M | 15% |
| Platinum | ≥ $20M | 18% |
Again, this is done to incentivise and retain trading volume from larger clients.
For example, if a whale does $20MM a month in volume this would be their fee structure on opening trades:
Default: 0.25%*20,000,000 = $50,000 in fees
With Fee Discount = 0.5 * $50,000 = $25,000 in fees
Fee Rebate = 0.18*50,000 = $9,000 (claimable via front end)
So net situation:
Net Fee Paid = $25,000 - $9,000 = $16,000 in fees = 0.08% (8bps of fees). This brings it more in line with competitor DEXes, but only for more regular clients.
Execution Strategy:
Pear Protocol charges a total 0.25% platform fee to open and close ‘pair’ trades. This corresponds to 0.125% per leg. This platform fee helps cover our operational overheads such as MongoDB, Sentry, Render, Alchemy, Cloudinary, Eden and other APIs that scale with usage.
100% of the grant ask is for fee rebates to lessen these costs of trading.
The fee rebate is designed to bootstrap user acquisition over the first 12 weeks post full protocol launch (April 2024) and is designed to encourage new users to try the platform at minimal cost (thus improving reach). Once a user has been acquired in weeks 1-3, the weekly epoch based fee rebates also encourage traders to continue to trade, i.e. supplementing their trading PnL with the rebate (thus improving retention).
Our Target KPI is $350,000,000 of volume over 84 trading days ($4.16m daily). With a 0.25% fee, thus equates to $875,000 in realised fees paid by traders. If we were to receive the 350,000 $ARB tokens, all 350,000 $ARB (≈$700,000) would be used to rebate traders in the form of a 80% rebate on realised fees in the form of $ARB. We take inspiration here from GMX and Vertex who ran similar campaigns during the STIP, and we have already coded the platform logic accordingly.
We believe we can hit these KPIs in 84 trading days since the $ARB incentives sit alongside other elements of our “Go-To-Market” strategy including a point based trader leaderboard with the potential to earn [$PEAR] airdrops, the launch of our token staking and revenue share model, the favourable trader referral program, rollout of our in-motion KOL strategy and realising the captive demand of our existing community of 2200+ active discord members/traders.
Grant Timeline and Milestones:
Although the total ask is for 350k $ARB, we are conscious that the Arbitrum Foundation and Arbitrum DAO would like to mitigate execution risk. Thus we propose the following milestone based release of the LTIPP incentives.
Milestone 1: $50,000,000 of total traded volume ($50k ARB)
Milestone 2: $100,000,000 of total traded volume ($100k ARB)
Milestone 3: $350,000,000 of total traded volume (remaining $200k ARB)
Any unmet milestones within the 12 week incentive period will be returned to the Foundation, and none may be released until Milestone 1 is achieved. These milestones are also back-loaded, further minimising the risk to the DAO.
How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?
We have built Pear Protocol to be a liquidity agnostic front end that is deeply integrated with various existing Arbitrum apps. Notably, both GMX and Vertex have expressed a desire to become ‘liquidity venues’. By building a dedicated UI and UX for pair trading (with all the relevant charting, risk management and analytical tools that involves) we can drive more volume to these leading Perp DEXs on Arbitrum.
We do not seek to fragment liquidity, but rather to grow volume via a novel new way of trading on-chain (leveraged long-shorts). Notably, we wish to bring new traders to these liquidity venues. For example, some of the larger Crypto Twitter influencers like Ansem, smartestmoneyeth, runnerXBT and Andrew Kang are often trading SOL/ETH, ETH/BTC, DOGE/BTC or some other pair trade. Pair trading is a way of implementing narrative trading, and we are positioning the platform to appeal to the followers of these accounts who would also like to narrative trade in a frictionless way. The referral link program is a further incentivise for new users to come to Arbitrum.
The ability to atomically execute a long and a short position within the same block, and then tokenise that position as an ERC-721 is a key innovation that opens up the floodgates to financial composability on Arbitrum. Notably, whereas today DEX users can either open or close a trade on say GMX or Vertex - going forwards they will be able to open or close a pair trade, move their position to another wallet, sell their position to somebody OTC (via OpenSea or another marketplace) and most powerfully, borrow against their trading position in an NFTFi platform. Lastly, the integration with leading market makers via the intent centric perp solver network presents a unique opportunity for Arbitrum to be at the forefront of this evolution of trading technology. When Pear Protocol v2 launches we will onboard new users who want to trade a long tail of perpetual assets since the Solver framework allows a market maker to quote on more than 250+ underlying perp markets. Again, comparisons can be made with the success of IntentX on Base (L2).
The LTIP states that it’s longer term objective is to attract users and liquidity. It can be argued that Arbitrum has reached a saturation point with regards to DEX users as new daily users begins to tail off for more established platforms. By building the first and only dedicated platform for pair trading, we establish a brand new financial instrument (“Pair trading position”) and will onboard users from various communities as part of our narrative hijacking GtM strategy (e.g. a “Solana manlet” expressing a leveraged long SOL/ETH trade or a “Link Marine” expressing a leveraged long LINK/PYTH trade). We’ll also bring a wealth of institutional funds who are focused on market neutral strategies as well as appealing to CEX traders who up until now had no reason to trade on-chain. The benefits of Pear Protocol for Arbitrum DAO are thus:
- Novel way of attracting volume to Arbitrum irregardless of whether the market is bullish, bearish or ranging (“there is always a pair trade to do”)
- Onboard new users who traditionally have only ever traded spot, with a product which has lower risk profile than outright long exposure (long-short).
- Be the “go-to” chain for thematic investing, e.g. being long a basket of AI tokens via. Short $ADA or any other benchmark.
- Experiment and implement intent centric solver technology whose insights can be leveraged by other protocols and market makers
- Lead to the creation of a self-sustaining dApp with real revenues and a decentralised plan for distributing those revenues, thus shining another example alongside GMX, Vertex and other ‘real revenue’ projects.
Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream? Yes
SECTION 5: Data and Reporting
Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO? Are there any special requests/considerations that should be considered?
Yes, no special requests/considerations.
Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard?
Yes, we will provide an in depth report that shall be post bi-weekly detailing all metrics.
Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program? This report should include summaries of work completed, final cost structure, whether any funds were returned, and any lessons the grantee feels came out of this grant. Where applicable, be sure to include final estimates of acquisition costs of any users, developers, or assets onboarded to Arbitrum chains. (NOTE: No future grants from this program can be given until a closeout report is provided.)
Yes, we agree.
Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?:
Yes
