Avantis Labs, a decentralized finance (DeFi) derivatives ecosystem, has raised $4 million in a seed funding round led by Pantera Capital, the company’s co-founder and CEO Sehaj Singh exclusively told TechCrunch.
Founders Fund, Galaxy, Coinbase’s Base Ecosystem Fund and Modular Capital also invested in the round. The capital will be used to grow its flagship product Avantis, a perpetual-trading and market-making protocol.
“We saw an opportunity to build a protocol that caters to the complex LPs,” Singh said. “They’re not your run of the mill, average Joe; they’re very complex, sophisticated, on-chain, risk managing, yield-hunting individuals. The next big step was to build a protocol that caters to their individual risk profiles.”
Perpetuals are a type of derivative contract that allow traders to speculate on the price of an asset without actually owning it, meaning that they don’t have an expiration date (like futures contracts) and can be held indefinitely.
Many DeFi perpetual protocols focus mainly on trading cryptocurrencies, opposed to traditional assets like forex or commodities. Across the crypto community, there has been an increased demand in recent months for more real world assets (RWAs) to link the traditional financial market to the DeFi world and leveraged trading.
But many RWAs that are available on-chain through DeFi protocols are offered to accredited institutions, not everyday traders. Avantis plans to enable forex and commodities to “be hedged and traded on-chain” without the need for tokenization, which is a slow and expensive process, Singh said.
“We take the leverage trading mechanism [and] we not only expand it to real-world assets, using oracles, we also expand out the LP side of things by making it a bit more complex,” Singh said. “We like to call it the Uniswap V3 moment for LPs of these leverage protocols.”
Avantis’ underlying trading engine is powered by oracles from Pyth and Chainlink, which are low latency and aim to provide traders with better prices across centralized and decentralized financial markets. The platform is being developed on Optimism Superchain, a network of chains built using the OP Stack, and uses USDC stablecoins as collateral for trades on its protocol.
In the third quarter of this year, Avantis launched its private testnet phase on Base’s blockchain with initial offerings of bitcoin and ether perpetual trading. It plans to launch on Base’s mainnet by the first quarter of 2024 and roll out general access afterward.
Its waitlist has about 90,000 applicants, but it started onboarding about 2,500 people this past weekend, Singh said. It will not be operating in the U.S. or any OFAC sanctioned countries unless it can get approval to operate as an exchange under a CFTC license, he added.
The protocol aims to provide institutional and retail investors the ability to trade crypto and RWAs with up to 100x leverage on its decentralized exchange. It aims to give these traders and liquidity providers better DeFi derivative-trading and market-making infrastructure as well as “capital-efficient composability that’s scalable,” the company said in a statement.
Composability is a generally “untapped” area by orderbook-based derivative protocols because they have minimal trading opportunities for non-crypto asset classes. As a result, the DeFi space has been restricted to mainly crypto assets.
On launching on the mainnet, Avantis will go live with bitcoin and ether and three pairs for foreign exchange: the pound, JPY and the euro. Over time, it will add more cryptocurrencies as well as “exotic forex pairs” like INR and USD, and commodities like gold, silver and crude oil, Singh said.
“I really do believe that it’s possible to give access to anyone to market-make these products,” Singh said. “These are not as sophisticated as people make them out to be. It’s just that they’re very gated to market makers who are in the traditional institutional world… In order to do it, you have to make a complex engine that people can still understand and that can function well at scale.”
It’s worth noting that while this platform wants to cater to different trading personas, it’s not for someone who isn’t “crypto-native and who hasn’t bought crypto in their life,” Singh said. “It’s for people who have and understand leverage trading. Someone who has an understanding of leverage is very important, [because] if you don’t understand it, you end up burning yourself.”
In the long term, Avantis has a bigger roadmap to expand its protocols’ capabilities beyond perpetual trading, and plans to begin working on an options engine by mid next year.
“The goal is to build a whole ecosystem of margin-based products that are fully on-chain,” Singh said. “Options [perpetuals trading] are the next big step for us.” Beyond that, the “next frontier products” for Avantis can range from “on-chain casinos” to leverage vaults, he added.