Announced on May 5th, the Strike Protocol came out of stealth mode, promising to allow users to have their assets leveraged up to 20x times by using their exclusive AMM backed system.
The platform has the potential to truly impact the blockchain derivatives niche. However, it is still under development process, with an alpha version of the protocol coming soon.
A Quick Story About Strike Protocol
To fully understand the concept behind the protocol, it is necessary to explain what are AMM’s, stakers, and derivatives.
Derivatives are contracts between two or more parties, whose value is based on an agreed-upon underlying asset or even a set of assets (an index, for example). It has proven to be an essential foundation to support the long-term growth of any asset, including cryptocurrencies.
Staking is the process of holding funds in a cryptocurrency wallet to support operations of a blockchain network, which gives the holders some decision power on the system.
AMMs or Automated Market Makers are algorithmic synthetic traders that work by maintaining constant open interest, providing so needed liquidity to the markets that would be difficult to provide naturally. It is an unprecedented tool for prediction markets, for example.
How Does the Strike Protocol Work?
The Strike Protocol is a decentralized non-custodial derivative protocol, which aims to allow perpetual swaps for crypto assets.
Their main goal is to give traders the possibility to have up to 20x leverage while trading in the Ethereum blockchain, with full transparency and almost no fees.
Strike has an agnostic approach when it comes to assets, supporting several different synthetic on-chain and off-chain assets, including gold, crude oil, fiat currencies, and BTC.
It is highly focused on securing liquidity in the system, so it developed a unique AMM backed solution to guarantee constant on-chain liquidity. It makes the idea stand out amid competition, as DEX’s are constantly plagued by liquidity issues all over the blockchain market.
The platform also features an interesting way to deal with losses from underlying price fluctuation, unlike other well-known decentralized protocols also backed by AMM technology. Here, stakers are not spoiled by any impermanent loss resulting from price fluctuation.
Within the platform, users can be separated into two types: traders and stakers. Traders interact directly with the AMM’s to negotiate their crypto coins, with no need for any sort of counterparty whatsoever. The system also counts on built-in liquidity reserves to back and secure the AMMs, if necessary.
Hence, AMMs provide guaranteed on-chain liquidity constantly, which drastically improves trading performance for users.
The platform has a native token, SKE, which an ERC-20 compatible token issued by Strike’s DAO (Decentralized Autonomous Organization).
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Stakers are SKE holders. They can become liquidity providers to the Liquidity Reserve by staking SKE’s into it, which represents the last line of defense to cover potential unexpected losses. They play an essential role in the system, as they are responsible for ensuring that Strike’s AMM is sufficiently collateralized to perform at its highest level. Their reward is paid in the form of fees associated with transactions, staking rewards such as native inflation as well.
SKE is also part of the governance structure of the protocol. The promise for users is that, once the ecosystem is mature enough to handle a proper token distribution, the protocol will start transitioning step by step into a DAO.
It means that the community will be responsible for decision-making processes, choosing what is the best direction for further development within the platform.
Leverage, Fees, and Supported Cryptocurrencies
Users expect to have up to 20x leverage positions on both long and short trades, with only a 0.1% transaction fee.
This 0.1% transaction fee is divided into two inside the system, where one half is deposited to serve as insurance to cover funds from unexpected losses, while the other half is divided between the system’s stakers as a reward.
As stated before, Strike has an agnostic approach when it comes to supported assets. It does not just support Ethereum-based assets, but also an interesting range that mixes conventional and digital assets, such as BTC, gold, crude oil, and fiat currencies.
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It is expected to launch the service allowing swaps between ETH/USDC and BTC/USDC, expanding the range of supported assets over time as a fully decentralized governance model starts taking place.
A big novelty when it comes to blockchain-based derivative markets, the Strike Protocol (official website) is still in-progress. Its’ alpha version is expected to be released on the Ethereum test net soon, with the main net version expected to be launched later this summer, according to their team.
Promising 20x perpetual leverage over crypto assets, it is said it will work similarly to Uniswap but with a unique upgraded approach.
Although the protocol has full potential to succeed and become a big player in the scene, we still need to wait and see if the project will live to the hype, as we expect it will.