Defx Liquidity Engine
1. Overview
The Defx Liquidity Engine (DLE) is the foundational market-making system powering liquidity on the Defx perp DEX. Structured as a vault, DLE allows users to deposit capital into a fully on-chain pool that the protocol uses to provide liquidity across all perpetual markets. Unlike traditional AMMs or peer-to-pool models where users passively sit on one side of risk, DLE runs delta-neutral, liquidity provisioning strategies that aim to generate real, sustainable yield without exposing depositors to directional losses.
The DLE is a core infrastructure layer for Defx, designed for performance, transparency, and long-term capital efficiency.
2. Vault Strategy
When users deposit into the DLE vault, their assets are used to run actively managed LPing strategies on the Defx orderbook. These strategies are fully neutral, aiming to balance long and short exposure in real-time to avoid market directionality risk. This allows DLE to act as a liquidity layer for traders while offering depositors consistent yield not tied to price speculation.
Unlike other onchain perp vaults that suffer from trader PnL drain or LP-side losses, DLE does not bet against traders. This protects depositors from directional losses and avoids the common pitfall of vaults getting drained by profitable traders.
3. Yield Sources
The DLE generates yield from three primary sources:
Funding Fees Traders on Defx pay or receive funding based on the perp market's open interest skew. The DLE captures the positive funding side when providing liquidity across both sides of the book.
Trading Fees The DLE earns a 50% share of fees when its liquidity is matched on the Defx CLOB.
Liquidation Profits In cases where traders become undercollateralized, the engine participates in liquidations. Profits from these executions accrue back to the vault.
All yield is automatically distributed to depositors, proportional to their share of the vault.
4. Transparency Module
To build trust and align with the ethos of onchain finance, a full transparency module is under development. This will allow users to:
View active vault positions and orders
Track historical trades and funding rate exposure
Monitor live APY metrics
Understand how each component contributes to total yield
Give complete visibility of the assets held across all contracts
The goal is to give depositors full visibility into how their funds are being deployed and how the yield is being earned, with no need to parse raw onchain data.
5. Deposit and Withdrawal Mechanics
Deposit Process Users can deposit USDC into the vault directly on Defx. Funds start accruing yield once accepted into the active pool.
Cool-Off Period All withdrawals are subject to a 3-day cool-off period, ensuring liquidity stability for open positions and hedges.
Redemptions After the cool-off period, users can withdraw their principal plus any accumulated yield based on their vault share.
A future upgrade will introduce continuous deposits and withdrawals via liquid staking tokens (see Section 7)
6. Risk Management
The DLE is designed for capital protection, not speculation.
Delta-neutral strategy eliminates directional price risk
All strategies are managed onchain with protocol-enforced limits
Yield is diversified across sources to avoid reliance on a single revenue stream
DLE does not chase high APY through risky behavior. It is built to be sustainable, composable, and predictable.
7. LST Architecture (Upcoming)
The next evolution of DLE introduces Liquid Staking Tokens (LSTs). This system will issue yield-bearing tokens like dstETH, dUSDC, or dSOL on supported chains. These tokens represent your position in the DLE vault and accrue rewards continuously.
Key features:
Native LST issuance on Ethereum, Solana, and others
Mint and redeem at any time
Composability with other DeFi protocols
Live APY tracking and proof-of-performance
This transforms vault positions into transferable assets, opening new doors for composable DeFi integrations and layered yield strategies.
8. Roadmap and Future Features
Full Transparency Dashboard: Go live with position tracking and yield attribution
Cross-chain Vault Deployments: Expand vault access to other chains via unified mint/redeem
Public Vault Audits: Formal audits to be completed for maximum trust
LST Collateral in Perp Trading: Use dTokens directly as margin collateral
Vaults: Enable third-party teams to spin up their own DLE vaults
The DLE is the liquidity engine behind the Defx perp layer and will continue evolving to support more chains, more tokens, and more advanced liquidity flows
Get Started
Deposit USDC into the Defx Liquidity Engine and start earning yields.
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