A quick overview of Arbitrum’s on-chain pair trading platform Pear Protocol

Original article: "Zero Liquidity Cold Start?" A quick look at the on-chain pair trading platform Pear Protocol 》
By Babywhale, Foresight News
A week ago, Pear Protocol, an on-chain pair trading platform, announced the completion of US$1.25 million in financing, with participation from Flow Ventures, RNR Capital, Portico Ventures and JY Capital. Since the product of this project is not currently online, the author cannot conduct field testing and can only dig some information from the existing documentation of the product.
 Project Description
Pear Protocol is a pairs trading platform on Arbitrum designed to enable composability in derivatives trading. According to information in the project’s Medium article, the founder of the project is the former founder of Reimagined Finance and ReFi Pro. Reimagined Finance is an on-chain active asset management project where users can deposit stablecoin assets and earn income through the investment plan set by the project. Currently the project Twitter has been logged out and the project has been closed.
 What is pairs trading?
Pairs Trading refers to a market-neutral investment strategy proposed by an analysis team established by Nunzio Tartaglia, a trader at Wall Street investment bank Morgan Stanley in the mid-1980s. Its members are mainly physicists, mathematicians, and Computer scientist. This strategy monitors the performance of two historically related securities. When the correlation between two securities temporarily weakens, that is, one stock moves up and the other moves down, trading a currency pair will short the outperforming stock and go long the underperforming stock, arguing that both The "price difference" between them eventually converges.
 The mechanism of Pear Protocol
According to Pear Protocol, it will not build an independent liquidity pool itself, but will use the liquidity of the existing derivatives platform on Arbitrum, and Pear Protocol will only act as a product that provides users with combinatorial functionality. Users can choose to deposit margin and go long Bitcoin while shorting Ethereum, while Pear will simultaneously open long and short positions in other derivatives protocols.
In addition, users’ positions will be presented as NFTs in ERC-721 format, which means that the possibility of position trading, mortgage lending, and other derivatives based on positions can be realized in the future.
 Applications in Cryptocurrency Trading
In the world of cryptocurrency, most assets will follow the trend of Bitcoin for a long time, and Bitcoin will also follow the trend of larger traditional financial markets such as US stocks or gold at certain times. But at certain times, especially when Bitcoin is facing the end of its rise or fall, some tokens will rise and fall independently of Bitcoin; or when certain projects experience major positive or negative developments, it will also occur. A brief break from correlation with Bitcoin.
But similar situations will not last long, and the tokens that have independent trends will return to the trend of high correlation with Bitcoin prices. For example, when Bitcoin is rising slightly, some tokens rise sharply due to good news, and then Bitcoin goes sideways. At this time, the tokens that have risen sharply before may pull back and go sideways again. At this time, traders can choose to go long on Bitcoin and short on the token at the same time. If the market eventually returns to high correlation, they can get higher profits. If one side deviates from the trend, they can also hedge to reduce losses.
As traders, we often find that at the end of Bitcoin's rise or fall, some coins will move independently, and at this time, pair trading provides the opportunity to expand profits and reduce losses through hedging. The current DeFi market infrastructure such as trading, lending, derivatives, etc. has become increasingly complete. In the future, it is believed that more tools that have matured in the traditional financial market will appear on the chain in another way. Perhaps these relatively complex mechanisms are not friendly to ordinary users, but they provide convenience for more professional traders and traditional market funds to enter the cryptocurrency field.
In addition, I believe that the development direction of DeFi should be to reduce leverage as much as possible and provide hedging tools, rather than adding leverage on top of existing leverage to create a wealth effect. Y2K Finance, which I have previously introduced on Arbitrum, and Pear Protocol, which I will introduce today, may not be able to attract or even carry large amounts of funds, but they are important pieces of the puzzle for the sustainable development of DeFi.
The project is currently undergoing a token public sale, and a total of 100 million tokens will be released. The public sale price is US$0.025, and the public sale ends at 20:00 Beijing time on April 24. 50% of the tokens purchased by users in the public sale will be unlocked at once after one year of locking, and the remaining 50% will be unlocked linearly within one year. We need to remind everyone that this project has not been officially launched yet, and the public sale part has a long unlocking period. Cross-protocol operations not only aggregate functions but also aggregate risks. Readers are advised to participate with caution.