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How to Scale the DeFi Derivatives Market – Coindesk

However, in the derivatives market this is more challenging. In response, several different protocols have been created. One solution is the creation of on-chain perpetual liquidity, through a virtual liquidity machine to create a constant product that can supply long and short liquidity. This model eliminates liquidity provider risks by cutting out the role of the liquidity provider (LP) altogether. But in doing so, it transfers the risk from the LP to the protocol.