Note: date of writing (October 17th, 2024) - since then price has increased substantially

With over 30,000 pair trades available at a single click, Pear Protocol brings narrative-driven trading to everyone, just like Robinhood did for stocks.

Crypto trading thrives on competing narratives. Nowhere is this more apparent than on Crypto Twitter, the battleground for attention and narrative formation. Think about how many times we’ve read about ETH vs. SOL, modular vs. monolithic, or even the meme-coin wars between dogcoins and catcoins.

So, how do you best trade these narratives? Traditionally, you could take a single asset view (Token A/USDT (i.e. long), or USDT/Token A (i.e. short)). Essentially, you're saying, "I think this asset will outperform going up/down." But here’s the catch, taking a directional view is tough, especially in a sideways or down market, or even in the current meme frenzy we have today. Why? If you are long, you are at the mercy of the overall market. If you are short, sky-rocketing funding and liquidators can come for your position. 

Enter pair trading - a market-neutral strategy which removes this market risk. Instead of betting on direction, you are making a bet on their relative performance by longing one and shorting the other (see exhibit below). So even if the market hypothetically goes to zero, you could still make money if the long leg of your position outperforms. The idea is to generate a profit regardless of whether the market is bullish, bearish, or stuck in a sideways grind.

Pair trading individual assets (long $DOGE, short $POPCAT) or a basket of tokens (long $DOGE + $WIF, short $POPCAT + $MEW) lets traders push further along the risk curve, tapping into more volatile assets without being beholden to a specific name or market environment. This basket approach allows traders to reduce the risk tied to any one asset in the trade, while still benefiting from the narrative-driven action by going further out on the risk curve.

While all of this sounds exciting, several execution challenges have slowed the adoption of pair trading. First, pair trading is mostly done on centralized exchanges and even there really only ETH/BTC can be traded as a “pre-fab” position. If you want to pair trade other assets, various steps need to be independently executed by traders themselves. This can be challenging due to differences in liquidity between the long and the short asset, frequent rebalancing, funding rates, collateral management and more. Furthermore, many centralized exchanges struggle to onboard certain new tokens quickly enough and have yet to provide simple UI/UX to display a pair trade in a single chart. Sure, seasoned traders can work around those challenges, yet retail and semi-professionals are de facto excluded from this trading primitive. 

Enter Pear Protocol. All of the irritating complexities are now solved by an innovative pair trading protocol. With a one-click execution you can be long cat memes and short the modular stack. Like Robinhood democratized equities and option trading, Pear does the same for pair trading.

What’s not to like? Pear is the first platform to create an intuitive UI to execute these trades in a single click. The team is constantly improving the product by introducing features such as copy-trading, funding rate farming and AI/ML models to spot narratives and capital rotation. Led by Huf, the Pear team has firsthand experience with the execution challenges of CEX pair trading (e.g. ETH/ETHW during the Merge). Huf encountered these issues himself, solved them for his own trades, and is now solving them for everyone else. The rest of the team is made up of industry veterans with deep experience and relationships across the space.

On the back end, Pear Protocol will integrate new assets as venues like GMX add perps to their vAMM pools, Vertex add perps to their CLOB, or market makers introduce perps that can be hedged on CEXes. By mixing on-chain and off-chain liquidity, Pear adopts a flexible approach to liquidity management that enables it to outpace both on-chain and centralized competitors. This hybrid model ensures Pear can onboard new assets rapidly and efficiently, giving it an edge in the face of fast-evolving narratives.

What about PEAR, the asset? Pear Protocol charges fees for opening, closing, and adjusting positions. Of these fees, 80% are paid out to stakers, with 20% going to the protocol’s treasury.

Since launch in May 2024, Pear has generated $196m in volume and $310k from thousands of unique traders. In the last 30 days, the protocol has generated $98m of volume ($3.2m in average daily volume) and $108k of fees, representing a run-rate revenue of $1.3m (of which 80% will be distributed to $PEAR stakers). With a current market cap of $3.2m and 55% of tokens staked, stakers receive an annualized $1.1m in fees or ~65% APY (Coingecko, 17 October 2024). 

In the future, Pear aims to partner with various front-end trading platforms, who will use Pear’s pair trading engine on the back end. Pear’s Hyperliquid integration is planned for Q1/2025. This should significantly increase volumes for Pear, given Hyperliquid is doing $2-3bn volumes per day. If daily volumes were to increase by a conservative 2x to c. $6.4m, annualized fees paid to stakers would proportionally increase to $2.2m.

So to conclude, what excites me about Pear Protocol? It’s simple, Pear democratizes pair trading and makes market-neutral strategies accessible to everyone. The platform is intuitive, designed for ease of use, and built by a team that is focused on constant product innovation. Furthermore, Pear showcases how DeFi’s speed and flexibility can outpace CeFi, especially when it comes to asset onboarding and execution. In an era where inflated valuations and exploitative tokenomics are common, Pear stands out with its community-first approach, sharing real revenue with stakers. Looking ahead, I am excited to see how Pear’s upcoming features and partnerships will take pair trading to new heights.

General Disclaimer

This presentation is not an offer to sell securities of any investment fund or a solicitation of offers to buy any such securities. An investment in any fund, including the digital asset strategies  described herein, involves a high degree of risk. There is no guarantee that the investment objective will be achieved. There is the possibility of loss, and all investment involves risk including  the loss of principal. The author makes no representation as to the  accuracy or completeness of  such information. Opinions, estimates and projections in this presentation constitute the current  judgment of the author and are subject to change without notice. Any projections, forecasts and estimates contained in this presentation are necessarily speculative in nature and are based upon certain assumptions. The author holds the token described.

It can be expected that some or all of such assumptions will not materialize or will vary significantly from actual results. Accordingly, any projections are only estimates and actual results will differ and may vary substantially from the projections or estimates shown. This presentation is not intended as a recommendation to purchase or sell any commodity, security, or asset. The author has no obligation to update, modify or amend this presentation or to otherwise notify a reader thereof in the event that any matter stated herein, or any  opinion, project on, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.