Panoramic Breakdown of Flying Tulip: Building a Real-Time Adaptive Decentralized Finance Stack

Author: Shoal Research

Compiled by: Felix, PANews (This article has been edited)

Most of the volume and activity in Decentralized Finance remains concentrated in a few core functions: Swap, Perpetual Futures, Stake services, and Borrow marketplaces. There is still no simple, intuitive way to access all these features through a single Margin account. These Decentralized Finance primitives operate independently, resulting in fragmented Liquidity, large amounts of idle capital, and missed Return opportunities.

The lack of a unified Margin account is not a conceptual issue, but rather a structural one. Different Decentralized Finance protocols have their own accounting and risk parameters. This design makes Decentralized Finance safe when operating individually, but inefficient as a whole.

Today, most protocols are designed as sets of smart contracts with fixed parameters, able to run autonomously indefinitely. In contrast, traditional finance relies on dynamic parameters to adapt to Real Time conditions. Banks, market makers, and derivatives trading desks constantly reprice risk, widen spreads, and adjust leverage based on market activity.

Building Decentralized Finance infrastructure that can respond to Real Time market conditions enables better performance, safer risk management, and more efficient, productive capital utilization. These protocols can adjust key parameters—such as collateral ratios, Interest Rates, and execution routing—based on Real Time market conditions. This responsiveness is most critical during periods of market stress.

The question is, how does this work in practice?

Flying Tulip has launched an on-chain financial system designed to standardize pricing, credit, and risk across a unified set of marketplaces. The protocol integrates Spot Trading (AMM + CLOB), Borrow, Perpetual Futures, insurance, and a protocol-native Stablecoin into a shared Margin framework.

Core principles include:

• First, making Collateral reusable across multiple functions. A single deposit can support various activities—earning base Return, serving as Margin for Trade, or acting as Borrow Collateral—without being locked into a single use or module.
• Second, using real, executable Liquidity to price risk. The protocol measures its market depth and Volatility in Real Time, feeding these readings directly into parameters like Margin ratios, Funding Rate, and liquidation thresholds.
• Third, recycling protocol cash flow back into the system. Income from Trade, Borrow, and Settlement flows to the FT token via programmatic buybacks or user-directed allocation.

These principles reflect the protocol’s design for higher Return and better user experience. Higher Return comes from capital efficiency—Assets remain productive across the stack. The same deposit can earn base Return, serve as Borrow Collateral, set Limit orders on the CLOB, or provide Margin for derivation. Better user experience comes from service integration. Core mechanisms are directly coded into contracts and applied consistently across all products.

Flying Tulip’s design is based on Andre Cronje’s original Deriswap concept from 2020. The idea was simple: merge multiple Decentralized Finance functions into a more capital-efficient protocol. Deriswap proposed that the same Liquidity pool could be used for Swap, Borrow, and Options simultaneously, reducing idle Liquidity. Here, this principle is extended to the entire financial stack. The protocol’s architecture integrates Trade, credit, and risk management into a single environment, managing capital and risk exposure through a unified framework.

Flying Tulip will be natively deployed across multiple chains, launching first on Sonic Labs, then expanding to Ethereum, AVAX, BNB Chain, and Solana. Each chain will have its own local instance of Flying Tulip, ensuring all deployed Liquidity and Settlement occur natively.

Flying Tulip Stack

Flying Tulip consists of a suite of integrated Decentralized Finance components. ftUSD, Borrow, Spot, and Perpetual Futures operate on a shared Liquidity base and unified Margin layer. System parameters adjust in Real Time to market conditions, maintaining consistent pricing, Collateral, and risk across all products.

ftUSD: FT Native Stablecoin

To avoid relying on third-party Stablecoin for initial Liquidity, Flying Tulip introduced ftUSD—a protocol-native, USD-pegged Stablecoin serving as the primary Margin and Settlement asset for the protocol’s AMM pools, order books, and derivation marketplaces. ftUSD is Minted by depositing supported Stablecoin or blue-chip Assets, can be held as a stable unit of account, or Staked as sftUSD to earn Return from Flying Tulip’s underlying Return strategies. Staking means conversion to a Return-accumulating pool, with allocation reflected by a variable Exchange Rate between sftUSD and ftUSD.

Collateral used to Mint ftUSD is deployed in delta-neutral strategies across multiple platforms, executed on-chain for transparency and auditability. Assets are allocated among Borrow marketplaces, staking pools, and hedged positions, with Return distributed to sftUSD holders, while unStaked ftUSD Return is retained by the protocol for operations and Liquidity.

How it works:

ftUSD maintains its USD peg via delta-neutral strategies—Collateral is deployed on-chain to earn Return while keeping net market exposure near zero. ftUSD Return comes mainly from Interest earned on Collateral supplied to Borrow marketplaces (like AAVE), and Stake rewards from the long positions in hedged portfolios. Positions are periodically rebalanced and constrained by caps, size bands, and venue limits to maintain solvency and drop Volatility transmission.

Return, after deducting Borrow costs, fees, and safety buffers, is distributed proportionally based on sftUSD holdings. Distribution to sftUSD holders is reflected by the variable Exchange Rate between sftUSD and ftUSD. UnStaked ftUSD does not earn Return; its Return is used to fund protocol operations, expand Liquidity, and support token-first models.

This structure keeps Collateral productive while minimizing directional risk. Under normal conditions, the long (Stake) and short (Borrow) sides are calibrated to offset each other, drop the chance of liquidation during Fluctuation. The approach prioritizes Conservative sizing and transparent, programmatic management. All strategies and rebalancing logic are executed on-chain and can be audited via public dashboards.

ftUSD’s underlying Return strategy is fully on-chain, with key parameters (like pool Exchange Rate and Collateral risk exposure) kept transparent for performance and risk tracking. All positions are marked to market capitalization and managed under the same delta-neutral framework, with periodic adjustments based on observed Liquidity and Volatility.

Native Stablecoin like ftUSD allow Flying Tulip to price risk, settle Trade, and manage Liquidity under a unified framework. Anchoring market activity to such Stablecoin lets Flying Tulip unify Collateral management across its AMM, CLOB, and derivation marketplaces. ftUSD, as the basic unit for Margin, Settlement, and Borrow, allows the same Collateral to support multiple positions without leaving the system. Return generated (such as Funding Rate payments or Borrow spreads) is retained within the protocol’s Liquidity base and routed to sftUSD Stakers or operational reserves per policy.

FT Lend: New Borrow Marketplace Structure

Flying Tulip introduced FT Lend—a native Borrow marketplace directly integrated into the protocol’s unified Margin system. It allows users to Borrow and Lend Assets using the same Collateral that supports Trade, Settlement, and derivation positions across the protocol. FT Lend is designed to operate within an adaptive framework, using Real Time market data on Liquidity depth and Volatility.

Most major Borrow marketplaces today rely on fixed loan-to-value (LTV) and over-collateralization thresholds. Borrowers deposit Collateral worth more than the loan, maintaining a Margin buffer dependent on the underlying asset price. Liquidation occurs when debt exceeds the adjusted value of Collateral.

Static LTV parameters are chosen for simplicity and predictability. They let protocol designers set a Borrow threshold for each asset, defining the maximum debt a borrower can take relative to Collateral. These thresholds typically assume worst-case Volatility and enforce over-collateralization to protect lenders during rapid price Fluctuation. However, this design also limits capital efficiency and can trigger chain reactions. In stable markets, capital is underutilized; when Volatility spikes, static parameters amplify liquidation cascades as prices fall and protocols hit Collateral thresholds. Static risk parameters cannot distinguish between stable and volatile market conditions. FT Lend replaces static assumptions with adaptive parameters that continuously respond to market conditions. Borrow limits, Interest Rates, and liquidation behavior are derived directly from on-chain data, not fixed governance rules:

• Trade-weighted loan-to-value (TWAR). Borrowing power adjusts based on position size relative to pool depth. Smaller loans get higher limits, while larger loans face progressively lower caps to account for execution impact. The Collateral-to-pool ratio determines the maximum allowed LTV, tightening predictably as position size or Volatility increases.
• Volatility-aware Interest Rate. Borrow costs adjust based on actual Volatility. Assets are classified as stable or volatile, and the Interest Rate formula responds automatically: rates rise and Borrow power contracts during high Volatility; rates drop and available credit expands during calm periods.
• Snapshot LTV. When borrowers open or modify positions, Borrow limits are locked to current market conditions. Even if policy parameters change, existing positions remain within these limits, maintaining predictability while allowing future loans to reflect the latest market state.
• Market-aware liquidation. Liquidation is executed via a Liquidity engine that aggregates AMM reserves and order book depth to minimize Slippage. Before execution, the engine simulates price impact, splits large positions into smaller trades, and prioritizes Maker orders on the CLOB when available. This approach drops Volatility transmission and ensures orderly liquidation under stress.
• Unified Collateral system. The permissionless tier operates like an Auto market maker (AMM): each pair has its own Borrow marketplace, parameterized by Real Time depth and Volatility. The permissioned pool manages a curated set of cross-Margin Assets. Funds deposited in this pool remain active across the system—earning base Return, supporting open positions, and backing Perpetual Futures. Net debt mechanisms offset delta-neutral risk exposure, drop traditional liquidation paths, and reinforce the Collateral logic supporting ftUSD.

All parameters—including LTV, Interest Rate, and utilization—are updated on-chain in Real Time. The AMM publishes time-weighted (TWAP) and reserve-weighted (RWAP) price windows, which feed directly into Borrow logic, ensuring Collateral value reflects executable market conditions. Borrowers pay Interest; suppliers earn Interest. Cash flow is settled via a token-first model, with lenders receiving FT-denominated Return allocation, and policy fees flowing to protocol reserves and buyback mechanisms.

Flying Tulip’s protocol research shows Collateral utilization adjusts with market Volatility and Liquidity depth, as shown above. As Volatility rises or Liquidity drops, the maximum allowed LTV falls along a predictable curve, letting leverage expand and contract with market stability rather than remain fixed. This relationship directly determines how FT Lend calibrates Borrow power and liquidation behavior in Real Time, ensuring capital allocation within the protocol is both responsive and risk-aware.

Adaptive AMM-CLOB Spot Trading

Flying Tulip offers Spot Trading via a dual-engine exchange combining adaptive AMM and CLOB. Both systems operate within a unified framework, allowing Liquidity to dynamically shift between continuous and Limit Liquidity based on market conditions. Orders are executed along the path that achieves the best fill price with minimal market impact, aiming to maintain price consistency within the protocol.

The AMM features curve adaptivity, referencing short-term Volatility inputs including realized Volatility (rVOL), implied Volatility (IV), TWAP, and RWAP, continuously adjusting its pricing curve. In stable states, the curve flattens to drop Slippage and compress spreads. During heightened Fluctuation, the curve steepens, exhibiting constant product characteristics to maintain depth and price integrity against rapid order flow. This allows the market to self-regulate, adjusting curve curvature to current Liquidity and Volatility without manual intervention.

Price and flow data are smoothed via exponential moving averages (EMA), dampening short-term Fluctuation while enabling the protocol to respond to structural market changes. Guardrails limit curve migration within each window, ensuring predictable behavior for traders and Liquidity providers. The result is a trading engine that continuously adapts to changing environments while avoiding instability.

Before execution, each swap is simulated on-chain to assess price impact relative to current pool depth and defined pool thresholds. Large trades are automatically split into multiple orders to smooth market impact. If better pricing is available via CLOB, orders are routed there by priority; any remainder is cleared via AMM. Fees are dynamic—lowered during stable markets to encourage Trade, raised during Volatility to compensate LP risk.

LPs can provide Assets in full-range or concentrated-range positions. Full-range positions offer stable fees based on x*y=k principles. Concentrated Liquidity allows higher fee density when prices remain within range, but requires active rebalancing when market trends shift. Adaptive curves regulate these dynamics: spreads narrow during stability, widen during Fluctuation, dropping spread loss during stress. Fees, as a dynamic policy variable rather than a fixed parameter, adjust with observed market conditions. During calm periods, fee schedules approach their lower bounds to attract inflows; during Volatility, fees rise toward upper bounds to compensate LPs and slow adverse outflows. All bounds and coefficients are publicly visible and updated on-chain in Real Time.

By unifying AMM and CLOB execution under a shared Liquidity and risk framework, the protocol maintains consistent price discovery under all conditions and avoids depth fragmentation. The AMM also underpins other components—Perpetual Futures, Borrow, and liquidation—all referencing AMM-derived price and depth windows for Collateral valuation and impact-aware execution.

Flying Tulip’s protocol research shows AMM curvature dynamically adjusts with market Volatility, as illustrated above.

This chart compares several LP strategies under range-bound, rising, and falling trends. During stability, concentrated and trigger strategies generate higher fee income, while passive LPs preserve value during directional moves. The results highlight the tradeoff between responsiveness and risk exposure: adaptive strategies perform best in balanced markets but trend toward passive outcomes during sharp Fluctuation.

This relationship demonstrates how the protocol’s adaptive curve manages Liquidity under stress. By adjusting curvature for Volatility, the AMM maintains depth, stabilizes fee generation, and supports Collateral Assets like ftUSD, ensuring Return and price stability across the protocol.

By unifying both market types under a shared Liquidity and risk framework, Flying Tulip’s Spot module maintains efficient pricing under all conditions and avoids fragmentation of AMM and order book Liquidity. The CLOB also incorporates volume-based fee adjustment, Maker rebates, and a Recommended system rewarding LP Trade activity, aligning user incentives with Liquidity depth.

FT Perps

Flying Tulip has launched a native Perpetual Futures engine, allowing users to take leveraged long or short positions on Assets, settled directly against prices discovered in the protocol’s own AMM and CLOB. FT Perps sources these values internally from Real Time protocol Trade activity. Prices, Funding Rate, and liquidation thresholds reference actual executable Liquidity, not delayed or external data.

This design keeps mark prices aligned with real trading depth. If an Asset is traded at a given price on the AMM or CLOB, that price becomes the valid Settlement price. Prices update continuously. Funding Rate adjusts automatically based on Borrow demand, position imbalance, and the actual cost of holding long or short positions within the protocol. When longs are effectively Borrowing Stablecoin to hold, and Borrow costs rise, Funding Rate reflects this; when the imbalance reverses, Funding Rate direction changes accordingly. All funding inputs and parameters are transparent and observable on-chain.

Perpetual Futures can be traded in isolated or cross-margin mode. In isolated mode, Collateral backs a single position, containing risk within that market. In cross-margin mode, users can deposit Collateral from the permissioned Borrow pool, allowing a single deposit to support multiple positions across Flying Tulip while continuing to earn base Return. Borrow power and leverage limits are determined by Real Time depth and Volatility metrics, Snapshotted at open position or adjustment to prevent retroactive changes.

Liquidation follows the same logic as the rest of the protocol. When a position approaches the liquidation threshold, the engine simulates the next execution step on the AMM’s adaptive curve. If simulated impact exceeds safety limits, the position is closed incrementally—first matching Maker orders on the Limit order book, then splitting the remainder on the AMM to minimize price Fluctuation.

All positions settle in ftUSD. ftUSD itself does not earn Return, but users can Stake it as sftUSD to earn protocol Return. LPs opting into the Settlement pool earn a share of each Settlement fee and provide ftUSD to support the Perpetual Futures engine.

Because pricing, funding, and liquidation logic are sourced from internal marketplaces, FT Perps is an integrated component. It shares the same Liquidity base, depth windows, and Collateral pool supporting Spot and Borrow layers, ensuring leverage, pricing, and liquidation behavior are consistent across the protocol. This structure creates a mutually reinforcing trading environment: market data drives pricing, pricing drives leverage, both evolving within the same Collateral and Liquidity framework.

Insurance

Flying Tulip has introduced a native protocol insurance layer, providing on-chain protection for investors against unprecedented protocol events. These include smart contract vulnerabilities, erroneous liquidation, or other technical failures in the protocol’s Trade, Borrow, and Settlement layers. The insurance engine operates as a continuous marketplace between buyers seeking to protect their capital and capital providers earning Return by collecting premiums. Underwriting is constructed as active positions in a shared pool. Buyers provide Collateral and pay ongoing premiums during coverage. Providers deposit USDC, which serves as the pool’s base asset and payment currency. In return, they receive pool tokens representing their asset share and accumulated premiums, allowing coverage capacity and pricing to adjust automatically with utilization and risk conditions.

Premiums are variable Interest Rate, responding to Real Time data. Utilization, coverage demand, and internal risk metrics derived from the protocol’s AMM and order book jointly determine Interest Rate adjustment. As pool utilization rises or Volatility increases, premiums rise to attract Liquidity; when conditions normalize, premiums drop.

If an event occurs, external validators such as UMA’s Oracle Machine assess whether it meets predefined on-chain criteria, including affected systems, timeframes, and loss thresholds. Once validated, users with active insurance positions can redeem their USDC-denominated coverage directly from the pool. If no qualifying event occurs, insurance can be closed at any time, immediately stopping premium payments.

The insurance layer is integrated with the Collateral and pricing systems managing Borrow and Trade. Assets deposited in Lend can support open positions and coverage, while the same Liquidity and Volatility metrics driving funding and liquidation logic also adjust premiums and coverage capacity.

Providers bear the risk of validated payout events; buyers rely on Oracle Machine decisions. Both face typical smart contract and Liquidity risks, with possible temporary withdrawal limits during claims.

In this model, insurance is part of the protocol’s internal risk infrastructure, not an external add-on, allowing coverage capacity, premiums, and Liquidity to adjust directly with system conditions.

FT and Economics

Flying Tulip’s economic structure centers on its native FT token. Each protocol component—ftUSD, Lend, Perps, AMM, and insurance—generates Trading Fee, funding payments, and Return; these are then used to buy back and burn FT.

FT introduces a new structure in Decentralized Finance: 100% of token supply is allocated simultaneously to private and public participants at the same valuation via a public capital allocation mechanism. FT has a fixed supply of 10 billion tokens, with no set inflation schedule and no pre-allocation to the founding team; any exposure is acquired via open market buybacks funded by protocol income. Minting occurs only via public capital allocation (PCA) at a fixed rate of 10 FT per $1. If $500 million is raised, exactly 5 billion FT are Minted; once the 10 billion cap is reached, issuance permanently stops.

Participants in the raise receive their FT positions as on-chain perpetual PUT Options (PUT). During the Option term, holders can redeem FT at face value, with redeemed tokens permanently burned and assets returned as the original Collateral; or withdraw FT, voiding the Option and releasing Collateral for market buybacks and burns.

Each PUT exists as an NFT, encoding specific redemption rights for the participant’s base deposit—if a holder withdraws 50% of the tokens assigned to their NFT, they can still redeem the remaining 50% of their invested capital. This provides partial redemption functionality and transparent accounting, but redemption is irreversible—once tokens are withdrawn, they cannot be re-deposited to the NFT.

Funds raised via PCA are invested in Conservative on-chain Return strategies, including AAVE V3, stETH, jupSOL, AVAX Stake, and sUSDe. Return from these investments first covers protocol and operational costs; the remainder is used for FT buybacks and burns. This structure aims for protocol income and capital Return to be self-sustaining, without relying on new issuance.

Both paths drop circulating supply—either directly via redemption or indirectly via reserve release for buybacks. FT on secondary markets does not have this redemption right; if a holder redeems their underlying capital, the corresponding FT is burned, dropping circulating FT supply and concentrating more value for existing holders.

Business Model

FT product stack income is used for FT buybacks:

• ftUSD Return flows to the treasury for FT buybacks.
• Lend contributes its net Interest Rate spread—the difference between borrower and supplier Interest Rate.
• Perps routes a portion of Trading Fee and Funding Rate to the same buyback mechanism.
• Insurance also routes a portion of active premiums to the same buyback mechanism.

When holders withdraw FT from PUT, funds released from the redemption reserve are used for additional market buybacks.

Bought-back FT is then split: one part is burned; the other is unlocked for allocation.

Unlocked tokens are managed by income-funded buybacks and follow a fixed allocation plan. When protocol income funds buybacks, the foundation, team, ecosystem, and incentives are unlocked at a 4:2:2:2 ratio, 1:1.

Just as Flying Tulip’s products are designed to adapt to Real Time market conditions, the protocol’s business model is designed to adapt to Real Time protocol activity. As protocol utilization rises—whether through higher volume, Borrow activity, or insurance demand—total income available for buybacks increases proportionally. As utilization drops, supply contraction continues, but at a slower pace since no new issuance occurs.

In effect, FT acts as the value coordination layer within Flying Tulip’s native ecosystem. Product-level income and Conservative Return are inflows; buybacks and burns are outflows; when income supports it, unlocking maintains contributor alignment. The result is a closed capital loop, where operational output, user activity, and Liquidity depth all converge into measurable supply changes, effectively tying FT’s value directly to the protocol’s actual performance and operational efficiency.

Outlook

Decentralized Finance’s current architecture remains too fragmented for its goal of being an open, composable financial system: each primitive manages its own risk parameters and Collateral base. This isolation preserves protocol solvency but limits overall capital efficiency.

This problem is not unique to crypto, nor is it new. Fidelity brokerage accounts cannot seamlessly interact with Assets held at Charles Schwab. Transferring securities between them involves Settlement delays and manual coordination. Even within a single institution, moving funds across accounts requires intermediate steps and time-consuming processes. However, Decentralized Finance protocols operate on shared public infrastructure. Open standards and transparent state make composability a native property, not a feature built through integration.

Flying Tulip sits at the intersection of two major structural shifts in Decentralized Finance: aggregation and Real Time adaptivity. As Decentralized Finance becomes more crowded, the need for unified Margin architecture grows—one that places Decentralized Finance services (Trade, Borrow, derivation) under shared Liquidity and Collateral. At the same time, demand is rising for Decentralized Finance products and services that can adjust parameters like collateralization, Borrow limits, and Funding Rate in Real Time to market conditions.

Flying Tulip connects Decentralized Finance’s core elements—Stablecoin, Trade, Borrow, derivation, and insurance—aiming to dynamically adjust risk and pricing via a unified Margin account based on Real Time Liquidity and Volatility. Undoubtedly, if Flying Tulip’s launch and early development succeed, dozens of imitators will emerge with similar products. Nevertheless, first-mover advantage remains a powerful force in Decentralized Finance.

Further reading: AC’s new work Flying Tulip: How Decentralized Finance Treasury Return could “grow” a trading giant