🦺Loss Rebates

A novel mechanism that rewards contrarian traders who help balance platform open interest skew.

47MB

Avantis_UI Demo_V2.4.mp4

Loss Rebates: A Skew-Adjusted Incentive for Traders

To further stabilize the market and protect LPs and traders, we've introduced a novel skew-adjusted loss protection feature. Specifically, traders on the less skewed side of the market will receive guaranteed rebate on trading losses. These rebates are tiered based on the market skew at the time of opening the trade (net of the trade's impact on skew).

$\begin{cases} 0\% & \text{if } 0 \leq skew < 55 \\ 0-20\% & \text{if } 55 \leq skew< 100 \end{cases}$

Note:

1. The loss rebate tier varies by asset, and asset class (from 0% - 20%). Please refer to the market selector dropdown in avantisfi.com/trade, for the latest loss protection rebate %.

2. Once a trade receives loss protection, it does not reset even if the skew trends back to a balanced (close to 50-50 long / short skew) state. This is the beauty of loss protection rebates, they are like a call option that does not expire until you close your position!

Loss protection for crypto blue chips (ETH / BTC / SOL).

This incentive for traders on the non-skewed side will encourage a more balanced distribution of open interest, minimizing risk for liquidity providers and bolstering the overall stability of the protocol. It also allows for several novel directional and arbitrage trades ! See below for some examples on how loss protection works:

Scenario: 85% of the platform's open interest is long $ETH, and 15% is short $ETH. Example 1: A brave directional trader (or hedger) wants to short $ETH with $10,000 of collateral. In this case if the trader gets liquidated, we give him back $2,000 of his collateral.

Example 2 (Directional Trader): If the net PnL of the above trader is -20%, then technically the trader should have lost $2,000 (20% of $10K). However, with loss protection, the trader only loses $2000 * (1-20%) = $1,600. This is the magic of loss protection !

Example 3 (Modified Basis Trade): Loss protection can also be used to open a "modified basis trade". When OI is skewed (i.e not balanced), basis traders generally go long on an asset on one exchange, and short on the same asset such that they're delta-neutral, but are collecting "funding fees". Given funding fees are variable (so the arb goes away), in a bull-market, a basis-trader could instead go short the same asset on Avantis, and close the trade if the price moves down. This gives the trader the loss protection incentive while remaining delta neutral.

Loss Rebates Arbitrage: A novel DeFi trading strategy

Check the below links to understand how professional market making firms like Keyrock are utilizing Avantis' novel loss protection mechanism to keep LPs protected, while arbitraging funding rates and loss rebates (on Avantis vs other exchanges):

1. https://avantisfi.medium.com/announcing-our-partnership-with-keyrock-a9234ead7389
2. https://avantisfi.medium.com/dex-arbitrage-series-part-1-avantis-hyperliquid-ed4134a2da2b

Our SDK also provides an automated way of integrating loss rebate strategies.