Loss Rebates
A novel mechanism that rewards contrarian traders who help balance platform open interest skew.
Last updated
A novel mechanism that rewards contrarian traders who help balance platform open interest skew.
Last updated
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).
Note:
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 %.
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!
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:
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):
Our SDK also provides an automated way of integrating loss rebate strategies.