🚦Limitations

Ensuring risk management for LPs while creating the best possible trading experience

Scaling Open Interest

As a margin trading protocol where traders are borrowing leverage from liquidity providers, we need to have a framework in place to ensure that liquidity scales across asset classes (crypto, forex and commodities) and traders in a fair and equitable manner. In order to make this happen, we scale open interest in the following ways:

  1. First, the theoretical maximum open interest (Max OI) is set to 90% of total TVL across our market-making vaults. This ensures there is enough liquidity available for traders, while keeping a small buffer to facilitate smooth LP withdrawals if needed.

  2. Second, we divide up this maximum open interest into its constituent asset classes. In the beginning, we offer crypto, forex and precious metals pairs, but over time, max OI will be shared with more commodities and other exotic asset products (like indices) as well. The OI per asset classes will always add up to 100%. Currently, the OI split looks as follows:

  1. Finally, we keep variable OI limits on pairs within each asset class. This is both a risk management and accessibility measure, as we don't want all available OI to be captured by only one pair. We will continuously monitor the LP and trader experience to fine-tune these parameters, and ensure both sets of users have the best possible experience. The per pair OI caps in each asset class need not add up to 100%.

Other Limitations

There are also two other limitations that are in place to ensure that TVL can scale for traders, while protecting liquidity providers

  • Maximum Profit (%): In the beginning, we will limit trader PnL to +500%, meaning a trader can make at most 5x profits on their collateral (for any single position). Over time, as our market-making vaults generate enough buffer, we will scale up this metric

  • Max Trades Per Pair: Set at 10 (across market and limit orders), to prevent bad actors from DDOS'ing the executor bots (and allowing organic limit orders to go through)

  • Per Wallet OI Cap: In order to ensure that OI is spread evenly across traders and asset classes, we have the following OI caps on individual wallets (assessed at the time of opening a new trade)

Asset ClassIndividual Wallet OI Cap (% of Asset Class OI)

Crypto

5%

Forex

10%

Metals

10%

  • Minimum Collateral: In order to ensure that each order can be successfully executed in a decentralized manner, our network of keeper bots (Avantis and community bots) need to be incentivized to execute liquidations and limit orders. For that purpose, there is a minimum collateral requirement of $10.

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