💸Crypto
Blue-chip cryptocurrencies includes BTC and ETH
Summary of Fees and Incentives
| Fee / Incentive | Value |
|---|---|
4 bps - 12 bps, based on long-short skew | |
8 bps | |
10%-30% of net PnL, based on long-short skew | |
Based on skew and utilization | |
Based on Trade size |
Dynamic Opening Fee: [0.04% - 0.12%] * Position Size
Opening fee applies on the total position size of a leveraged trade. An example, if a trader puts up $100 of collateral at a 30x leverage, then the total position size would be $3,000. The opening fee would be deducted from the position size, e.g $2.4 (0.8% of $3,000). $97.6 is now the collateral value of the trade.
Dynamic Opening Fee: A Skew-Adjusted Mechanism
In an effort to optimize the fee structure for market participants, we have introduced a skew-adjusted dynamic opening fee. This fee is designed to incentivize balanced trading and mitigate systemic skew. Specifically, traders on the less skewed side of the market will benefit from discounted fees.
The fee is determined according to skew:
| Long Skew | Short Skew | Long Opening Fee (bps) | Short Opening Fee (bps) |
|---|---|---|---|
1 | 0 | 12 | 4 |
0.9 | 0.1 | 11 | 5 |
0.8 | 0.2 | 10 | 6 |
0.7 | 0.3 | 9 | 7 |
0.6 | 0.4 | 8 | 8 |
0.5 | 0.5 | 8 | 8 |
0.4 | 0.6 | 8 | 8 |
0.3 | 0.7 | 7 | 9 |
0.2 | 0.8 | 6 | 10 |
0.1 | 0.9 | 5 | 11 |
0 | 1 | 4 | 12 |
Closing fee: 0.08% * Adjusted Position Size
Closing fee applies to the adjusted position size of a leveraged trade, where:
Adjusted Position Size = Total Position Size + Accrued PnL - Accumulated Margin Fee
Most peer to pool perpetual protocols deduct closing fee upon opening an order, however the reason why we use the adjusted position size is to help traders save fees when they are in a loss, and protect LPs when traders are in profit. In the above example, if a trader puts up $100 of collateral at a 30x leverage, then the total position size would be $3,000. After deducting the opening fee (and assuming no change in the price of the underlying asset), the leveraged position size with an accumulated margin fee on the position of $10 is $(3000-10) =$2990. Hence, the closing fee is 2990* 0.08% = $2.392.
Dynamic Spread
In order to account for excessively large trades on lower liquidity assets, there is a dynamic spread (price impact) that is applied on the total position size of a leveraged trade. This spread is reguarly updated with the goal of matching liquidity across other exchanges. Currently, the spread estimates the volume required to make a price impact of 1% based on the orderbooks of the most liquid exchanges, and then extrapolates this 1% impact depending on the trading size. The dynamic spread also takes into account whether the trade increase or balances skew via a skew impact component.
Dynamic Spread = Constant Spread + Price Impact Spread + Skew Impact Spread
where,
Constant Spread is a constant parameter for each asset,
Price Impact Spread = max ( exp(Tradesize/1% Orderbook Depth/Price Impact Parameter) -1 , Tradesize/1% Orderbook Depth),
Skew impact spread=Skew Parameter *[ exp (skew after trade)- exp (skew before trade)+exp (1-skew after trade)- exp (1-skew before trade)]
An an example, assume the dynamic spread is calculated as 0.1% based on trade size and skew. If the pair is currently priced at $1,520, the dynamic spread will then be 0.1% * $1,520 = $1.52. Hence for a long trade, the user will enter at a price of $1,521.52
Dynamic Margin fee
A margin fee applies to the collateral value of a position each block (and is displayed in a hourly format on the website). This is to make sure traders do not borrow most of the vault's capacity, and also leave room for other traders to take part in trading against the vault. It is also dependent on how skewed the positioning is in a particular asset, with a higher fee for traders on the skewed side (eg if skew is 90-10 long-short, longs will pay a higher margin fee). Hence, it is both a risk management measure, as well as a fair parameter that allows for several traders to utilize the platform.
The formula for determining the fee at any moment will be based on several factors. It can be summed up as:
Hourly Margin Fee = Base Fee* [(1/(1- Blended Utilization ratio * Skew Ratio))-1]
Base Fee: A fixed fee that varies per pair based on each pair's volatility. E.g, Base fee for BTC and ETH is 0.01% / hour, but increases for alt-coins
Blended Utilization= 0.75 *Category Utilization + 0.25* Asset Utilization
Asset Utilization= USDC Borrowed / USDC Limit for the Specific Asset
Category Utilization= USDC Borrowed / USDC Limit for the Defined Category
Long Skew Ratio= Long Open Interest for the specific asset /( Long Open Interest + Short Open Interest for the specific asset)
Example: The open interest on long positions for ETH is $10,000, and open interest for short positions for ETH is $500, while blended limit utilization is 20%, ie 0.2. In this case, the long short ratio is = $10,000 / (10,000 + 500) = 95% long, 5% short. Clearly, we do not want the protocol to always be in this state. Hence, the margin fees paid by longs would be 20.54% annualized (0.23 bps/hour), while shorts would only pay 0.88% annualized (0.01 bps/hour). This makes going long (both for new positions and existing positions) expensive, and urges traders to close out their positions. On the other hand, shorting is cheap! Traders are encouraged to take the opposing view, bringing skew ratio back to healthy levels
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