Position Mining is a unique liquidity provision and incentive mechanism created by Derify. By holding positions and providing liquidity, users can mine rewards. Regardless of the trading pair or direction, holding a position (opening and holding) in the system will be counted towards liquidity provision and reward calculation. The larger the position held, the higher the yield. Therefore, users can amplify their position size through margin and leverage to obtain Position Mining rewards.
Position Mining rewards come from two sources: fee rewards and DRF token rewards. The system will automatically distribute 30% of the previous day's fee income (allocation ratio parameters ) to the holders of the trading pair on the current day based on their position proportion.
For example, if the fee income for the BTC trading pair was 100 USDT the previous day, and the current day's BTC position is 10,000 USDT, then on average, users holding a 100 USDT BTC position can receive 0.3 USDT (100/10,000 USDT × 100 × 30%) in mining rewards.
The $DRF rewards will be created through the Grant Program. For details, please refer to the section of the Grant Program.
Position Mining rewards are distributed three times a day at UTC 0:00, 8:00, and 16:00. The rewards are distributed on average for the current day. Users can share 1/3 of the daily rewards based on their position proportion at each time.
Rewards are calculated and distributed every 8 hours based on the data at that time (T time: UTC 0:00, 8:00, 16:00). Both Margin Token(s) and $DRF rewards are distributed:
The profit (margin) of a single position at time T is calculated as:
Profit at time T = (1 - net position at time T × User's position direction × u ) × Total transaction fee of the trading pair from the previous day × 5%/ MAX(0.00000001, total position in that direction at time T) × User's position amount in that direction at time T
- Net position at time T is the net position at a specific time.
- User's position direction refers to whether the user's position is long or short.
The total profit (margin) at time T is calculated as:
Total Profit at time T= Sum of profits (margins) of all positions at time T− (Gas fee for reward distribution × (total profit (margin) at time T) / (Total profit (margin) of all users at time T))
- The first part, Sum of profits (margins) of all positions at time T, represents the total aggregated profit from all positions at the specified time.
- The second part calculates the proportion of the gas fee for distributing rewards that should be attributed to the user. This is done by determining the user's share of the total profit at time T, compared to the combined total profit of all users.
Single Position Profit in $DRF at time T = (1 − Net position direction at time T × User’s position direction × u) × Total $DRF allocated to the trading pair for the day / 6 / MAX(0.00000001, Total position in the given direction at time T) × Total $DRF allocated to the trading pair for the day
Total Profit in $DRF at time T = Sum of profits in $DRF of all positions at time T
- This equation sums up the $DRF profits from all positions at time T to provide the total $DRF earnings of a user at that specific time.
The following situations may cause the user to have no earnings showing up while holding a position:
- 1.A user may have a position opening most of the time, but if they do not have a position at the reward distribution times (UTC 00:00, 08:00, 16:00) since they closed their position ahead of time, they won't earn any rewards. The rewards are calculated and distributed based on the position data at these specific times. Therefore, no position opening during these intervals will result in no rewards.
- 2.The size of the position might be too small, leading to very minimal profits. If these profits are lower than the system's display precision for profit data (0.0001), then they won't be shown.
- 3.The profit could be too low due to low trading volume on the previous day, which is not enough to cover the gas fee. The reward distribution is executed by the system account, and it deducts a portion of the margin (gas fee multiplied by a certain factor) at the time of distribution. This deducted amount is shared proportionally among all users based on their profits. If the total reward value is too low to cover the gas fee (for instance, if the total reward is 1 USDT but the gas required is higher than this amount), then the reward won't be distributed, and users won't earn any profit.
For instance, yesterday's system BTC trading fee income is 100 USDT. Alice holds a BTC position of 100 USDT, and the system's total BTC position is 1,000,000 USDT. BTC position holders are supposed to receive a total of 100 * 30% / 3 = 10 USDT. When the reward is distributed today, regardless of the direction of the position, Alice can get a reward of 10 * 100 / 1,000,000 = 0.001 USDT. Since Alice needs to bear the gas fee of system distribution, if the gas fee paid by the system to distribute the reward is 1 USDT, and there are a total of 100 holders, then on average, each person needs to pay 0.01 USDT of gas cost. Alice's earning 0.001 USDT < 0.01 USDT, so Alice can't see her earning.
To better motivate arbitrageurs and position holders to balance the ratio of long and short positions in the system, so as to better reduce the system naked position, we have designed a dynamic position mining income distribution rule. For the same trading pair, trading direction with less open position will get you higher rewards. For specific rules, please refer to: https://docs.derify.finance/whitepaper/mechanism/risk-control/dynamic-mining-reward
Different trading pairs and different trading directions have different position mining rewards. Under the circumstance of limited margin, choosing higher leverage, trading pair with higher APY, and trading direction with higher APY can get you higher rewards.
A two-way hedging position refers to holding a long position and a short position of the same trading pair with the same position size at the same time. We support cross-margin mode and 2-way position holding, and this can effectively avoid financial loss or even margin liquidation in 1 direction due to price fluctuations (the profit and loss of long and short positions are just equal in value and opposite in direction). Generally, there will be no loss of principal (margin), and you can obtain mining income from holding positions with very low risk. However, it does not mean that this method is completely risk-free:
- 1.2-way position holding may have the risk of automatic deleveraging or liquidation. The system margin rate calculation rule is margin/position. Although hedging positions and margin balances remain unchanged, the positions will change according to coin price changes (Position Amount = Token Quantity * Token Price). So, the margin rate will change accordingly. For example, a user opens a 2-way position when the BTC price is $20,000, holding a long position of 1 BTC and a short position of 1 BTC, with 10X leverage, and the margin balance is $4,000, which is a margin rate of 10%. If the price of BTC rises to $80,000, this means the position holding becomes 2*80,000=$160,000, and the margin rate becomes 4,000/160,000=2.5%, which is lower than 3% (maintenance margin rate). It may cause ADL or even liquidation
- 2.If the system incurs a significant net loss and the insurance fund does not have sufficient funds, withdrawing the margin may result in obtaining bonds, which is another potential risk associated with position mining