Position mining is an innovative mechanism created by Derify: holding a position = providing liquidity; holding a position = position mining. As long as you hold a position in the system (open and hold), no matter what trading pair or direction, it will be included in the calculation of liquidity providing and reward. The larger the position, the higher the income. Therefore, users can enlarge the size of their positions through leverage, and obtain mining income from their positions.
There are two sources of income for position mining. One is the reward from trading fee, and the other one is the DRF token reward. The system will automatically allocate 30% (distribution ratio parameters: https://docs.derify.finance/getting-started/dictionary) of the trading fee from yesterday for a trading pair to today's position holders of the trading pair according to their position ratio.
The position mining reward will be distributed 3 times a day, 00:00, 08:00, 16:00 UTC. The average rewards of the day will be distributed each time. Users will share 1/3 of the current day's rewards according to the proportion of positions held at each moment.
Earnings are calculated and distributed every 8-hour according to the data at the moment (timestamp T: 0:00, 8:00, 16:00 UTC), BUSD and $DRF are distributed at the same time.
Earnings at Time T in BUSD = (1 - net position direction at Time T * position direction *μ) * 5% of yesterday's trading fee of the trading pair / MAX(1, open position of the position direction of the trading pair at Time T) * open position of the position direction at Time T - Gas fee for distributing rewards/ number of people getting rewards
Earnings at Time T in $DRF = (1 - net position direction at Time T * position direction *μ) * the number of $DRF allocated by the trading pair on the current day / 6* / MAX(1, open position of the position direction of the trading pair at Time T) * open position of the position direction at Time T
The following situations may cause the user to have no earnings showing up while holding a position:
- 1.The user opened a position, but closed his/her positions before the moment when the reward is being distributed (at 0:00, 8:00, 16:00 UTC). The reward distribution is calculated and executed according to the data at those three moments, so there will be no earnings if there is no open position at those three moments
- 2.The position size is too small, resulting in too little income to display, which is lower than the precision value of the earning data displayed by the system (0.0001)
- 3.If the position size is very small, the earnings is not enough to cover the distribution cost, aka gas fee. Reward distribution is performed by paying gas from the system account, and all the holders share the gas cost equally. Since the position holding is too small, earnings in BUSD is too small to cover the gas fee, which will result in earning < =0. User doesn't have earning record in BUSD, and the gas fee is taken by the system.
For instance, yesterday's system BTC trading fee income is 100 BUSD. Alice holds a BTC position in 100 BUSD, and the system total BTC position is 1,000,000 BUSD. BTC position holders are supposed to receive a total of 100 * 30% / 3 = 10 BUSD. When reward is distributed today, regardless of the direction of the position, Alice can get a reward of 10 * 100 / 1,000,000 = 0.001 BUSD. 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 BUSD, and there are a total of 100 holders, then on average, each person needs to pay 0.01 BUSD of gas cost. Alice's earning 0.001 BUSD < 0.01 BUSD, 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 your 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 reward. 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 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.Two-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 = Position Size * Coin 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 there is a large system net loss and the insurance pool does not have sufficient funds, then withdrawing the margin may result in obtaining bonds. This is also a possible risk of position mining.