Position Change Fee
Position change means any activity that changes the value of positions, including open, close or liquidate positions. Position change cause changes in naked positions.
The hAMM system has a special Position Change Fee (PCF) mechanism rewarding position changes that decrease naked positions, and discouraging position changes that increase naked positions.
When traders increase the naked positions of a certain derivative, they will pay extra PCF to the system, and on the flip side, receive PCF from the system.
The existence of PCF will encourage arbitrageurs to earn risk-free profit as follows: open a position under Derify protocol that is opposite to the naked position, then open a hedged position in an external market.
Such action is called "naked position arbitrage", which effectively takes naked position to external markets, and decreases the risk exposure of the system.
The existence of arbitrageurs will keep the value of naked position
close to zero, thus restricting naked position.
Liquidity Depth Factor (LDF)
is a function to position pool
, the formula of which is as follows:
When the liquidity depth is limited,
equals risk sensitivity coefficient
multiplied by position pool
When the liquidity depth reached a certain threshold (
always equals to external liquidity depth simulator
Risk sensitivity coefficient
is a pre-set constant. A smaller
means the higher position pool
is needed to maintain the liquidity depth, i.e. the system is more sensitive.
External liquidity depth simulator
is another constant, determined by the liquidity depth of external markets.
are changeable and can be adjusted via DAO community voting.
is used to calculate the PCF, the formula of which is as follows:
- is always positive andis always negative.
The sign of
is determined by
- naked position is long
- PCF is positive
- opening long position/closing short position shall pay PCF payment
- opening short position/closing long position shall receive PCF rewards
- naked position is short
- PCF is negative
- opening short position/closing long position shall pay PCF payment
- opening long position/closing short position shall receive PCF rewards
is a state of the system.
for a transaction, means the PCF payable upon the transaction which shift the system naked position from
，and PCF rates from
. Assuming the position changed is
, it is calculated as follows:
The actual PCF fee is not correlated to the size and direction of
, but only related to the change of naked position (
) and PCF rates (
is positive, the trader pays a fee, when
is negative, the trader gets rewards.
is external arbitrage cost coefficient, to encourage external arbitrageurs by covering their slippage and trading cost when they doing the arbitrage. Generally,
= 0.1% may cover most of the arbitrage cost.
is changeable and can be adjusted via DAO community voting.