October 05, 2022
The index price represents the underlying coin’s fair market price, which the perpetual swap aims to track. The index price is important because it calculates the mark price and the funding rate.
On listing, the index price is calculated using the relevant spot DEX pool provided by the lister. As more pricing sources become available, they will be added to the calculation. When two or more price sources are available, their median will be used to calculate the index price.
Index price = Median(pricing sources)
The 'mark price' is used to calculate a trader’s “mark-to-market” unrealized PnL, isolated margin balance, maintenance margin, and the perpetual swap’s sanity bounds.
Mark Price = Index Price + Premium Moving Average
Premium Moving Average = Moving Average((Bid + Ask) / 2 – Index Price)
Bid-ask spread = (Ask – Bid) / Index Price where Bid and Ask are the best bid and ask prices.
If the bid-ask spread is greater than 4%, then the market is considered dislocated, and the premium measurements begin to default to 0. If the bid-ask spread remains greater than 4% for two minutes, the mark price will equal the index price.
Funding payments are the cornerstone of a perpetual swap. Funding payments drive a perpetual swap contract to trade close to its underlying spot market, and they do so by rewarding traders whose trades converge the mark price to the index price.
In plain English, when the perpetual swap trades at a premium to spot, traders who are long will pay a “funding payment” to traders who are short, and the opposite is true when the perpetual swap trades at a discount to spot. Funding payments are made at the top of every hour. The amount paid/received depends on a trader’s position value and the magnitude of the premium or discount.
Funding Payment = Notional Position Value * Funding Rate
On listing, the funding rate is calculated like so:
Premium Rate = TWAP of ((mark price – index price) / index price)
Funding Rate = (Premium Rate + clamp(-Premium Rate, max%, min%)) / 24
The clamp works as a dampener on the funding rate. As long as the premium rate is between the max% and the min%, the funding rate will equal 0.00%.
Permissionless Perp markets start with 0.35% and -0.35% max and min values. These max and min values are subject to change. As spot markets with cheaper fees are created, the max and min values converge to 0 to increase the market’s efficiency.
The minimum trade size is targeted to be $10 based on the prevailing market price at the time of listing. The minimum trade size will always be a multiple of 10 e.g. 0.01, 0.1, 1.
Tick sizes are targeted to be 0.1% based on the prevailing market price at the time of listing. Ticks will always be a multiple of 10 e.g. 0.01, 0.1, 1.
Each Permissionless Perp market is seeded with a core AMM by the lister(s) to provide starting liquidity ranging from -97% to +400% relative to the starting price. The minimum TVL for the core AMM is 50,000 USD(C) and is locked for a minimum of 3 months upon listing. Lister(s) can choose to extend the lock duration, and this is encouraged.
Permissionless Perps may be delisted if the market becomes too illiquid to function. This could happen if the core AMM is withdrawn after the lock period and insufficient organic liquidity has accumulated. Similarly, if the core AMM goes out of range and not enough organic liquidity has accumulated.
Permissionless Perps have conservative leverage and position limits and employ isolated margin with strict off-book auto-delevaging to protect traders if the insurance fund cannot take on a loss.
Please view the allowable leverages and their respective position limits on the trading page.
Sanity bounds are implemented to prevent extreme slippage from large market orders. Sanity bounds +/- 5% of the mark price are in all Permissionless Perp markets. As a Permissionless Perp market matures and liquidity grows, the sanity bound may be decreased.
Mark Price = 100
Upper Sanity Bound = 105
Lower Sanity Bound = 95
Buy orders will not match above 105, and sell orders will not match below 95 until the mark price moves accordingly.