Fees

Fee structure for sustainable yield and trades

Futures Market Fees

The Futures Market has following fees to incentivise LPs and traders:

• Opening and Closing Fees

• Borrowing Fees

• Skew-based Funding Fees

Fixed Opening and Closing Fees

When traders open a trade on the protocol, an opening fee is deducted from the collateral to facilitate execution of the trade. Similarly, a closing fee is deducted from the collateral when the traders close their positions.

The opening and closing fees are fixed and depend on the market creator. Hence, each market may have different fees.

Dynamic Borrowing Fees

The market pool acts as a counterparty in an event of market skew. Hence, all positions pay a borrowing fee on hourly basis for sustainable operation of the protocol in event of skew. In case, there is no skew and very low Open Interest, borrowing fees tend to be 0.

Let $n$ be the total time interval in hours until which the position was opened for, then borrowing fees of the position, $f_{b}$ at any time $t$ can be defined as

$$f_{b} = \int_{0}^{n} f(t) \quad where\quad0<t\leq n$$

and we can define $f(t)$ as

$$f(t) = \frac{r_{OI}(t)}{R_{T}} \; \times F_{max} \;\times S$$

where $R_{OI} (t)$ is the reserve amount in USD for all opened positions at time $t$, $R_{T}$ is the total reserve amount in USD for the market, $F_{max}$ is the maximum allowed borrowing fees for the market defined and $S$ is the position size.

Since $F_{max}$,$R_{T}$, $S$ are constant throughout the position time, so

$$f(t) = \kappa \;* r_{OI}(t)$$

$$\kappa = \frac{F_{max}S}{R_{T}}$$

$$f_{b} \propto r_{OI}$$

hence, we can say as the open interest of the market increase the borrowing fees increase and vice versa.

Skew-based Funding Fees

Let the Active Open Interest Skew be $\theta$, then

$$\theta = \frac{|L - S|}{O}$$

where $L$ is the sum of open interest on Long side, $S$ be the sum of open interest on short side and $O$ be the sum of total open interest in USD.

If $R_{usd}$ represents pool's maximum reserve amount available for an asset, then

$$\vartheta = \frac{|L - S|}{R_{usd}}$$

Then the funding fee of a position can be defined as

$$F = \frac{ \Lambda * \theta^{\lambda}}{O}$$

where $\Lambda$ is the asset's funding constant and $\lambda$ is the asset's funding power constant.

Direction of Funding Fees

$$Direction = \frac{L-S}{|L-S|}$$

The possible output of the function is $1$ which means long will pay short and $-1$ means shorts will pay long.