This guidebook covers two topics:
- How to create a market
- How to manage a market
How to create a market:
You need to complete four steps to create a perpetual market:
- Step 1: Select Shared Liquidity Pool
- Step 2: Select Oracle
- Step 3: Set Contract Parameters
- Step 4: Set Shared Liquidity Risk Parameters
Step 1: Select Shared Liquidity Pool
To create a new liquidity pool, please select your collateral by searching its name or address.
Note: By checking the "When adding a new...procedure" option, you are choosing to skip the LP voting procedure when adding a new perpetual to this liquidity pool. This might affect LP's evaluation of the risks of the pool when adding liquidity.
You can also create a new perpetual market over one of the liquidity pools you have created before by selecting the "Use Existing Pool" option, and you would be able to see your existing pools in the shown format.
Step 2: Select Oracle
There are two key features you need to consider when choosing oracles:
- Price deviation
Based on the perpetual market you would like to create, you can either choose a registered oracle or use a custom one. If there is no available oracle for your underlying asset, you can search in the oracle market or request one by making a post there.
Step 3: Set Contract Parameters
In this step, you will fill in parameters regarding the basic features of the perpetual market, including initial margin, maintenance margin, liquidation penalty and insurance fund, and fee-related parameters including operator fee, LP fee, keeper gas reward and referral rebate rate.
Step 4: Set Share Liquidity Risk Parameters
In this step, you will fill in share liquidity risk parameters.
The image below is a 3D visualization of the market, which shows the pricing strategy when AMM has different positions(long positions, short positions, 0 positions). The green plane represents the price when AMM longs and trader shorts, while the red plane represents the price when AMM shorts and trader longs.
The pricing strategy follows two principles:
- The goal is to balance LP’s privilege (AMM’s risk) and trader’s privilege.
- LP’s risks come from the positions that AMM holds. The pricing strategy itself encourages AMM to hold fewer positions to reduce LP risk. This “tendency” works by having AMM make discounts such that traders get a favorable price (within a specific range). Here we would like to present you a 3D visualization of the market. The green plane represents the price when AMM longs and trader shorts, while the red plane represents the price when AMM shorts and trader longs.
There are 6 risk parameters that you could fill out for managing your perpetual market:
1. 𝛼, 𝛽1, 𝛽2
𝛼 is the half spread
𝛽1 is the slope of the curve of price vs position size in the image below when AMM open positions
𝛽2 is the slope of the line in the image below when AMM close positions
By changing 𝛽1 and 𝛽2, you are changing the slippage when AMM opens/closes positions.
Larger 𝛽1 and 𝛽2 means larger slippage. By inputting figures in the blank, you will see how the price curve moves.
𝛾 is the max funding rate. A big 𝛾 will result in a big funding payment. We recommend setting this value to be within the range of 0.5%-10%.
𝜆 is the max leverage that the AMM can have. AMM can be regarded as a normal trader and has its own margin account and position. When AMM position’s leverage hits 𝜆, it will not be allowed to trade if the trade will make its leverage larger, so as to say, AMM will stop trading as counterparty when max leverage is achieved.
In the image below, you can see howf 𝜆 changes the market
𝛿 is the close discounts. When AMM closes positions, its closing price will be limited to +-𝛿 of index price.
𝛿 is to avoid lost of LPs in extreme situations. We suggest using the recommended 5%.
How to manage a market:
After successfully creating a pool, please make sure that you check in every ten days to maintain your operator status. Otherwise, you will be dismissed, and a new operator will be elected through a voting process by 1% LP token holders.
If you would like to manage your perpetual contracts, please go to the “Pool Info” page, and enter the perpetual market you have created.
On the “Perpetual Contracts” section, you can click on a perpetual to enter the “Perpetual Info” page and modify the risk parameters within the range set previously.