Trading Flow
.png?alt=media&token=1e2eccb3-1c75-42f4-a34f-5a6a1bf0ba0b)
Let’s go through the process with an example:
- 1.Trader 'A' wants to speculate on Luna-Perp. Trader deposits UST100 as the initial margin to the clearinghouse and opens a 5x long position.
- 2.The clearinghouse then deposits the collateral asset in the Vault. Based on the margin amount, leverage and direction, the price is updated in the vAMM.
- 3.Assuming the vAMM contained 100 Luna and 10000 UST in the initial state
- 4.'A' has deposited UST 100 with 5x leverage and this increases the amount of UST in the pool to 10000+500=10500. As we’re using a constant product function, the amount of Luna will be 95.24 (1000000/10500). This means the position opened by 'A' is 4.76 long (100-95.24)
Action | Luna Reserve | UST Reserve | Calculation | Luna Price |
|---|---|---|---|---|
Initial State | 100 | 10000 | $100.00 | |
'A' open 5x long position with $100 (4.76 long position) | 95.24 | 10500 | 1000000/10500 | $110.25 |
5. Trader 'B' also opens a 5x long Luna position with the same UST 100 initial margin. B’s position would then be 4.32 long.
Action | Luna Reserve | UST Reserve | Calculation | Luna Price |
|---|---|---|---|---|
Initial State | 100 | 10000 | $100.00 | |
'A' open 5x long position with $100 (4.76 long position) | 95.24 | 10500 | 1000000/10500 | $110.25 |
'B' opens 5x long position with $100 (4.32 long position) | 90.91 | 11000 | 1000000/11000 | $121.00 |
6. 'A' realizes he can get out with a profit and closes his position with UST 47.51 profit.(11000-(1000000/95.67)-500)
Action | Luna Reserve | UST Reserve | Calculation | Luna Price |
|---|---|---|---|---|
Initial State | 100 | 10000 | $100.00 | |
'A' open 5x long position with $100 (4.76 long position) | 95.24 | 10500 | 1000000/10500 | $110.25 |
'B' opens 5x long position with $100 (4.32 long position) | 90.91 | 11000 | 1000000/11000 | $121.00 |
'A' closes position | 95.67 | 10452.49 | 1000000/95.67 | $109.25 |
7. 'B' closes her position realizing a loss of UST 47.51
Action | Luna Reserve | UST Reserve | Calculation | Luna Price |
|---|---|---|---|---|
Initial State | 100 | 10000 | $100.00 | |
'A' open 5x long position with $100 (4.76 long position) | 95.24 | 10500 | 1000000/10500 | $110.25 |
'B' opens 5x long position with $100 (4.32 long position) | 90.91 | 11000 | 1000000/11000 | $121.00 |
'A' closes position | 95.67 | 10452.49 | 1000000/95.67 | $109.25 |
'B' Closes Position | 100.00 | 10000.00 | 1000000/100 | $100.00 |
Key Takeaways
- You can observe in the above example that one trader’s gain is another’s loss. It’s akin to p2p future trading.
- This mechanism doesn’t need any liquidity providers because profit/loss is paid out with the trader’s collateral only.
Last modified 1yr ago