In the fast-paced world of decentralised finance, CVEX stands out with its advanced margin and liquidation methodologies, designed to balance capital efficiency with market integrity. Let’s break down how CVEX optimises trading safety and fairness through its innovative financial models.
At the heart of CVEX’s approach is a dynamic margin model that employs a Value-at-Risk (VaR) methodology. This model calculates collateral requirements by considering market volatility, correlations between assets, and potential extreme losses, providing a comprehensive risk assessment. The initial margin is set to cover potential losses within a specific confidence interval, ensuring traders have sufficient collateral. A key feature is the concentration adjustment, which mitigates the risk posed by large positions in a single portfolio, promoting a balanced trading environment.
Futures
The Mark Price for futures contracts is determined using a moving average basis, which helps to mitigate the impact of price discrepancies between futures and spot markets. This ensures that the valuation of positions reflects true market conditions.
Options
Premium Mark Prices for options are derived using the Black-Scholes model, adjusted for real-time market volatility. This integration allows for accurate pricing that responds to market dynamics, ensuring options trading is both fair and responsive to current conditions.
CVEX’s liquidation protocol is designed with stability and fairness in mind. Liquidations are executed through market orders to ensure positions are closed at fair value, with the Default Fund acting as a safety net for covering losses. This fund is carefully managed to minimise counterparty risk, ensuring the trading ecosystem remains secure.
Counterparty liquidations are considered a measure of last resort, with a focus on preserving market balance. The Deleverage Queue system provides transparency, detailing the order in which positions may be liquidated. Moreover, the Default Prevention system proactively cancels high-risk limit orders, preventing unnecessary liquidations by assessing the potential impact on the margin ratio.
CVEX’s margin and liquidation methodologies represent a significant advancement in decentralised trading, offering traders an optimised balance between leveraging opportunities and the safeguards necessary to maintain a stable market. By dynamically adjusting margin requirements and employing a fair liquidation protocol, CVEX ensures that trading remains both efficient and secure, fostering a trustworthy environment for all participants.
As we look towards the launch of our testnet, CVEX is committed to providing the tools and mechanisms traders need to succeed, all while upholding the highest standards of market integrity. Join us in shaping the future of DeFi trading, where innovation meets security.
