The Settlement Process at CVEX (Clearance Bots and more)

In derivatives trading, the settlement process is crucial for ensuring the stability and integrity of trading platforms. At CVEX, we've implemented a sophisticated settlement system that not only aligns with traditional financial market practices but also introduces innovative features unique to the decentralised environment of blockchain technology.

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What is Settlement in Trading?

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Settlement refers to finalising a trade, where the actual exchange of assets and the closing of positions occur at the end of a contract. In traditional futures trading, this process might involve the physical or cash-based settlement of the underlying asset. However, in the context of CVEX, settlement is tailored to meet the specifics of cryptocurrency transactions.

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Settlement on CVEX

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On CVEX, settlement occurs when a trader's open position reaches the contract’s expiration date. For example, a BTC-27AUG24 contract would be settled on August 27, 2024. At this point, the Clearance Bots spring into action. Traders involved in these contracts are required to pay a settlement fee, which is 0.5% of the position’s net value, into the Platform Fund. 

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This fee serves as an incentive for traders to close their positions before the contract expires, thereby maintaining liquidity and reducing the risk of price manipulation at the contract's end.

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Beyond Settlement

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At CVEX, Clearance Bots are much more than facilitators of the settlement process; they are essential cogs in the platform's operational machinery. These automated agents perform several critical tasks that enhance the trading environment:

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• Order Clearing: Clearance Bots efficiently clear limit orders, conserving gas for taker orders and ensuring successful trade executions. This functionality is vital for maintaining an orderly trading process and minimising execution costs.

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• Settlement Responsibilities: As part of their role in settling trades, these bots manage the timely closure of all positions and the cancellation of open orders as contracts reach expiration. This systematic activity winding down is crucial to avoid disruptions and maintain market stability.

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• Initiating Portfolio Liquidation: To protect the platform from financial instability, Clearance Bots are programmed to monitor collateral levels. Should a trader's collateral fall below necessary thresholds, these bots proactively initiate liquidation to mitigate potential risks to the platform.

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• Default Prevention: In scenarios where users are at high risk of defaulting, Clearance Bots have the authority to preemptively cancel limit orders. This preventive action is key to maintaining the financial health of the trading ecosystem.

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• Managing Auto Deleverage Queue: Following counterparty liquidations, Clearance Bots efficiently manage the auto-deleverage queue. This involves adjusting the positions of traders in the queue to ensure fair and orderly market conditions.

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• Conditional Order Management: These bots also handle orders based on predefined conditions, such as Stop Limits and Take-Profit. This capability allows sophisticated trading strategies to be executed automatically and efficiently.

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Compensation and Incentives for Clearance Bots

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Recognising the importance of these functions, CVEX ensures that Clearance Bots are adequately compensated for their services. Their compensation includes:

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Clearance Bots receive compensation for the gas costs incurred during their operations, plus an additional premium from the Operational Fund. This incentive is designed to cover operational expenses and encourage the continuous and effective performance of their duties.

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When the protocol terminates an order rather than a trader cancelling it, the trading fee is awarded to the Clearance Bot responsible for the termination. This policy compensates bots for their work and aligns their operations with the platform's financial health and efficiency.

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