Introducing 500x leveraged margin trading on every ERC20 token
The crux of finance is in finding a way that allows people to truly express their opinion with capital — Margin trading, as a consequence, is an essential weapon in the arsenal of any trader.
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We are proud to introduce to you our solution to general purpose margin trading; In addition, our solution also allows you to loan any ERC20 token.
Let’s start by explaining how it works.
The Actual Trading Part
We wanted to create a trading interface that was as intuitive and as simple to use as possible — And boy did we do that!
Anyone who has ever traded a coin on a spot market will easily be able to figure out how to use the margin trading interface.
All you have to do to enter a position is enter an amount and drag the slider choosing how much leverage you want to use.
Then once you’re ready to close your position you simply click on “Close long position” or “Close short position” button and your position will be closed. Any profits you made will automatically be transferred to your account.
Funding — Where the leverage comes from
On the flip side of every margin trade is a loan. The liquidity for these loans comes from the funding pool. You can deposit funds into the funding pool which users borrow from whenever they open a margin trade.
When a user is ready to close his position, he will pay back the amount that he borrowed and his loan will have terminated. To reward liquidity providers who supply funding into the pool, there is an interest rate which is dynamically calculated depending on the amount borrowed; This interest rate is applied to the amount borrowed and then, when a user closes his position, is paid to all funding providers for that pool. In the above example, we can see that the current interest rate is 25% so liquidity providers will earn 25% interest per year.
Liquidations
If the value of a user’s open margin position falls below the amount that he owes then he can be liquidated and his position will be closed.
Liquidations are handled manually by “liquidation hunters”. These hunters seek out positions which are under-collateralized and attempt to liquidate them. As an incentive for doing so they are rewarded a portion of the maintenance margin that the user posted. The maintenance margin reward is broken up into the following;
- Hunter reward: 3%
- Funding Pool reward: 50%
- IFEX token reward: 47% (reward is converted to IFEX prior)
In the example above we can see that the current liquidation ratio of a user’s position is 90.1%. If it goes over 100% then he can be liquidated.
Voting — Dynamically adjusting the risk profile
Each ERC20 token market is different; For example, the ETHUSDT trading pair may have a daily volatility of 1.5% and the LINKUSDT pair a daily volatility of 3%. Therefore as a funding provider, providing funding into the LINKUSDT pair is twice as risky as providing funding into the ETHUSDT pair. We need some kind of incentive to make sure that the risk profile is equal for both.
To solve this problem we introduce a voting framework — Allowing each market to be dynamically adjusted based on it’s specific characteristics.
This framework lets users vote on parameters such as the interest rate multiplier, max position sizing, maintenance margin rates, max leverage etc.
You can choose to vote to increase, decrease or preserve the current parameters. As a default each vote lasts 3 days and then is finalized. However, the voting duration can also be voted on and fine tuned to a custom value. Each user can cast their votes by depositing IFEX tokens and specifying which option they would like to vote for. When a vote is finalized they can withdraw their tokens.
Explaining the interest rate calculation
The interest rate is the rate that is applied whenever a user opens a margin position and is paid back to the funding providers whenever that user then closes his margin position. The calculation for the interest rate is as follows:
(utilization rate * interest multiplier) ^ 2 = interest rate
Where the utilization rate is: total active borrows / total active borrows + total reserves. The interest multiplier is a dynamic variable that can be changed via voting. If we assume the interest multiplier is 2 then the interest rate curve will look like this:
In the example above, if 100% of funds are borrowed then the interest rate will be 400% a year. By voting on the interest rate multiplier, this value can be dynamically changed to be either lower or much higher.
