Settlements
In the final hour before maturity, the vAMM enters settlement mode. Users can only reduce their position in this mode. They cannot open or increase their position. This facilitates a smooth future contract settlement. During this period, the final settlement price will equal the time-weighted average price (TWAP) of the spot index.
In the final hour before maturity, the vAMM enters settlement mode. Users can only reduce their position in this mode. They cannot open or increase their position. This facilitates a smooth futures contract settlement. During this period, the final settlement price will equal the time-weighted average price (TWAP) of the spot index.
The Funding Rate is calculated every hour in order to regulate asset price with the market price.
If there are many long positions on the vAMM for an asset, outside price information (Oracles) will be used during the funding time. If the market price of the asset outside was lower than the protocol market price. The margin of long position holders would be deducted and added to short position holders. This compensates the short position holders and can create an equalizer for the price disparity
Two mechanisms strive to bring the perpetual contract price closer to the spot price.

Funding payments

The funding payment is calculated every single hour. Traders with open long or short positions will pay each other a funding payment, depending on market conditions. If the contract price is above the spot price, longs pay shorts and vice versa. The funding payment is a function of the difference between the contract price, spot price, and the position size. Savvy investors are rewarded for bringing the contract price near to the spot price. The protocol employed by fxdx uses a funding rate mechanism similar to FTX, allowing new derivative markets to trade with leverage. While at the same time monitoring an underlying index. The funding payment is calculated based on the formula below.
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FundingPayment=PositionSizeβˆ—FundingRate FundingPayment= PositionSize* FundingRate
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FundingRate=(TWAP(Perpetualβˆ’Index))/24FundingRate = (TWAP(Perpetual-Index))/24

Arbitrage

If the contract price diverges significantly from the spot price on other exchanges, arbitrageurs can profit in two ways.
  • If they have positions elsewhere, permanent agreements can be utilized to take reverse positions and obtain financing payments.
  • If they buy or sell assets elsewhere and use perpetual agreements to short or long the asset, expecting the price to return to the spot price.
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