Pricing Mechanisms
The Dexodus protocol ensures fair, transparent, and efficient perpetual trading through its unique pricing mechanisms. These mechanics rely on three critical components: the Index Price, the Perpetual Price, and the Mark Price, each playing a vital role in trade execution, funding rates, and liquidations.
1. Index Price
The Index Price represents the underlying market price of the asset or index being traded. It is sourced from Chainlink Data Streams, ensuring accuracy and reliability.
Definition: The Index Price is derived from real-time market data, representing the fair price of the underlying asset or custom index.
Purpose:
Acts as the benchmark price for the market.
Provides a stable and manipulation-resistant reference point for traders.
Forms the foundation for calculating the Mark Price and Perpetual Price.
2. Perpetual Price
The Perpetual Price reflects the dynamic demand-supply balance within the Dexodus perpetual market. It adjusts the Index Price based on the proportion of open interest (OI) between long and short positions.
Definition: The Perpetual Price is influenced by the relative size of long and short OI:
If long positions dominate, the Perpetual Price may rise above the Index Price.
If short positions dominate, the Perpetual Price may fall below the Index Price.
Calculation: The Perpetual Price is calculated based on the open interest distribution, ensuring it dynamically reflects market conditions.
Purpose:
Used to calculate unrealized PnL, ensuring that profits and losses accurately reflect internal market conditions.
Determines funding rates, encouraging balance between longs and shorts.
Used as the primary price for evaluating positions.
3. Mark Price
The Mark Price is a weighted combination of the Index Price and the Perpetual Price. It is primarily used to trigger limit orders and liquidations, ensuring fairness and stability.
Definition: The Mark Price combines the stability of the Index Price and the responsiveness of the Perpetual Price:
75% weight comes from the Index Price, ensuring stability and resistance to manipulation.
25% weight comes from the Perpetual Price, incorporating internal market dynamics.
Formula: Mark Price = (0.75 * Index Price) + (0.25 * Perpetual Price)
Purpose:
Triggering Limit Orders: The Mark Price is used to determine when limit orders are executed.
Liquidations: It serves as the reference price for triggering liquidations, balancing market dynamics with external stability.
Why This System?
Dexodus’ pricing mechanics are designed to balance external accuracy and internal market dynamics:
Fair Liquidations and Order Execution: By basing the Mark Price largely on the Index Price, liquidations and order execution are insulated from short-term market manipulation.
Dynamic Market Feedback: The Perpetual Price introduces responsiveness to market activity, ensuring the protocol adapts to real-time demand and supply.
Transparency and Reliability: The clear separation of roles between the Index Price, Perpetual Price, and Mark Price ensures transparency and a fair trading environment.
How They Work Together
Trading and PnL:
The Perpetual Price is the primary reference for calculating unrealized PnL and evaluating active positions.
It also determines funding rates, encouraging balance between long and short positions.
Triggering Orders and Liquidations:
The Mark Price is used exclusively to determine when limit orders and liquidations are triggered. This ensures traders are protected from sudden price manipulation within the market.
Market Stability:
The Index Price provides the foundation for pricing, ensuring traders have a stable reference unaffected by internal market conditions.
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