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id Title Status Author Description Discussions to Created
TIP-188 Introduce Skew Impact to Speed Markets Draft padzank Introduce Skew Impact to Speed Markets 2023-11-17

Simple Summary

Introduce Skew Impact to Speed Markets to improve risk management and efficiency

Abstract

Currently on SpeedMarketsAMM, there are fixed LP fees for all created markets depending on the chosen Strike Time.

This TIP proposes to introduce a dynamic Skew Impact and a parallel Discount to Speed Markets that will incur a pricing skew on base LP Fees depending on the amount and direction of Open Interest skew at any given moment per asset.

Motivation

With the continuing growth of Speed Markets key metrics, risk management of the product needs to adapt and evolve with it to ensure the product is as scalable as possible.

By carefully observing the performance of Speed Markets during certain market conditions, it has become evident that during specific timeframes of low volatility there needs to be dynamic adaptations of pricing. Probabilities of short term BTC and ETH price movements from specific support and resistance levels become skewed more than what a fixed LP fee entails.

For this reason, introducing a dynamic Skew Impact premium and a Discount on the price of opposite position based on Open Interest skew per asset actively balances the SpeedMarketsAMM risk and increases the efficiency and scalability of the Speed Markets LP pool.

Initially, it is proposed to set the new Skew Impact premium max limit to 5% and discount minimum limit of -2.5%. The Skew Impact should grow linearly from 0% to 5% in tandem with opposite side discount moving from 0% to -2.5% proportional to maxRiskPerAssetAndPosition. As the performance is monitored, this new risk management tool will be adapted accordingly.

Specification

This TIP entails the Thales Protocol DAO to implement a Skew Impact mechanism on the SpeedMarketsAMM contract with the following parameters:

  • Base LP fee to have a premium and discount mechanism based on current Skew Impact parameter for chosen Asset and Direction
  • Max Skew Impact = 5%
  • Min Discount = -2.5%
  • Skew Impact and Discount is determined by distance of maxRiskPerAssetAndPosition to its max value
  • Skew Impact is priced on market creation
  • Potential further changes to these parameters to be executed at the Thales Protocol DAO discretion as more data is collected.

Copyright

Copyright and related rights waived via CC0.