Features
Deep Liquidity
Similar to virtual AMM's xyk model, Pika has a virtual liquidity for each trading pair, supporting the same level of liquidity as top perpetual exchanges. This enables capital efficiency and minimum trade slippage without requiring too much exchange liquidity. For example, the current slippage for a $10k ETH-USD pair is expected to be around 0.02%, 100k trade is around 0.2%.
Dynamic pricing
Pika uses Chainlink Oracles with dynamic adjustments to price the assets. The pricing is determined by these factors in real time:
Mark Price: Pika get the real-time Chainlink price as the base price.
Slippage: the trade slippage is calculated based on the virtual liquidity, trade amount and trade direction, using the xyk model.
Price Adjustment: to reduce the risks of the LPs, Pika has the mechanism to balance the open interest of longs and shorts. When there are more longs than shorts in the protocol, the price will slightly moves up to incentivize more short positions, and vice versa.
Trade Anything
Pika Protocol empowers users to trade anything with leverage. It initially supports all the pairs Chainlink supports(BTC, ETH, LINK, SNX, etc). In the long term, Pika aims to work with multiple Oracle providers and build in-house Oracles to support large categories of assets including commodities(Gold, Silver, Oil), volatility index(VIX), NFTs(Punks, Pengus).
Composability
Pika Protocol is a permission-less smart contract that is fully composable with the entire DeFi system. Unlike some offchain orderbook based decentralized exchanges operated by centralized teams, Pika is a trust-less protocol enabling trading directly from other smart contracts. Other DeFi protocols can choose to trade or hedge their positions easilly with a simple smart contract call. This design also allows traders to directly trade from their wallets, without doing any initial deposit.
Fees
Pika Protocol will firstly be launched on Optimistic Rollups, with low transaction fee compared to Ethereum layer 1. The other fees include trade fee and interest fee.
Trade Fee: a small trade fee(0.1%) is charged for each trade to pay liquidity providers.
Interest: a small amount of interest is charged based on the time interval of the position staying open. This fee is paid to liquidity providers and the protocol as a reward. The current interest fee is 15% per year.
Before Pika token is launched, 70% of trading fees are distributed to the vault(liquidity providers) and 30% to the protocol. After Pika token is launched, 50% will be distributed to the vault, 30% to Pika token holders and 20 to the protocol.
Liquidation
If the Oracle price reaches the liquidation price, the position will be liquidated. The liquidation price of a position is calculated using this formula:
The liquidationThreshold is set to 80% as default. The remaining margin of the liquidated position are shared as reward among liquidators, Pika Protocol, and liquidity providers.
Examples:
For the 50x ETH long position with entry price at $4000 and positon size as 4000 USDC, the liquidation price would be $3936(4000 - 4000 * 0.8 / 50). If a liquidator liquidates this position at $3936, $64(4000-3936) will be used to pay liquidators, protocol fees and liquidity providers.
For the 50x ETH short position with entry price at $4000, the liquidation price would be $4064(4000 + 4000 * 0.8 / 50). If a liquidator liquidates this position at $4064, $64(4064-4000) will be used to pay liquidators, protocol fees and liquidity providers.
At the launch, Pika Protocol team will be the liquidator for all the positions.
Arbitrage Mitigation
Chainlink Oracle has delays in updates at times, giving opportunities for bots to arbitrage between centralized exchanges and our exchange. This issue hurts liquidity providers and leads to some past failures of leverage trading protocol.
Inspired by GMX, we introduced the minimum price change requirement for a position to be closed with profit. A position can be closed with profit if the oracle price has changed more than 1.5%. If the price changes less than 1.5%, the profit will be set to 0. However, this requirement only lasts for 12 hours, meaning if the trader closes the position 12 hours after opening the trade, the profit can be taken even if the oracle price changes less than 1.5%.
Liquidity Vault
The protocol is backed by the liquidity providers. By staking in the vault, liquidity provider takes the opposite position of all traders on the platform. The vault pays for trader profits and receives trader losses. In addition, it also receives trading fees, interest and liquidation profit of trades.
To protect vault from big loss in highly volatile conditions, the vault has a maxExposure parameter for each trading pair. When the maxExposure is reached, traders cannot open the additional position that increases the vault's exposure, but can open the position in the direction that decreases the vault's exposure. This should rarely happen when the vault's liquidity is big enough.
The APY shown for the vault is calculated based on the fees distributed to vault in the last 7 days.
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