🦾Protocol & Safety Parameters
In this section, we will be covering the following protocol parameters:
Global Parameters
Funding Interval
1
Second
Funding interval to charge borrowing fee and funding fee
Max Position per Sub-account
10
Position
Max # of active positions. To have more positions, use an additional sub account. Limit is in place to efficiently manage liquidation as well as limit gas fee / tx.
PnL Collateral factor
0.8
n/a
Collateral factor given to unrealized PnL
Min Profit Duration
To protect ZLP from short-term price manipulation for less liquid markets, we put in place a Minimum Profit Duration for trader. During this period, the PnL for a trade is calculated as follow:
The Min Profit Duration for each market are as followed:
15
BTCUSD, ETHUSD
60
USDJPY, XAUUSD, EURUSD, GBPUSD, METISUSD
Trade Limit
In order to limit the ZLP exposure per trade, we implemented a limit trade size that is relative to ZLP size.
Max $ / Trade: Max value of position size per trade
Max Position Size: Max value of position size per market per sub-account
You can check the Max $ / Trade and Max Position Size here.
Trading Fees
Zeno charges Trading Fees on the traders' position size. The table below summarizes the trading fees for each asset class:
BTC & ETH
0.02%
Other Cryptocurrency
0.05%
FX
0.01%
Commodity
0.05%
Adaptive Trading Fees
Zeno charges Adaptive Trading Fees (ATF) on ALL crypto markets EXCEPT BTC and ETH, where users can still enjoy the same flat low 0.02% trading fees.
ATF is calculated based on various variables including asset’s volatility and trading size relative to asset’s liquidity depth on CEX. The formula and the parameters for ATF are as follow:
k1
1.25
k2
0.005
Margin Fractions
Initial Margin Fraction (IMF): The Initial Margin Fraction is used to determine the initial margin requirement. It is displayed as a percentage & different asset classes will have different IMF.
Maintenance Margin Fraction (MMF): The Maintenance Margin Fraction is used to determine the Maintenance Margin Requirement. It is displayed as a percentage & similar to IMF, the MMF will be different for different asset classes.
Cryptocurrency
1.0%
0.5%
FX
0.1%
0.05%
Commodity
2.0%
1.0%
ZLP Parameters
ZLP Base Deposit Fee %
0.30%
Base Fee for depositing in ZLP (see calculation below.)
ZLP Base Withdrawal Fee %
0.30%
Base Fee for withdrawing from ZLP (see calculation below.)
ZLP Tax Rate %
0.50%
The dynamic fee can be + / - and will be charged or discounted in addition to deposit/withdrawal fee depending if the transaction moves the pool's weight further away from / closer to the target weight.
Max Utilization %
80%
Max utilization for ZLP, beyond which new positions are not allowed to be opened (traders are still allowed to reduce their OIs.) This parameter is in place to ensure some liquidity is always available for LPs to withdraw.
ZLP Profit Reserve Buffer %
20%
Zeno keeps track of the net global PnL of all traders against the ZLP pool. Once the net global PnL hits a percentage threshold relative to the ZLP's TVL, the protocol will start auto deleveraging open positions, starting from the most in-profit positions
ProfitReserveBuffer = 1 + NetGlobalPnL / (ZLP's TVL)
Note: the ZLP total deposit / withdrawal fees is the sum of base fee % and tax rate %
and can range from 0.0% -> 0.8%
ZLP Target Weights
1
Stablecoin
m.USDC
25%
2
Stablecoin
m.USDT
25%
3
Volatile Asset
WETH
50%
ZLP might also contain other assets as they are collected from collateral of losing trades. These assets will be swapped into m.USDC, m.USDT, or WETH periodically to maintain the desired target weight.
Collateral Factor
A discount factor applied to the deposited collateral based on the risk of the asset.
WETH
Volatile Asset
0.90
WBTC
Volatile Asset
0.90
m.LINK
Volatile Asset
0.70
m.USDT
Stable Asset
1.00
m.USDC
Stable Asset
1.00
Borrowing Fees
Zeno currently uses a single-slope, utilization-based Borrowing Rate model, where the Max Borrowing Rate of 0.01% per hour is charged when 100% of the asset in the ZLP vault is utilized and linearly decreases to 0% per hour at 0% utilization.
Below is the chart representing the relationship between the ZLP utilization rate and the borrowing rate charged on open positions:
The borrowing interest is assessed on the Reserved Profit Amount and NOT the Position Size. The profit reserve refers to the earmarked amount from the ZLP pool to pay out the profitable trading position.
The reserve amount is a function of the % of initial margin fraction and is based on the asset class.
BTC & ETH
3,500%
Other Cryptocurrency
4,000%
FX
5,000%
Commodity
750%
Example:
Alice opens a BTC long position with the size of $100,000 USD
BTC initial margin fraction: 1%
Crypto Profit Reserve factor: 3,500%
Profit Reserve = 1% * 3,500% * $100,000 = $35,000
Thus, Alice is paying the borrowing interest on $35,000 and NOT $100,000
Velocity-based Funding Rate
Zeno utilizes a velocity-based funding rate model. Instead of the typical model where the long-short skew determines the funding rate, our model have the skew determine the velocity of the funding rate.
This slight adjustment in the formula has a large implication. With the traditional model, there is no incentive to completely eliminate the skew as funding would immediately go to zero, and some arbitrage strategies -e.g., carry trade, would no longer be viable. However, with the velocity-based model, the rate will only gradually increase or decrease overtime. So even after the skew is offset, the funding rate will persist overtime until the market has shifted to the other side, creating a better incentive model to maintain the neutrality for the market.
The following is the equation for Funding Rate & Funding Fee calculation:
For more details, check the calculator here.
To determine the funding rate for each trading asset, as set forth by the Zeno team, you can check the Skew Scale & the Maximum Fund Rate here.
Note that the Funding Rate accrues over time and get settled every time a position is modified, opened, or closed.
Protocol Fees Distribution
Below we share the sources of revenue for Zeno and how they will be distributed to the different stakeholders.
Trading Fee
50%
17.5%
20%
12.5%
Borrowing Fee
50%
17.5%
20%
12.5%
Liquidation Fee*
0%
0%
100%
0%
ZLP Deposit / Withdrawal
50%
17.5%
20%
12.5%
*Liquidation is a flat $5 fee to cover operating cost
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