Arbitrage

Arbitraging Guide

How to arbitrage?

The pool uses the price in external exchanges (fed by oracle) as the marked price to calculate position PnL. Since the pool will always apply a funding fee to the majority side. Therefore a very simple arbitrage strategy is to take the minority side of the pool. This involves the following steps:

  1. Read the current funding rate of the pool. when it's positive(negative), enter a short(long) position.

  2. Accordingly, hedge your short/long position outside (e.g. hold a spot position or take a position on a CeFi exchange as you wish).

  3. Sit back and enjoy collecting the funding earning (i.e. negative funding fee) as long as the sign of the funding rate does not flip.

What is funding fee?

Funding Fee of Perpetual Futures To balance the two sides of long and short positions, the pool will always apply a funding fee to the majority side For each ETH block, assuming the total number of contracts in a long position is L while that in a short position is S. Then every single long contract will pay a funding fee = FundingRate*ContractValue, per the following formula. Whereas every single short contract will receive a funding fee = FundingRate*ContractValue. FundingRate = r*NetPositionContractValue/PoolLiquidity =r*(L-S)*CurrentPrice*Multiplier/PoolLiquidity where r is the funding rate coefficient, and ContractValue is ContractValue = CurrentPrice * Multiplier Please note that when L>S, FundingRate is positive (meaning long positions pay short positions), whereas when L<S, FundingRate is negative (short positions pay long positions). Funding Fee of Everlasting Options For each second, assuming the total number of contracts in a long position is L while that in a short position is S. Then every single long contract will pay a funding fee per the following formula:

Funding Fee for 1 Day = Option Mark Price - Payoff, where Payoff = max(spot - strike, 0) for call Payoff = max(strike - spot, 0) for put

Please note: 1. the Funding Fee is accrued on a per-second basis. That is, a funding fee of (Funding Fee for 1 Day)/86400 is accrued every second.

2. Unlike Perpetual Futures, the funding fee for everlasting options is always positive (i.e. long positions always pay short positions).

Risk Warning

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