Trading Fees explained
Given that El Dorado Exchange is not a primary market maker, but rather leverages off of existing price discovery, there are several risks that we are exposed to. To protect liquidity providers from forms of manipulation that manipulate oracles from trading on CEXs and then take the counter position on our exchange, EDE has several different fee mechanisms in order to prevent liquidity providers from manipulative behavior & opportunistic traders.
There are 5 different layers of protection we have that ward off traders
When you open or close a position, you need to pay a fee of 0.1% of your position size, let's say if you use $250 ETH at 10x leverage to long ETH/USD. The fee is applied to your position size: $2,500.
$2,500 * 0.1% = $2.5 fee
There is also a swap fee that would be applied if you were using the wrong asset to open a position. For example, if you were longing for ETH with DAI, you would pay a swap fee to purchase $2,500 worth of ETH.
The funding fee represents the fee per hour you pay when your position is opened as you are borrowing assets from the ELP.
The Funding fee is calculated as (assets borrowed) / (total assets in pool) * 0.01% per hour.
The hourly fee is charged on a second by second basis.
For example: I borrow $2,500,000 worth of ETH and there are $2,500,000 within the pool. Using these metrics, the funding fee would be as follows:
(2,500,000 / 2,500,000) * 0.01% = 0.01% or $250 per hour, charged per second at a rate of $0.069 against my collateral. If my position collateral was $250,000, at the end of the first hour, I would be charged $250 against my collateral, leaving $249,750 left.
Like on CEX platforms, if the size of the long position is much larger than the size of the short position, the long position holders should pay a premium to the short position holder, and vice versa.
EDE trading incorporates these funding mechanisms as a way to help balance out the degree of longs vs shorts, as well as for liquidity providers and opposing traders a way to profit from this.
If Open interest(long) > Open interest(Short)
- LongPremiumRate = premiumBasis * min( Open interest(Long - Short) , MaxSizeGap) / MaxSizeGap
- ShortPremiumRate = max( MaxNegativePremiumRate , -1 * LongPremiumRate * Open interest(Long/Short) )
If Open interest(Short) > Open interest(Long)
- ShortPremiumRate = premiumBasis * min( Open interest(Short - Long) , MaxSizeGap) / MaxSizeGap
- LongPremiumRate = max( MaxNegativePremiumRate , -1 * ShortPremiumRate * Open interest(Short/Long) )
- MaxSizeGap : $1,000,000
- premiumBasis : 0.01% / per hour
- MaxNegativePremiumRate : -0.0375% / per hour
- Fee Generated: per sec
- If Bob opens a $100K short size and there is $500K long open interest and $100 short open interest.
- LongPremiumRate = 0.01% / hour = 0.01% * min(($500K - $100) , $100,000) / $100,000
- ShortPremiumRate = -0.02% / hour = (max ( -0.02% , -1 * 0.01% * $500K / $100)
Which means if he hold this position for 1 hour, he can earn $100K * 0.02% = $2 for the premium.
- All the premium will NOT be calculated as the FEES, which means that it cannot be deducted based on your ESBT Rank and it will be added and removed as the PnL for the ELP holders instead of trading fees.
Dynamic Spread, formerly known as 'Price Impact' is added on top of the fixed spread (if the pair has one). It depends on the open interest of the pair, the position size of the trade being opened, and on the direction of the trade (long / short).
TBC (formula adding soon)
To prevent whales from gaining abnormal profits through price attacks in a short period of time, we have increased the cost of short-term abnormal gains to increase the cost of such attack behavior.
- If (CloseTime - AvgOpenTime) < TaxTerm & PnL > 0
- ShortTermTax = (AvgOpenTime + TaxTerm - CloseTime) / TaxTerm * TaxRate * PnL
- If (CloseTime - AvgOpenTime) >= TaxTerm or PnL< 0
- ShortTermTax = 0
- TaxTerm: 1 minutes
- TaxRate: 100%
- If Bob opens a $100K short size and closes it 30 seconds after it with a $100 PnL before fees.
- ShortTermTax = $50 = (60 seconds -30 seconds) / 60 seconds * 100% * $100
Which means if he closes this position for holding 30 seconds, he has to pay $50 if he gets a positive PnL before fees.
- If Alex opens a $500K short size and closes it 70 secondss after it with a $500 PnL before fees.
- ShortTermTax = $0
Which means that she doesn’t need to pay the short-term tax.
- All the Short-term Tax will NOT be calculated as the FEES, which means that it cannot be deducted based on your ESBT Rank and it will be added and removed as the PnL for the ELP holders instead of trading fees.
- Setting: 0
- Setting: 0