Core Concepts
Velar PerpDex
Velar PerpDex is a decentralized perpetual exchange enabling leveraged trading without custodial requirements. The platform uses an aggregated oracle system to provide reliable price feeds, reducing the risk of unfair liquidations from temporary price swings.
Core Concepts
Perpetual Contracts
Perpetual contracts (perps) are futures contracts without expiry dates. Unlike traditional futures, traders can hold positions indefinitely, provided they maintain sufficient margin requirements.
The contract price is maintained close to the underlying asset's spot price through a funding rate mechanism. This system creates balanced market forces where longs and shorts periodically exchange payments to align incentives.
Mark Price and Index Price
The Mark Price is the current price of the contract used for all PerpDex operations including opening and closing positions, calculating profit and loss, and determining liquidations. This price is derived from Velar's oracle system.
The Index Price represents the real-time spot price of the underlying asset from major exchanges. The relationship between Mark Price and Index Price determines the funding rate direction.
Funding Rate
The funding rate is a periodic payment between long and short position holders that keeps the perpetual contract price aligned with the underlying asset's price:
When Mark Price exceeds Index Price, long position holders pay shorts (positive funding rate). This incentivizes more traders to go short or close long positions, pushing the contract price down.
When Index Price exceeds Mark Price, short position holders pay longs (negative funding rate). This incentivizes more traders to go long or close short positions, pushing the contract price up.
Funding payments occur every 8 hours (adjustable via governance) and are automatically calculated and applied to open positions.
Leverage and Margin
Leverage allows traders to amplify their exposure to price movements without committing full collateral. For example, using 5x leverage on a $100 position creates $500 of market exposure.
Velar PerpDex manages risk through two types of margin requirements:
Initial Margin is the collateral required to open a position. The minimum amount depends on the chosen leverage. For example, 5x leverage requires an initial margin of 20% of the position size.
Maintenance Margin is the minimum collateral needed to keep a position open. If a trader's margin falls below this threshold due to adverse price movements, their position becomes eligible for liquidation.
Pricing and Oracle System
Velar employs a robust hybrid oracle system to ensure accurate and manipulation-resistant price feeds:
On Stacks, Velar utilizes Pyth Network for primary price data with the BTC/USD feed ID: 0xe62df6c8b4a85fe1a67db44dc12de5db330f7ac66b72dc658afedf0f4a315b43
On Mezo, Velar integrates RedStone as the primary oracle provider.
This multi-source approach delivers reliable price data that protects users from liquidations caused by temporary price wicks or manipulation attempts.
Liquidation Process
Liquidation occurs when a trader's position health factor falls below the required maintenance threshold. The health factor is determined by the formula:
Health Factor = (Margin + Unrealized PnL) / Maintenance Margin
When liquidation is triggered:
The position is flagged for liquidation
Liquidators close the position through a Dutch auction mechanism
A liquidation fee of 0.5% of the position size is charged and paid to liquidators
Any remaining collateral after covering losses and fees is returned to the trader
Velar maintains an Insurance Fund funded by a portion of trading fees to cover instances where liquidated positions result in negative equity that cannot be covered by the trader's remaining margin.
Position Types and Fees
Velar PerpDex supports both long and short positions:
Long positions profit when the asset's price increases and lose value when it decreases.
Short positions profit when the asset's price decreases and lose value when it increases.
The fee structure includes:
Opening/Closing Fee: 0.02% of position size
Borrowing Fee: Dynamic depending upon the liquidity utilization ratio
Funding Fee: Variable rate paid every 8 hours
Network Fees: Required for blockchain transactions
Risk Management Tools (Upcoming)
Velar PerpDex provides several risk management features:
Stop-Loss orders automatically close positions when prices reach a specified threshold, limiting potential losses.
Take-Profit orders lock in gains by closing positions when prices reach a target level.
Partial Closure allows traders to reduce exposure by closing only a portion of their position.
Network-Specific Information
Velar PerpDex is available on multiple networks with differences in implementation and features. Details for each supported network are provided in the following sections.
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