A new adaptive pricing framework for perpetual protocols using liquidity curves and on-chain oracles

TL;DR

This paper presents an innovative adaptive pricing framework for perpetual protocols that uses liquidity curves and on-chain oracles to dynamically set prices and fees, enhancing stability and efficiency.

Contribution

It introduces a novel adaptive pricing mechanism employing liquidity curves and mathematical models for improved stability in decentralized perpetual contracts.

Findings

The framework effectively adjusts prices based on market conditions.

It improves pricing stability and predictability.

The approach outperforms existing solutions in simulations.

Abstract

This whitepaper introduces an innovative mechanism for pricing perpetual contracts and quoting fees to traders based on current market conditions. The approach employs liquidity curves and on-chain oracles to establish a new adaptive pricing framework that considers various factors, ensuring pricing stability and predictability. The framework utilizes parabolic and sigmoid functions to quote prices and fees, accounting for liquidity, active long and short positions, and utilization. This whitepaper provides a detailed explanation of how the adaptive pricing framework, in conjunction with liquidity curves, operates through mathematical modeling and compares it to existing solutions. Furthermore, we explore additional features that enhance the overall efficiency of the decentralized perpetual protocol.