Fees & Rewards
Last updated
Last updated
Fees on CVEX are structured to ensure fairness for all protocol participants and to enable proper market incentives. As a critical component in defining the direction of the CVEX ecosystem, they are designed to ensure smooth operation and sustainability across all platforms.
Traders incur fees when creating orders, which always consist of two components:
Operational Fee: A fixed cost for each trade, independent of trade size, is directed to the platform's Operational Fund. Paid in USDC from traders' collateral deposits, these fees compensate for the gas used by protocol participants, such as Frontends and Clearance Bots, in managing traders' orders and positions.
Trading Fee: A relative fee based on the notional value of each order. The collected trading fees are distributed between the Platform Fund and the Protocol Fund. The Platform Fund addresses the expenses of platform operators, while the Protocol Fund is allocated for staking rewards, protocol development, and operational needs.
As many actions within traders’ orders and positions occur after their creation, distributing fees across the Operational Fund allows traders to prepay for processing their orders and positions. The inflows and outflows of the Operational Fund are structured to always guarantee that there are sufficient reserves to cover all potential expenses for such processing. This approach, being predetermined with rare adjustments, offers traders a predictable cost structure, less sensitive to gas and ETH prices, remaining stable during periods of significant market fluctuations.
Unlike the mandatory operational fees, which cover the expenses of protocol participants, trading fees are subject to various discount programs. For instance, the protocol incentivises stakers of CVEX tokens by offering discounts on trading fees across all platforms, with the discount level varying based on the size and duration of the stake. Additionally, platform operators have the autonomy to implement other discount initiatives, such as referral systems.
In addition to operational and trading fees associated with trade orders, the CVEX ecosystem includes other types of fees:
Settlement Fee: This is applicable when a trader has an open position in a contract at its expiration. After expiration, Clearance Bots facilitate the settlement process, and the trader is required to pay a small portion of their position's nominal value into the Platform Fund. This mechanism primarily aims to motivate traders to proactively close their positions before contract expiration, thereby avoiding potential liquidation due to reduced liquidity in the contract's final moments.
Liquidation Fee: Incurred when a trader's portfolio is liquidated due to default. This fee is calculated relative to the notional value of the trader's positions and is contributed to the Default Fund of the platform. The Liquidation Fee serves as a protective measure, bolstering the Default Fund, which is designed to cover losses and maintain the platform's financial stability in cases of major trader defaults.
The CVEX Protocol ensures that all participants receive appropriate compensation for their services:
Maker Rebates: May be enabled by platform operators to incentivise traders to contribute liquidity to the markets. These rebates are paid to traders each time their limit orders are filled after being placed in the order book. Rebates, calculated based on the notional value of the filled portion of the order, can increase the return for those willing to commit liqudity to the protocol.
Gas Reimbursement: Paid from the Operational Fund to Frontends and Clearance Bots for each successful operation. This includes actions like relaying trader orders to the protocol, clearing limit orders, contract settlement, initiating liquidation, triggering conditional orders, and clearing the auto-deleverage queue. Reimbursements are based on the actual gas used and current gas prices to guarantee the profitability of these actions and ensure continuous operations.
Liquidation Reward: Paid from the Default Fund to Clearance Bots when they successfully initiate the liquidation of a defaulting trader's portfolio. The liquidation fee is calculated relative to the portfolio's nominal value. This system is designed to incentivise Clearance Bots to promptly carry out necessary liquidations, fostering competition among them for the reward. Since liquidation conditions are fully determined by the protocol, Clearance Bots cannot exploit this mechanism to unjustly force trader liquidations for additional rewards.
Default Prevention Reward: This incentive is awarded to Clearance Bots from the Platform's Fund when they proactively terminate limit orders that, if executed, could lead to the liquidation of a trader's portfolio. This reward system is designed to encourage active participation of Clearance Bots in the Default Prevention mechanism. It aims to reduce potential liquidations by identifying and pre-emptively addressing high-risk orders.
Although the fee and reward structure within CVEX might look complex, its design is pivotal in establishing robust and sustainable economic mechanics, a crucial aspect considering the protocol's decentralised nature.
