Crypto currency contract trading is volatile, high-leverage, high-yield, and high-risk. High-frequency trading strategies trading in centralized exchanges contribute for 90% of the trading volume. Moreover, crypto currencies are prone to price fluctuation, and traders demand smooth transactions. However, the current blockchain technology has never made a breakthrough in the issue of transaction delays. Even Ethereum, which takes 15 seconds for each block to be confirmed under normal network conditions. This is a fatal flow to high-frequency or short-term traders.
Compared with the order-driven quotation system adopted by centralized exchanges, YFX design on the financial model of traditional financial derivatives. In the traditional financial market’s market maker system, market makers provide investors with bilateral quotations, guiding the transaction price to change through the update of the quotation. YFX’s automatic market maker forms a smart contract with the trader’s order through the QIC-AMM for on chain trading. This not only guarantees the safety of users and market makers’ assets, but also guarantees that the system will not be subject to over loss.
In YFX, the leverage ratios of traders and market makers are different. Through system configuration, traders’ leverage is generally 5 times bigger than market makers. If a trader uses 1,000 USDC margin and 100x leverage to open a position, the total market value of open positions is 100,000 USDC. Then the market maker will use 2x leverage to make market orders, the QIC-AMM will make a price quotation. Once the quotation is successful, the user’s margin of 1,000 USDC and the market maker’s margin of 50,000 USDC will be locked together in a smart contract, and the system will simultaneously calculate the user and market making the trader’s opening price and liquidation price. Once the index price breaks through the liquidation price of a certain party, the smart contract will force the position to be liquidated, and either the user will be liquidated, or the market maker will be liquidated. If there is congestion on the blockchain and the forced liquidation cannot be carried out, after the blockchain network back to normal condition, the system will still settle according to the liquidation price of one party to avoid the position over loss.
