WINS AND LOSSES

//01_ TWO QUANTITIES

move   = |exit - entry| / entry
rawPnl = size x (exit - entry) / entry          (sign flipped for a short)

The exit is the fill price of your close request. A close is one of three things:

• a winning close when rawPnl is positive;
• a losing close when rawPnl is zero or negative and the exit has not reached the bust price;
• a liquidation when the exit is at or beyond the bust price, whoever triggered it.

All amounts are in USDG base units (6 decimals) and all prices have 8 decimals. Every rounding goes in the house's favour: gains round down, losses round up, by one base unit at most.

//02_ A WINNING CLOSE

1. 01
   Deadband. The gain is computed as if the exit were less favourable by entry / 50,000 (0.2 bps). If that gain is zero or less, you get your margin back and nothing else: no loss, no fee, no paper.
2. 02
   Impact haircut. The deadbanded gain g is multiplied by a scale between 0 and 0.9 that depends on the move and the market. See the impact curve.
3. 03
   Profit cap. The result is capped at 10 times the margin.
4. 04
   Win fee. 2% of the capped amount. What is left is the net gain.
5. 05
   Margin back. Your margin returns to available immediately, in every case. Only profit can wait.
6. 06
   Payment. The house pays the net gain now, queues it, or pays part and queues the rest, depending on its state (section 04).

//03_ WORKED EXAMPLE: A WIN

//MARKET_

BTC

//SIDE_

long

//MARGIN_

$100.00

//LEVERAGE_

10x

//SIZE_

$1,000.00

//ENTRY_

$100,000.00

//EXIT_

$101,000.00 (+1%)

rawPnl    = 1,000 x (101,000 - 100,000) / 100,000          = $10.00
deadband  = 100,000 / 50,000                                = $2.00
exit'     = 101,000 - 2                                     = $100,998.00
g         = 1,000 x (100,998 - 100,000) / 100,000           = $9.98
move      = 998 / 100,000                                   = 0.998%

term1     = 1 / (0.00998 x 15,000)                          = 0.0066800
term2     = 100,000 / (1,000,000 x 0.00998 x 814.598)       = 0.0123006
scale     = (1 - 0.10) / (1 + 0.0066800 + 0.0123006)        = 0.8832356

adjusted  = 9.98 x 0.8832356                                = $8.814691
cap       = 10 x 100 = $1,000.00                            (not reached)
fee       = 2% x 8.814691                                   = $0.176293
net       = 8.814691 - 0.176293                             = $8.638398

If the house has the cash and nobody is queued, you end with $108.638398 in available: the $100 margin plus the $8.638398 net gain. The house's cash falls by $8.814691, the net gain plus the fee. The fee is split in two: $0.088146 to paper holders and $0.088147 to the treasury (the paper share rounds down, the treasury takes the remainder).

The raw gain was $10.00. The deadband took $0.02, the haircut $1.165309 and the fee $0.176293. On larger moves the haircut shrinks towards its floor of 10%.

//04_ WHO PAYS A WIN

The same win, settled against three different houses:

• Queue empty, enough cash (cash at least net plus fee): the net gain is paid now and the fee is distributed.
• Queue empty, not enough cash: the house pays what it has, up to the net gain, and the rest joins the end of the queue line.
• Queue open (someone is already waiting): the whole net gain is queued behind them. Earlier winners come first.

In the last two cases no fee is distributed. Your claim is still the net amount: the 2% is withheld from it and stays in the house instead of going to paper holders and the treasury. The $100 margin is returned at once in all three cases. How the queue is paid is described in the house and the queue line.

//05_ A LOSING CLOSE

The loss is -rawPnl, which is less than the margin as long as the bust price has not been reached. You receive margin - loss in available immediately. Losses carry no haircut.

• Queue empty: a fee of 2% of the loss is distributed, the rest of the loss goes to the house's cash, and your paper basis is the loss minus the fee.
• Queue open: no fee. The whole loss is an inflow that pays queued winners first, and your paper basis is the whole loss.

Same position, closed at $99,000.00 (-1%): rawPnl = -$10.00, and $90.00 comes back to you.

The paper rate of 100 per $1 applies while net house equity is under $25,000. Above that it declines; see paper and the mint curve.

//06_ LIQUIDATION

This position's bust price is $90,050.00 (entry x (1 - (1/10 - 0.0005))). If a fresh price at or below it reaches the contract, through a liquidation or through a close that fills there, the whole $100 margin is lost. The liquidator receives nothing.

A liquidation is a hard bust. Closed at $90,060.00, the same position loses $99.40 and returns $0.60. At $90,050.00 it returns nothing. The paper basis on a liquidation is always the full margin, fee or not. More in liquidation and the bust buffer.

//07_ THE DEADBAND AT WORK

The same long, closed just above the entry:

On a 1 bp move the haircut keeps about a quarter of the gain; the fee then takes 2% of what is left. A position opened and closed within a few cents of the same price is a cost, not a trade.

//08_ THE PROFIT CAP

A BTC long with $100 margin at 100x ($10,000 notional), entered at $100,000.00, with a bust price of $99,050.00 that the price never reaches:

At $112,000.00 the adjusted gain would be $1,078.12; the cap at 10 times the margin holds it to $1,000.00. At 10x the cap needs a move of about 111% in your favour, so in practice it binds only at high leverage.

//09_ SHORTS

A short is the mirror image. A BTC short with $100 margin at 10x, entered at $100,000.00 and closed at $99,000.00, settles with exactly the numbers of section 03: g = $9.98, adjusted = $8.814691, net = $8.638398. Its bust price is $109,950.00.