Leverage trading is one of the fastest growing domains in DeFi. Currently, more than 20 leveraged trading protocols are deployed on various blockchains. However, as the protocols proliferate at a rapid pace, obstacles start to appear along the way:
- 1.The liquidity is scattered on different protocols, leading to liquidity underutilization.
- 2.While the liquidity is fragmented on different chains, there isn’t a native approach to utilize the cross-chain liquidity.
- 3.The differences between pricing mechanisms and margin parameters on each protocol are vast; traders can’t easily access the optimal pricing and trading experiences.
The MUX protocol aims to provide the best-in-class trading experiences for traders. Therefore, to resolve the mentioned issues surrounding leveraged trading protocols, the MUX protocol launched the MUX Leveraged Trading Aggregator, a sub-protocol in the MUX protocol suite.
When traders open positions on MUX, the MUX Aggregator will dynamically compare trading prices provided by various leveraged trading protocols; meanwhile, the Aggregator recommends an underlying protocol with the most suitable liquidity depth.
Unlike spot trading, the “trading cost” of leveraged trading is a composite factor containing the price, spread, slippage, price impact, position fees and other potential explicit trading costs. In addition, the composite factor also involves implicit costs like max leverage, maintenance margin, liquidation fees, available liquidity, etc. The MUX protocol comprehensively compares the trading cost on the aggregated protocols. As a result, it selects the most suitable liquidity route and minimizes the composite cost for traders while meeting the needs of opening positions.
The MUX Aggregator Protocol manages a set of smart contracts for holding traders’ positions. These contracts are called the “position containers”. When a trader opens a position through MUX Aggregator, the Aggregator will create a position container, then use it to open the position on the underlying leveraged trading protocol on behalf of the trader. From the underlying protocol’s perspective, the position container contract is its direct user. In addition, the MUX Aggregator provides an API for inquiring about the traders’ addresses behind their position containers.
Each position possesses a separate position container. The containers furthest isolate risks among the users, which is fundamental for ensuring the safety of the MUX protocol.
Every underlying leveraged trading protocol usually requires different Initial Margin and Maintenance Margin. The differences lead to the variation of max open leverage and maintenance leverage on these protocols. Additionally, protocols with deep liquidity on the market might not offer the ideal max leverage to meet traders’ needs.
To provide optimal trading experiences and leverage options, when the MUX Aggregator opens positions on the underlying leveraged protocol on behalf of the traders, it can supply additional margin for traders to raise the leverage and lower the MM requirements. Suppose the required initial margin rate on the underlying protocol is IM, the maintenance margin rate is MM, then the max open leverage is 1/IM, and the max maintenance leverage is _1/MM. _When a trader wishes to open a position with a larger leverage L (L > 1/IM), then the trader only needs to provide a margin with the amount of 1/LSize and MUX Aggregator will provide an additional margin with the amount of Size * (MM - MM2). _The additional margin comes from the MUX Universal Liquidity Pool. In addition, the MUX protocol offers another maintenance margin rate (MM2), which is usually lower. When the position’s remaining margin gets lower than _MM2Size, the position will be liquidated, and the corresponding position on the underlying protocol will also be closed. When position opening and closing take place, the MUX Aggregator charges a minimal fee, which is the leverage boost fee based on the supplied additional margin. BoostFee = (MM - MM2) * Size * BoostFeeRate. When liquidation occurs, the position will settle with the liquidation price; the remaining margin will be returned to the traders after the liquidation fee charged by the underlying protocol and boost fee are deducted.
When traders open positions through MUX Aggregator, the underlying protocol will charge funding fees from traders. Since the MUX Aggregator supplies additional margin for traders, it will also charge a specific boost funding fee for traders every 8 hours. _BoostFundingFee=BoostMarginFundingRate=(MM - MM2) * Size FundingRate. _Similar to how funding is handled on the MUX protocol, the underlying protocol funding fee and boost funding fee will be deducted from the traders’ collateral. Also, if the position open time hasn’t reached 8 hours upon the funding collection time, the boost funding will round up to 8 hours; if a position is closed before the next funding collection time, no boost funding will be charged.
On GMX, the position fee rate is 0.1%, IM is 2%, and MM is 1%. On MUX, suppose the MM is 0.5%, BoostFeeRate is 2%. When a trader tries to open a $10,000 position using 100x leverage, the trader only needs to use a margin of 10000/100=$100; the MUX protocol will supply the additional margin of (1% - 0.5%) * $10000 = $50. In addition, the trader also needs to pay the GMX position open fee of $10000*0.1%=$10 and the MUX leverage boost fee of $50*2%=$1. If the trader’s position is in a loss due to price fluctuation, the position will be liquidated when the remaining margin is below $10000*0.5% = $50. If the liquidation on GMX doesn’t have slippage, the trader needs to pay the GMX position fee of $10000*0.1%=$10 and MUX leverage boost fee of $50*2%=$1; the remaining $50-$10-$1=$39 margin will be returned to the trader.
Regarding on-chain leveraged trading, liquidity and users are scattered on different chains. To offer an optimal trading experience for traders on various chains, the MUX Aggregator utilizes the Universal Liquidity mechanism from the MUX protocol to provide the cross-chain liquidity aggregation feature.
When a trader uses chain A to open a position, the broker module can dispatch the MUX Aggregator to open the actual position on an underlying protocol of chain B. Therefore, the trader doesn’t need to directly access chain B while utilizing the liquidity on chain B for leveraged trading.
When specific underlying liquidity protocols can’t meet the position needs of traders, the MUX Aggregator can aggregate the scattered liquidity from different protocols, further offering a consistent and convenient trading experience. Traders won’t need to be distracted by the liquidity supplier behind the Aggregator; they only need to focus on the unified trading interface.
For example, let’s say a user opens a $100M position through the MUX Aggregator. Within this aggregated position, $50M is on protocol A, $30M is on protocol B, and $20M is on protocol C. The obstacle to liquidity aggregation is the potential pricing differences in various protocols, and the MUX protocol can’t simply merge positions with different entry prices. To address this issue, the MUX Aggregator will use the following approaches:
- 1.Deeply collaborate with underlying leveraged trading protocols and acquire their guaranteed accurate pricing.
- 2.The MUX Aggregator can bear the underlying protocol pricing differences under a specific range, then offer traders unified pricing.
The MUX Aggregator sub-protocol is an essential component of the MUX protocol suite. The MUX dev contributors will continuously develop and deliver features to meet traders’ needs.
- MUX Protocol V2: Composite with GMX and offer 100x leverage for traders
- MUX Protocol V3: Launch the cross-chain aggregation feature
- MUX Protocol V4: The integrated management of underlying positions