FAQ
How is the interest fee calculated?
Aqua applies a fixed fee for short and long positions. The fee can be changed based on the market condition and pool utilisation similar to Compound fee rate. For MM to know the current rate, MM needs to continuously check Aqua token rate endpoint and decide if the fee makes sense and is still profitable for them to borrow from Aqua.
Aqua will snapshot fee every hour from on chain supply and borrow rate to make sure the rate is relevant to the market condition
Fee calculation happens off-chain by storing all transaction history for each MM with the fee applied based on their position changes and elapsed block number.
For example, at t0, MM position is -1ETH and +2000 USDT. At t2, MM position is -0.5ETH and +1000 USDT. to calculate fee at t5:
ETH short fee = (-1 ETH * short fee rate per block) * (2 - 0) block + (-0.5 ETH * short fee rate per block) * (5 - 2) block
USDT long fee = (+2000 USDT * long fee rate per block) * (2 - 0) block + (+1000 USDT * long fee rate per block) * (5 - 2) block
How the interest fee is charged?
For each MM, their principal position is stored on-chain while the fee is calculated off-chain. Periodically, let’s say every 8 hour (TBC), Aqua off-chain engine will post the fee data on-chain to apply fee to MM on-chain position data.
Does Market Maker need collateral?
Because our credit engine is off-chain, Market Maker’s Credit is flexible. For trusted and KYCed partners, we can use an under-collateralized model. For other partners, collateral is required with an over-collateralized model. MM can check the market maker setting endpoint to know their liquidation ratio.
How to know Market Maker position?
Aqua has an endpoint to show MM short and long position for all the tokens. Additionally, Aqua will show your overall credit USD and USD price used at the moment. Note that there will be a delay of 1 - 2 minutes before the position and credit is updated-off chain.
creditUSD =
sum(collateral token amount * oracle token usd * collateral ratio) + sum(long token amount * token price usd) - sum (short token amount * token price usd)
Is there any max position that MM can open?
Yes, we have a leverage factor of how much MM can borrow or open a short position. This amount is calculated by multiplying the leverage factor to the MM net margin USD left. For example, MM has a 10K USD credit limit and 10x leverage. The maximum loan amount in USD that MM can open is 100K USD.
How does liquidation work?
Liquidation works similarly with Compound with an off-chain price oracle used instead. Whitelisted liquidators can check all the market maker positions and when a market maker credit is unhealthy, liquidators can call Aqua API with a liquidation proposal. Aqua will verify the proposal and return the signature that liquidators can submit on-chain and execute the liquidation.
How the off chain price feed works?
Aqua’s off-chain price feed is the core of the Aqua credit engine. Aqua aggregates prices from multiple sources such as Binance, Kucoin, MEXC, and CoinMarketCap. Aqua also has internal risk checks to compare prices from trusted market makers.
If a price is flagged as ‘not valid’ or if price sources are down, the internal risk engine will pause all aqua activities including trading borrowing, settlement, collateral removal, and liquidation.
How does the marker maker priority ordering work if multiple MMs borrow from aqua?
There is currently no logic to prevent race conditions when multiple market makers want to borrow the same limited asset in Aqua. However, there will be a check for every borrow trade to ensure the Aqua asset is available at the time the quote request is made.
What is repayment and settlement, and how do they work?
Repayment is a permissionless operation where market makers can repay their short position directly to the Aqua Vault contract, to minimise any short fees.
Settlement is a permissioned operation where market makers can repay the short position and/or take long positions as long as their credit line is healthy. To prevent market maker’s position from becoming unhealthy due to the decrease in credit, Aqua requires a delay of 10 minutes where Aqua will pause market makers from any credit decreasing actions such as collateral removal or trading borrowing to take into account the credit calculation delay.
What happens if there’s no asset left for Market Maker to do settlement?
Similar to Compound’s logic, market makers are not able to settle if inventory is not available in the Aqua at the moment. In this case, Aqua will increase the short/borrow fee to force other Market Maker/Borrowers to return money back to Aqua using the dynamic fee algorithm (*will be decided later).
How do you guarantee no counterparty risk?
In trading borrowing, Aqua employs a risk engine to ensure that market makers provide a 'valid' quote within the range of the current market prices with some offset.
All undercollateralized market makers are trusted and KYCed partners, enabling Aqua to always 'force' a settlement. For partners with overcollateralization, we maintain whitelisted liquidators who periodically check and liquidate positions to prevent bad debt.
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