skewAdjustmentFactor is how much the skew ratio of the traded strike increases (decreases) per standard size bought (sold) The higher (lower) the skewAdjustmentFactor, the more (less) concentrated the volatility impact in the traded strike, relative to the baseIV (which underpins the entire expiry)
If the value of skewAdjustmentFactor is too high, then slippage becomes too large for the traded option. If the value is too low, then the volatility surface will require a larger amount of contracts to update. This can result in increased impermanent loss for LPs, as there are more arbitrage opportunities.
The percentage of the Black Scholes calculated option price that is charged as a fee to the user.
This should be higher for more risky assets, and lower for less risky ones. For example, if this parameter is 0.01 and the traded option is worth $200, the charged fee will be $2.
The percentage of the asset price that is charged as a fee.
This parameter should be higher for riskier assets.
Example: If this parameter is set at 0.001, and the asset price is $3000, then the fee attributable to the spot price is equal to $3.
An extra fee that is levied for longer-dated expiries, to adequately charge for collateral lockup/opportunity cost.
- For time to expiry < Point1x, fees are charged as normal
- For time to expiry >= Point2x, fees increase linearly, up to a 2x increase at point B.
- spot/optionPriceFee1xPoint = 6 weeks
- spot/optionPriceFee2xPoint = 12 weeks
- Multiplying the vega utilization percentage by this number yields the vega utilization fee in cents terms. E.g. if ETH vega utilization is 1% and VegaFeeCoefficient = 500, the vega utilization fee for increasing the risk of the pool is equal to 0.01 * 500 = $5.00.
- Coefficients should scale in proportion to the magnitude of the spot price. For example, a $5 vega utilization fee is relatively small for BTC (a $40,000 asset) but large for LINK (a $15 asset)
- Riskier/less-liquid assets should have a higher vega fee coefficient relative to the size of the spot price. For example, if asset A trades at $100 and is generally considered ‘safe’ relative to asset B which trades at $10, and asset A’s vegaFeeCoefficient is 50, asset B’s vegaFeeCoefficient should be greater than 5.
- How many contracts, when bought (sold), increase (decrease) the value of baseIV for the relevant expiry by 1%.
- The higher the standardSize, the lower the slippage for traders. Therefore, setting standardSize is a tradeoff between low (which creates deeper liquidity for traders), and high slippage (which favours/protects LPs)
- standardSize should generally be higher for established, less risky assets, and lower for riskier assets
- ForceCloseVarianceFeeCoefficient: 0
- defaultVarianceFeeCoefficient: 0.65
- skewAdjustmentCoefficient: 1
- referenceSkew: 0
- minimumStaticSkewAdjustment: 0
- VegaCoefficient: 1
- MinimumStaticVega: 0
- ivVarianceCoefficient: 1
- minimumStaticIVVariance: 0
- The variance fee charges more when there is a sudden increase in baseline volatility. This ensures positive edge for the AMM.