Asset Specific Scoring
As more and more users are building models on top of the miners in our network, we want to ensure that the network has enough information to support a variety of strategies and use cases. Typically, prop trading groups do this by forcing traders to show evidence of their performance using a track record, which indicates to the prop trading group that the trader is competent with a specialization. If the group already has this specialization, then they will often reject the trader as they don’t provide excess benefit to the group.
The Problem: Capacity, Accountability, and Capital Risk
We aren’t able to, nor desire to, force miners to show evidence of their performance using a prior track record, as real-time performance is the ultimate test. However, we do want to ensure there is some mechanism in place to encourage a diverse set of information that is curated on the network.
Asset Class Saturation
We believe that the most straightforward way to do this is to split the overall incentive on the network based on asset classes. Given that different asset classes will likely have different returns, cost of transactions, and market dynamics, simply allowing the miners to compete purely within each category will allow each to be uniquely competitive and still capture value for the unique information being provided. In summary, the scoring mechanics will remain the same, but will now be conducted for each of the asset classes separately. The sum of each subgroup will then determine the overall incentive of the miner.
To help miners understand which asset classes have less competition (dominated by a single or a few miners), we will be posting metrics of competitiveness for each asset subcategory on the main dashboard. In a future release, we will also be updating the individual miner dashboards to show how each miner is performing within the asset subcategories.
Asset Subclass Selection
Taking this idea a step further, we will also be partitioning the incentive into subgroups within asset classes. The logic for forex and crypto is slightly different here, laid out below:
Forex Currency Pairs Analysis
References:
- https://www.forexfraud.com/learn-forex-trading/currency-pairs-characteristics/
- https://www.visualcapitalist.com/ranked-the-worlds-top-reserve-currencies-in-2024/
Reserve Currencies
These are the currencies of nations which have a dominant role in global economic transactions. The European Union, Japan, and the United States are the important powers whose currencies fill the coffers of central banks around the world. Despite Brexit, the UK remains a significant economic power with independent monetary policy, keeping the British Pound as an established reserve currency.
Group 1 - USD Majors (29.27% of incentives)
- EUR/USD, GBP/USD, USD/CHF, AUD/USD, USD/CAD, NZD/USD
Group 2 - JPY Pairs (14.63%)
- USD/JPY, EUR/JPY, GBP/JPY, AUD/JPY, CAD/JPY, NZD/JPY, CHF/JPY
Group 3 - EUR Pairs (20.73%)
- EUR/AUD, EUR/CAD, EUR/CHF, EUR/GBP, EUR/NZD
Group 4 - GBP Pairs (9.76%)
- GBP/AUD, GBP/CAD, GBP/CHF, GBP/NZD
Commodity Currencies and Other Minors
Currencies such as the Australian and Canadian Dollars, the Brazilian Real, the South African Rand, or the Russian Ruble, which are the monetary units of commodity exporting nations, are called commodity currencies. Commodity currencies are a unique and significant part of the foreign exchange (forex) market. These are currencies from countries whose economies heavily depend on the export of natural resources—such as oil, metals, or agricultural products.
Group 5 (25.61%)
- AUD/CAD, AUD/CHF, AUD/NZD, NZD/CAD, NZD/CHF, CAD/CHF, USD/MXN (TBD)
Margin Requirements
OANDA and Forex.com share the same margin requirements:
- https://www.oanda.com/us-en/legal/margin-rates/
- https://www.forex.com/en-us/about-us/financial-transparency/margin-requirements/
Normalizing Incentive by Margin Requirements
Pairs with higher margin requirements have lower incentives to normalize for trading difficulty and capital requirements.
| Group | Pair | Margin Requirement | Individual Incentive |
|---|---|---|---|
| Group 1 | EUR/USD | 2% | 0.061 |
| Group 1 | USD/JPY | 5% | 0.0244 |
| Group 1 | GBP/USD | 5% | 0.0244 |
| Group 1 | USD/CHF | 3% | 0.0407 |
| Group 1 | AUD/USD | 3% | 0.0407 |
| Group 1 | USD/CAD | 2% | 0.061 |
| Group 1 | NZD/USD | 3% | 0.0407 |
| Group 2 | EUR/JPY | 5% | 0.0244 |
| Group 2 | GBP/JPY | 5% | 0.0244 |
| Group 2 | AUD/JPY | 5% | 0.0244 |
| Group 2 | CAD/JPY | 5% | 0.0244 |
| Group 2 | NZD/JPY | 5% | 0.0244 |
| Group 2 | CHF/JPY | 5% | 0.0244 |
| Group 3 | EUR/AUD | 3% | 0.0407 |
| Group 3 | EUR/CAD | 2% | 0.061 |
| Group 3 | EUR/CHF | 3% | 0.0407 |
| Group 3 | EUR/GBP | 5% | 0.0244 |
| Group 3 | EUR/NZD | 3% | 0.0407 |
| Group 4 | GBP/AUD | 5% | 0.0244 |
| Group 4 | GBP/CAD | 5% | 0.0244 |
| Group 4 | GBP/CHF | 5% | 0.0244 |
| Group 4 | GBP/NZD | 5% | 0.0244 |
| Group 5 | AUD/CAD | 3% | 0.0407 |
| Group 5 | AUD/CHF | 3% | 0.0407 |
| Group 5 | AUD/NZD | 3% | 0.0407 |
| Group 5 | NZD/CAD | 3% | 0.0407 |
| Group 5 | NZD/CHF | 3% | 0.0407 |
| Group 5 | CAD/CHF | 3% | 0.0407 |
| Group 5 | USD/MXN | 10% | 0.0122 |
Timeline and Change Log
Testnet: Early July
- Scoring system will be running on testnet for a few days following the release of this proposal.
Mainnet: Mid July
- Dashboard with summary statistics per category will be released.