Fees and Fees
Subnet 8’s PTN has been able to identify consistently performing trading strategies through a combination of returns, consistency, and limited max drawdown risk. However, without proper implementation of the cost of trading via fees, we are overestimating the contribution of buy / hold traders on the network and introducing inaccuracies in translating the current trades into an output product.
There are two primary considerations which modulate the duration of positions on real exchanges: rollover rates and funding rates. The funding rates are designed to balance the futures price with the current spot price of the asset for cryptocurrencies. Rollover rates take into consideration the interest price associated with the discrepancy between forex pairs.
Problem Statement
In order to properly implement these fees, we would need the validators to incorporate multiple APIs, both increasing the cost, complexity, and introducing potential sources of error in case of API failure.
- Buy and hold traders have a disproportionate benefit from our system without consideration of exchange fees.
- Without evidence of sustained transactions, we have no confidence in the miner to repeat their success. This evidence should come in the form of closing positions or managing their leverage utilization.
- Utilization of APIs for all relevant data is cost / resource prohibitive.
Proposed Changes
To simplify the process for validators and reduce system complexity, we propose tracking cost of carry fees using static values. These values represent the typical cost of carry for each asset class. Under this proposal, fees will always reduce returns, regardless of the trade direction. As a reminder, this approach is consistent with how our existing fees work for any changes to leverage.
This will be a forward looking update, only impacting future interactions with the subnet. The exact implementation will be as follows:
Implementation Details
| Market | Fee Period | Times | Rates Applied | Triple Wednesday |
|---|---|---|---|---|
| Forex | 24h | 21:00 UTC | Mon-Fri | ✓ |
| Crypto | 8h | 04:00, 12:00, 20:00 UTC | Daily (Mon-Sun) | |
| Indices | 24h | 21:00 UTC | Mon-Fri | ✓ |
The magnitude of the fees will reflect the following distribution:
| Market | Base Rate (Annual) | Daily Rate Calculation |
|---|---|---|
| Forex | 3% | 0.008% * Max Seen Leverage |
| Crypto | 10.95% | 0.03% * Max Seen Leverage |
| Indices | 5.25% | 0.014% * Max Seen Leverage |
The leverage used for the calculation will use the max leverage seen on the position over the prior period. For example, let’s say a forex position tracks 2x leverage on Tuesday at 8PM, and reduced leverage to 0.1x at 10PM. However, it is still open the next day (Wednesday) at 5PM, it will incur a fee of 0.008% * 2x leverage * 3x (triple rate on Wednesdays) = 0.05%. If the position would have closed fully at 10PM on Tuesday, it would have incurred no rollover fees.
Cryptocurrencies will use a lookback window of 8 hours to determine the max leverage seen on the position, consistent with the funding rate implementation. The lookback windows for Forex and Indices will be 24 hours.
Additional Information
Forex, Crypto, and Indices funding mechanisms are inspired by typical financial practices and specific platform policies. For Forex and Indices, rates apply daily at 21:00 UTC (5PM in New York City), with a triple rate on Wednesdays to account for weekends. Crypto’s funding rate structure is inspired by Binance’s 0.01% 8-hour interval rate, available in detail here.
Existing fees on the platform will stay the same.
Timeline
Proposal Delivery: June 26, 2024July 10, 2024
PR: July 12, 2024
Integration: July 12, 2024