FAQ
OpenLeverage is a permissionless margin trading protocol that enables traders or other applications to long or short any trading pair on DEXs efficiently and securely.
The mission of OpenLeverage Protocol is to create an entirely permissionless decentralized margin trading infrastructure. Therefore, no permission is necessary to create a margin trading market for any pair, with isolated and market-adjusted risk controls. For the long term, OpenLeverage aims to build a decentralized crypto securities service to retail and institutional clients, providing decentralized lending, derivatives trading, and asset management infrastructure, which integrates with the global DeFi ecosystem. We believe that the transition to a native financial layer on the internet is an essential step for humanity. It is free, frictionless, and not controlled by anyone.
Any account with a decentralized wallet address can create a new trading pair lending pool between the tokens, as long as the pair exists on the DEX. If the pair does not exist, the user needs to create the pair on the DEX before creating the market.
The OpenLeverage protocol utilizes smart contracts for liquidating positions. When the margin balance in the account is lower than the maintenance level, the position will be forced to liquidate. Anyone can call the clearance smart contract to initiate a forced liquidation of the position with insufficient margin. The forced liquidation position will be traced back to the mortgaged assets on the DEX and returned to the lenders. Those who call the clearance smart contract and complete the position liquidation successfully will get the OLE reward by four times the value of the gas fees consumed.
Please note OLE token will NOT be launched with the mainnet and will be separately launched at a later stage.
In the process of leveraged transaction liquidation, rapid price fluctuations may cause the account’s equity to be negative, and the trader's principal will be lost (liquidation). When there is a short position under extreme market conditions, OpenLeverage will subsidize the trader's loss with a risk deposit and subsidize according to the time sequence of the trader's withdrawal of assets. When the risk deposit pool is emptied, the subsidy will end.
Users can choose to provide liquidity in the FEI - USDC pool. Lenders will receive variable interest based on the pool’s utilization. This process is similar to how the Compound protocol works.
Lenders receive LToken of the pool as an interest-bearing token, which can then be re-staked to other yield farms to receive further rewards. Traders can choose to borrow from either pool to swap to another token as a leveraged position. In this example, the trader borrows USDC by putting down the same amount of USDC as collateral to make a 2X margin trade, swapped into FEI position with the liquidity pools of Uniswap, and locked in the smart contract. By taking advantage of liquidity on a DEX, we don’t have to create separate liquidity or an order book for leverage trading.
Once the trader closes the position, the protocol swaps the FEI position back to USDC by repaying the loan with interest, which returns the deposit plus any profit or loss back to the trader.
We are using liquidity from UniSwap, SushiSwap, PancakeSwap, BabySwap, BiSwap, MojitoSwap, and KuSwap. There will be other added liquidity sources in future integration.
With OpenLeverage, you can put your idle digital assets to use by supplying them to the liquidity pool and earning interest. The interest you accrue depends on how much liquidity (supply and demand for digital assets) is present in the pool at any given time.
When the total value of the opened position is lower than the minimum margin ratio, the liquidation engine may automatically close the account. Liquidation is initiated when the position value reaches the minimum margin ratio. The trader shall bear the liquidation losses.
OpenLeverage will keep 33% of the transaction fees in the pool as risk margin and will be used in uncertain circumstances, such as liquidation.
There will be slippage when opening a position, and real-time price fluctuations can occur. In extreme cases, this fluctuation will be very severe. It also includes the transaction fees and interest expenses.
OpenLeverage uses a dynamic interest rate model. The interest rate fluctuates according to the ratio between the total amount of tokens provided by lenders and the total demand by traders. When the volume of assets in the lending pool is smaller, the interest rate can increase, so the lender who provides it may obtain more interest. In contrast, when there are enough loanable assets, the interest rate will decrease.
How does OpenLeverage collect on negative balances caused by a drop in the value of tokens? If I use $200 to leverage borrowing $600 of a particular token and the token’s value drops by more than 33%, is my $200 liquidated immediately upon my collateral hitting $0 value? If it goes negative, is any part of that deducted from the lending pool?
Liquidation can be triggered if the collateral ratio of your position is below the market limit. The initial collateral ratio of your opening 4x position is 33.3% (200/600). Assuming the collateral ratio to maintain your position is set to 15% for the pair, liquidation could be triggered when the token’s value drops by more than 13.75%, and it should be before your collateral hits $0 value.
However, in extreme market or liquidity conditions, your position value can drop to negative on liquidation. Your position may be compensated by insurance accumulated through 1/3 of the fees from the pair and 10% interest earned from the pool. If it still has a negative balance after compensation, it deducts from the pool, and everyone from the pool shares the loss proportionally.
For traders and lenders, it's essential to evaluate the market's volatility and liquidity condition so there is a balance between risk and reward. From a market config standpoint, we encourage traders to start with low leverage (2x, 25% collateral ratio to maintain) for any created market, and it's ultimately up to the community to decide the appropriate max leverage allowed for each pair.
For reference, the collateral ratio to maintain has been set to 30% in all pools on testnet.
To bring a better experience with lower gas, we have a multi-chain strategy that deploys to layer 2 or sidechain such as Avalanche, Polygon, Fantom, and many other EVM-compatible chains to enable permissionless margin trading for wider communities.
Yes, $OLE is the native token for the OpenLeverage protocol. But it will NOT be launched until a later stage.
OpenLeverage is a DAO, owned and governed by the xOLE token holders. More explicitly, by holding the xOLE token to obtain voting power or membership in a DAO.
OpenLeverage doesn’t rely on oracles that piping from off-chain prices. Instead, it makes use of TWAP prices provided by Uniswap (or its forks) to build reliable price feeds that are updated based on trading interest to avoid expensive or continual price feed maintenance. Traditional Oracle can only support very limited tokens, so we use TWAP instead, even Vitalik Buterin said Uniswap can be the next oracle facility by its nature.
Please note that the deposited assets will be exposed to the liquidity risk in the liquidity pools from the DEX. For example, if the liquidity level becomes very low in the FLOKI/BNB pair on PancakeSwap, it may cause a delay in position liquidations or unacceptable slippage. However, each position should maintain a minimal 15%-25% collateral ratio to protect the lending pool. Lenders are recommended to pay close attention to the risk of the market they are entering.
OpenLeverage has designated 33.33% of the fees to be deposited into the isolated insurance fund to cover unexpected losses to the lender.
Security has been our top priority throughout our product and technical design. We have carefully balanced the boundaries of risk, liquidity, and trading flow so we can have an open, secure, and optimized user experience.
OpenLeverage has followed secure development best practices throughout development. Our security review process includes a full-length audit from Certik and Peckshield. Check it out: https://github.com/OpenLeverageDev/openleverage-contracts/tree/main/audits
OpenLeverage has also partnered with Code4rena in February 2022 to fine-tune security settings and gas optimization. With our 4th round of security audits, no critical vulnerabilities were found.
Read more: https://medium.com/code-423n4/the-ones-in-the-arena-openleverage-661e219cc58.
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Last modified 6mo ago