DueDEX is designed to fully consider the possibility of malicious market manipulation, therefore, we will use a unique Fair Price Marking mechanism to prevent users from falling victim to the manipulations, and to ensure a fair trading ecosystem for all our valued users.
Due to the characteristics of high volatility and possible limited liquidity from time to time of cryptocurrency market, malicious market manipulations, such as pump & dump schemes, occur regularly on exchanges. If a derivatives exchange uses Last Traded Price as mark price to calculate unrealized PNL and to trigger liquidation, unnecessary liquidations might happen due to the manipulations. Therefore, on DueDEX, instead of Last Traded Price, Fair Price is calculated based on the weighted average of latest prices from mainstream spot exchanges, like Bitstamp, Coinbase Pro and Kraken, and is used as Mark Price to calculate the unrealized PNL and to decide when to trigger liquidation. Liquidation will only be triggered when the Fair Price hits the Liquidation Price. When the Last Traded Price on DueDEX fluctuates far from the Fair Price, or even hits the Liquidation Price, as long as Fair Price doesn’t trigger, there won’t be a liquidation. As the Fair price is almost impossible to manipulate, this Fair Price Marking mechanism can effectively prevent malicious manipulations from happening on DueDEX.
For Perpetual Swaps, the Fair Price is equal to the underlying Index Price (the spot price from a few mainstream exchanges) plus a decaying Funding basis rate. Then DueDEX system will calculate the liquidation price and unrealized PNL basing on the Mark Price.
Please note that Realized PNL has nothing to do with the Mark Price.
Calculation of Fair Price for Perpetual Swap Contracts
The Fair Price for a Perpetual Swap is calculated using only the Funding Basis rate:
Funding Basis Rate= Funding Rate * (Time Until Funding / Funding Interval)
Fair Price = Index Price * (1 + Funding Basis Rate)
For further information on Perpetual Swap funding calculations and examples please see the Funding session.