Upgrading Kwenta: Introducing Key Enhancements for Perps V2

Kwenta, in collaboration with SNAX, is preparing to introduce a range of substantial enhancements aimed at simplifying integrations and providing a more user-friendly trading experience. SIPs-2004 and 2005 will introduce upgrades to existing markets, allowing for increased scaling of OI caps and listing additional assets. Let's explore the upcoming changes and their objectives.

In order to facilitate these upgrades, markets will need to be paused for 5-30 minutes each. We will pause the markets in sets of two, starting with the lowest open interest and moving our way up the list. While we do not know the exact time when individual markets will be paused, we will have a follow-up when a pair of markets is up next for pause as well as a list of completed upgrades. Join the Kwenta Discord to get the most updated information quickly.

While we realize this may inconvenience traders on Kwenta, these upgrades are necessary to improve the functionality of our current markets. Thank you for your patience and understanding.

Modifications through SIP-2004:

Now traders will have the ability to reduce or close non-liquidatable positions. Currently, market contracts enforce a strict rule for interacting with open positions above the maximum leverage. This rule requires that Kwenta traders reduce or close a position below the target leverage (25x). Let's examine an example to understand this change's importance better.

Total Position Size / Account Equity = Effective Leverage

The current effective leverage of a position is the ratio of the position's notional value and collateral value. If you open a long position of 10 ETH at $1,000 with $400 worth of collateral, your leverage will be 25x. As the price moves against your position, the leverage increases while the collateral backing the position decreases; the opposite holds true if a position is profitable.

Previously, traders with leverage above 25x were not allowed to partially reduce their positions unless doing so brought them below or to effective leverage of 25x. This restriction could frustrate users and leave them feeling trapped. With the new update, traders can freely adjust their position size and manage risk as long as it has not been flagged for liquidation.

Eliminating the Commit Deposit:

Legacy perpsv2 contracts required a commit deposit upfront (total fee to open a position). However, if an order failed or was canceled by the user, the commit deposit would be forfeited. This legacy design was intended to prevent frontrunning. With the change to fast oracles by Pyth, this legacy protection parameter is no longer necessary. The upgraded markets will disallow cancellations of orders until after the confirmation window has expired (usually 15 seconds). By removing the commitment fee at order submission, the user experience will be simplified, and traders are no longer subject to paying fees for trades not executed.

Updating the Liquidation Buffer Ratio:

The liquidation Buffer Ratio, similar to a maintenance margin, is a universal setting for all markets and cannot be configured on a per-market basis. Making the liquidation buffer market-specific allows for flexibility in adjusting to different market conditions and assets. For example, forex markets would require different liquidation buffers than the more volatile crypto assets.

In the context of margin accounts, the term “maintenance margin” refers to the minimum amount of funds that must be available for a margin trade to remain non liquidatable.

Price protection design from “Price Impact Delta” to “Desired Fill Price”:

The desired fill Price approach offers traders a more effective mechanism to safeguard their trades from asset price fluctuations between the time a trade is committed and executed. This change is vital because future updates to Optimism could make it susceptible to Miner Extractable Value (MEV) attacks.

Kwenta will default to a desired fill price within half a percentage above / below the market price at the time of order submission.

SIP-2005 Recap

This SIP incorporates slippage guards on liquidation transactions by dividing the liquidation process into two components: flagging and liquidation. Flagging makes an account eligible for liquidation, while liquidation can occur spontaneously or through forced liquidation by endorsed accounts. This upgrade aims to prevent the opportunistic ordering of transactions surrounding liquidations. Key specifications include flagging, spontaneous liquidation, and forced liquidation sections, with various conditions and configurable variables. For more information, visit SIP-2005.

Conclusion

The forthcoming enhancements are designed to address user feedback and streamline the trading experience on platforms built on Perps V2. By implementing these changes, Kwenta is taking a significant step toward providing potential users with the best possible experience. Keep an eye out for more updates as Kwenta continues to develop and refine its platform for the future.

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