Hi everyone!
In this article, we'll take an in-depth look at the new Tsunami Protocol fees model, why the changes in the fee model were necessary, focus on the pros and cons of the new model, and figure out why the new model will be attractive to both the protocol and investors.
Enjoy your reading!
Since its launch, Tsunami Exchange has used a fixed fee on collateral, disproportionately high for nearly risk-free trades, and low for riskier positions. Our idea is to introduce a new fees model that is consistent with the current standard in the DEX industry.
Instead of the current model, where a 1% fee is imposed on the amount of a position's collateral, we propose to introduce a 0.12% fee on the notional value for opening and closing a position.
The main goal of the changes is to launch a new fair fees model which reduces the risks of the protocol while still being attractive to traders.
Why is such a model more friendly for creating a healthy Tsunami economics?
Why the new fees model on Tsunami.Exchange provides users the lowest fees among Waves ecosystem DeFi products?
The fees on Puzzle Swap are 2% per trade, and 0.36% on Swop.Fi. Keep in mind that you need to make 2 trades to buy and sell an asset, so we multiply the fees by 2 for a correct calculation. Thus, Tsunami Exchange's fees are the lowest in the ecosystem and total 0.24% for opening and closing a position.
You can say that WXNetwork has a lower protocol fees, only 0.2%, but there is no leverage, no shorts, and no trading rewards. Think about it.
What will the fees be charged for?
The solution proposed by our team is to introduce a fees model to be charged upon opening / increasing and decreasing / closing a position.
Calculating the fee on opening / increasing a position
Let's consider a simple example of how the fee on opening / increasing a position will be calculated after the new model has been implemented.
Suppose trader Alex wants to use 100 USDT with x7 leverage to go long Waves/USD at 2 USD per Waves. The fee of 0.12% will be calculated considering the leverage and will be 100*7*0.12/100 = 0.84 USDT. Thus, the collateral for Alex's open position will be 100-0.84 = 99.16 USDT, and the total position size will be 99.16*7 = 694.12 USDT.
Rollover fee
According to the new model, a Rollover fee will be charged every hour and applies only to the collateral of the position. It helps allowing low leverage on the platform with appropriate risk management.
Rollover fee in the new fees model will be from 0.0035% to 0.01% per hour, according to market volatility, number of trades and market conditions. This means that for each hour of an open position, providing 100 USDT, Alex will pay 0.0035 USDT.
Why are these the best conditions on the market? Let's take the rollover fees of the biggest industry leaders of perpetual futures trading - *GMX and ***gTrade. Their minimum rollover fees are 0.007-0.024%, which is as much as 2 times higher than rollover fees on Tsunami.
Calculating the fee on reducing/closing a position
Let's imagine that the price of Waves/USD went up 10% from the open price and Alex closed the trade at 2.2 USD. The P&L profit from the open price (2 USD) will be 10% of 700 USDT (Alex’s leveraged collateral), which is 70 USDT.
The fee on closing the position will be calculated as:
770*0.12/100 = 0.924 USDT
P&L in USDT will be equal to:
70-0.924 = 69.076 USDT
Let's say Alex earned 1 USDT from Funding and paid 0.5 USDT of Rollover fee, then Alex's final profit (P&L) would be:
69.076+1-0.5 = 69.576 USDT
Thus, Alex will receive 100 USDT (collateral) + 69.576 USDT (P&L).
Summary
Our proposed new fees model and improved protocol makes Tsunami Exchange a competitive product compared to the largest perpetual futures platforms, providing users with the lowest fees among Waves ecosystem DeFi products.
Thank you for reading!
Your Tsunami Team 🌊