The liquidity pool takes the opposite position of every trade on DXS
DXS and the Open Liquidity Protocol (OLP) are separate entities. The OLP handles trade settlement and liquidity provisioning for DXS.
The OLP is designed to run on the BSV blockchain and be governed by a distributed network of unpredictably selected servers via multi-signature access. Currently, the protocol is hosted on a single server, maintained by DXS.
The OLP is responsible for:
- Holding the margin positions of trades
- Allocating liquidity to trading sessions
- Settling closed trades with traders
- Paying 3% of losing trades proportionally to liquidity providers
- Paying 1% of losing trades to a bug fund
The OLP is not responsible for:
- Brokerage services
- DXS and other companies plugging into the protocol in the future will compete to offer traders the best user experience (while complying with regulations)
Additional information about the OLP:
- Opening positions with margin is instant
- Closing positions and return of margin is instant
- Settlement of profits occurs in 8 hours or less
- All trades are completely public, transparent and auditable
- Price feeds are completely public, transparent and auditable
- The size of the liquidity pool and associated session liquidity are completely public, transparent and auditable
- Brokers never hold funds
- Brokerages don’t profit from traders losing, brokers only profit from charging holding fees
- Any broker can plug into the OLP and compete for users by offering the best user experience and holding fees
The Open Liquidity Protocol (OLP) is the counterparty for all trades on DXS. If you win on a trade, the OLP pays you. If you lose on a trade, you pay the OLP.
In any given 8 hour trading session, some traders close out positions in profit, and others at a loss.
In the case of a losing trade, margin less losses, holding fees and liquidity fees is returned. In the case of a winning trade, margin less holding fees and liquidity fees is returned. Winning traders must then wait until the end of the trading session for their profits to arrive.
The OLP nets session wins out against session losses and settles the difference. When gains of traders exceed losses, session liquidity covers the shortfall. When losses of traders exceed gains, the session liquidity pockets the difference.
To understand what session liquidity is, we need to understand what the liquidity pool is. There are two liquidity pools managed by the OLP - a BSV pool and a USD pool.
The BSV liquidity pool is a large pool of BSV. The liquidity pool currently contains 36,068.32 BSV (valued at $1.9m):
A liquidity pool is necessary for trading sessions where gains of trades exceed losses. In these circumstances, losses of trades cannot completely offset gains. Liquidity needs to come in from the side-lines to ensure winning traders get their gains paid out.
As already stated, trades fall into 8 hour trading sessions. In the screenshot above, the current trading session is set to close in 2hr 4min. When the trading session closes, the gains of all realised winning positions are paid out in full. This is provided there is enough session liquidity.
Let’s look at that screenshot again:
Session liquidity handles paying out trades at the end of each 8 hour trading session. The calculation for session liquidity at any instant is:
(0.96 * session losses) – session gains + (liquidity pool * 0.33%)
Looking at the screenshot above. The trading session would have started with $6,270 of liquidity ($1.9m * 0.33%). Session liquidity is now $6,461. That means, gains in this particular session must currently be less than 96% of losses by $191 (6,461 – 6,270).
Why 96% of losses in the formula above? This is because 3% of all realized losses are sent daily to the liquidity pool’s contributors as interest and 1% of all realized losses are contributed to a bug fund.
The USD liquidity pool has exactly the same mechanics as the BSV liquidity pool described above.
When there are many winners and few losers, session liquidity can go negative.
If a trading session closes with negative session liquidity, profit deduction occurs. Realized gains are proportionally reduced such that session liquidity is zero. The reduced profits are then paid out.
Liquidity crunches such as described are the reason that gains are not paid out immediately. Realized gains of trades are always held until the end of a trading session. This is protection in case a profit deduction needs to occur.
When profit deduction occurs, profit that is withheld stakes into the 28th funding round of the liquidity pool. This allows for profit recovery. After the first 27 rounds are repaid, you begin to receive your proportional share of 3% of trading losses. This continues until your deducted profit is repaid, along with 28% interest.
Yes. All OLP wallets are publicly auditable in real-time: