[Gauntlet] - Comprehensive Analysis: Jupiter Perpetuals Price Impact Structure Implementation and Proposed Adjustments

Executive Summary:

Jupiter Perpetuals implemented a new price impact fee structure on June 6th, 2024, to address large order manipulation concerns and protect JLP holders. Gauntlet analyzed the effects of this change by comparing trading volume, fees, and JLP APY three weeks before and three weeks after the introduction of the price impact fee.

Key Findings:

1. Trading Volume and Fee Revenue:

  • Overall trading volume remained relatively stable with a slight increase of 1%
  • Total trading fees increased by approximately 11%

2. Trader Behavior:

  • Large trades ($1M+) decreased by approximately 30%
  • Increase in medium-sized trades ($250K-$1M), suggesting traders are adapting by consolidating or breaking up larger orders

3. Asset-Specific Trends:

  • SOL: Volume decreased, particularly in $1M+ trades, with a shift to $250K-$500K range
  • ETH: Overall volume decreased, but increased in $500K+ range
  • BTC: Trading volume increased by 30%, with the highest increase in the $500K-$1M range

4. Fee Revenue Impact:

  • Total trading fees increased by 11%, primarily driven by the SOL market
  • SOL: Trading fees increased by 15%, primarily from the $250K-$500K trade bracket
  • ETH: 15% decrease in fees despite increased volume in larger trade sizes
  • BTC: 6.55% increase in fees, mainly from $1M+ traders

5. JLP Performance

  • JLP outperformed the index by 9% post the mechanism change, as well as maintained lower volatility than its benchmark index.

Gauntlet’s Recommendations:

1. Reduce base fee from 7 bps to 6 bps for all markets.
2. Adjust SOL price impact fee scalar to 1.25 billion (from 1 billion)
3. Increase max trade size from $1.5 million to $2.5 million for all markets.

Detailed Analysis:

1. Impact on Trading Behavior:

First, it’s worth noting that after the price impact feed change, the market went down, which usually declines trading volume. Below you can see the charts for SOL Price and Volume:

Trader PnL

When comparing overall performance, trader gross and net PnL decreased for SOL, ETH, and BTC trades, signaling a healthier ecosystem and lower probability of manipulating the protocol design.

Overall Trading Volume and Fees

As can be seen from the table below, total volume increased by 1% during the observation period, and total trading fees increased by almost 11%. The main inflow for total trading volume came from the $1M+ traders breaking up their trades into the $250K-$1M range. However, even with traders decreasing their trading volume by 30%, Jupiter’s revenue from them increased by 12%.

Specific Market Volume

SOL volume decreased in absolute terms by 1.69%, primarily due to the outflow from the $1M+ bucket (large traders). As evidenced by the increase in the $250K-$500K bucket, they are breaking up orders into smaller ones.

ETH volume also decreased by 3.49%; however, trading volume has increased by 37.12% in the larger buckets of $500K+ trades.

BTC trading volume increased by 30% overall, with the highest increase observed in the $500K-$1M bucket.

Specific Market Fees

Trading fees from Solana trades increased significantly by 15%, especially in the $250K-$500K bucket.

ETH trading fees saw a 15% decrease during the observation period despite an increase in overall trading volume, signaling that a substantial portion of the fees was coming from $1M+ traders.

BTC fees paid increased by 6.55%, mainly from $1M+ traders.

2. Platform Health Indicators:

JLP continued to maintain lower volatility than its benchmark in both regimes. Post the mechanism change, JLP outperformed its index by roughly 9%.

JLP average APY: Reversed a downward trend, as average JLP APY increased from 57.4% pre-price impact change to 69.5% post-implementation .

Current and Proposed Fee Structure:

The new fee structure implemented on June 4, 2024, introduced a dynamic fee based on trade size:

trading_fee_coefficient = base_fee + trade_notional_size / impact_fee_scalar trading_fee_usd = trading_fee_coefficient * trade_notional_size

Current structure:

  • Base fee: 0.07% for all assets
  • Asset-specific impact fee scalars:
    • SOL: 1,000,000,000
    • ETH: 5,000,000,000
    • BTC: 8,000,000,000

Proposed structure:

  • Base fee: 0.06%
  • Adjusted impact fee scalar: 1,250,000,000 (for SOL)

The rationale for the change

Jupiter’s current fee structure for large trades ($1M) aligns with that of centralized exchanges like Binance. This positioning allows Jupiter to compete effectively in the market for large trades while maintaining a balance between attractiveness to traders and platform sustainability. The proposed fee structure would make Jupiter more competitive for large trades.

Anchor Value
Trade Size 1,000,000
Impact 0.08%
Proposed Scalar 1,250,000,000
Current Scalar 1,000,000,000
Base Fees Value
Orderbook 0.05%
Jupiter Current 0.07%
Jupiter Proposed 0.06%
Depth / Trade Size Orderbook Slippage Total Orderbook Fee Jupiter Proposed Slippage Total Proposed Jupiter Fee Jupiter Current Slippage Total Current Jupiter Fee Proposed Slippage vs Orderbook Slippage Proposed Slippage vs Current Slippage
$70,000 0.010% 0.060% 0.010% 0.070% 0.010% 0.080% 0.000% 0.000%
$420,000 0.050% 0.100% 0.040% 0.100% 0.050% 0.120% -0.010% -0.010%
$1,000,000 0.100% 0.150% 0.080% 0.140% 0.100% 0.170% -0.020% -0.020%
$2,500,000 0.250% 0.300% 0.200% 0.260% 0.250% 0.320% -0.050% -0.050%

This positioning could give Jupiter a significant advantage in attracting high-volume traders. Compared to traditional order-book trading, impact fees for $2.5 million trades can be saved up to 0.04%.

When comparing Jupiter fees to CEXes we notice the following:

a) For smaller trades ($70,000), the differences between systems are minimal.

b) As trade size increases, Jupiter’s proposed system shows a lower impact and total fees compared to both order book trading and Jupiter’s current system. This discount conceptually reflects less demanded “edge/compensation” from JLP liquidity providers relative to liquidity providers on centralized order books.

c) Jupiter’s proposed system could offer a 0.04% savings in impact fees compared to order book trading for a $2.5 million trade.

Gauntlet recommends slightly relaxing the base fee to 6 bps, down from 7 bps, and adjusting the SOL price impact fee scalar to 1.25b.

Regarding the proposed trading fee difference, if Gauntlet had implemented these changes 3 weeks ago, the total trading fee revenue would have remained relatively the same (-2.95%), assuming the same volume setup. In reality, we expect the trading volume to increase due to lower fees for traders. Consequently, we anticipate that fees will either increase significantly or at least remain consistent with pre-change levels.

SUPPORTING DATA - TRADING VOLUME DISTRIBUTION

SUPPORTING DATA - TRADING FEES DISTRIBUTION

Conclusion and Recommendations:

Gauntlet’s quantitative analysis strongly supports the implementation of the recommended fee structure adjustments. The data-driven insights reveal several key points:

  1. Fee Elasticity: The proposed reduction in base fee from 7 bps to 6 bps, coupled with the adjustment of the SOL price impact fee scalar to 1.25b, is projected to optimize the balance between trading volume and fee revenue. Historical data suggests that this calibration will maintain or potentially increase total fee revenue, with our models predicting a negligible -2.95% change in fee revenue if applied retroactively, assuming constant volume.

  2. Volume Dynamics: Post-implementation data shows a 1% increase in overall trading volume despite unfavorable market conditions. This resilience, combined with lower fees, is expected to drive significant volume growth, particularly in the $250K-$1M trade range.

  3. Competitive Edge: The proposed fee structure positions Jupiter more favorably against both centralized and decentralized competitors. For $2.5M trades, Jupiter could offer up to 0.04% savings compared to traditional orderbook trading, potentially attracting high-volume traders.

  4. Platform Health: The initial price impact fee implementation has already shown positive effects, with JLP average APY increasing from 57.4% to 69.5%. This trend is expected to continue or stabilize with the new proposal, ensuring sustained liquidity provider participation.

  5. Risk Mitigation: The observed 30% decrease in $1M+ trades, coupled with increased activity in medium-sized trades, suggests effective mitigation of malevolent manipulation risks without compromising overall platform activity.

In conclusion, the quantitative evidence strongly suggests that implementing the proposed fee structure will enhance Jupiter’s competitive position, increase trading volume, and maintain fee revenue without compromising platform health. We recommend proceeding with these changes, coupled with ongoing monitoring and analysis to ensure optimal performance in the dynamic DeFi landscape.

11 Likes

esto me parece algo grande jupiter va a mas

1 Like

Great job guantlet on the data based analysis. As an LP provider, I appreciate your work and hope these adjustments can further stabilize JLP’s price during market volatility.