Jupiter Perpetuals Price Impact Fee Mechanism

Jupiter Perpetuals Price Impact Fee Mechanism

Summary

This piece corresponds to a new perpetual trading fee mechanism in Jupiter. Gauntlet recommends a mechanism that charges perpetual trades dynamically based on the notional size.

Goal

Define a mechanism that:

  1. Prices trading fees based on the simulated order book impact given some notional size. Smaller trades incur less impact than larger trades.
  2. Reflects the cost of trading based on the asset’s liquidity and volatility profile.
  3. Keeps Jupiter competitive with respect to leading perpetual venues.
  4. Adequately compensates JLP holders for transferring the risk and taking on exposure.

Problem

Jupiter implements a fixed zero impact fee for perpetual trades currently at .10%. This has issues as larger sized notional trades do not incur more relative market impact. Additionally, asset liquidity profiles in the JLP vary across SOL, ETH, & BTC. Larger sized trades can incur less slippage on JLP than top global venues, leading to increased risk of market manipulation.

Solution

Gauntlet recommends implementing a dynamic price impact mechanism distinctly across each market. Each market will still have a fixed base fee parameter, and a price impact coefficient parameter that maps a notional trade size to a trading cost. It is worth noting that traders still have the ability to separate trades into smaller notional sizes to incur less overall cost, but this comes with temporal price risk.

Parameters

Base Fee Bps: Parameter that corresponds to a fixed percentage of notional cost, regardless of notional size.

Impact Fee Bps: Parameter that corresponds to a variable percentage of notional cost.

Implementation

trading_fee_coefficient = base_fee + trade_notional_size / impact_fee_scalar

trading_fee_usd = trading_fee_coefficient *trade_notional_size

Parameter Methodology

For the base fee, Gauntlet recommends aligning this with leading centralized values (indicative rate of .05% across all markets). For the impact fee component, Gauntlet has developed liquidity models utilizing centralized order book data. Using historical trade size distributions on Jupiter, we define an anchor notional size to generate a curve that scales the impact fee with notional size.

Base fee is expected to not change often, and will be assessed and amended as necessary. Gauntlet expects to assess the impact fee parameter on a weekly basis or if our systems trigger an alert indicating a large shift in the liquidity profile of an asset.

Liquidity distributions are generally nonlinear. Depending on the feasibility of implementing nonlinear curves on-chain, Gauntlet may recommend an improved mechanism that utilizes a convex curve rather than a linear one. This improves the accuracy of aligning varying notional sizes to their corresponding market impact.

Indicative Parameters

Asset Base Fee Impact Fee Scalar
SOL 0.05% 1,000,000,000
ETH 0.05% 5,000,000,000
BTC 0.05% 8,000,000,000

A $1.5 million SOL trade with pay:

trading_fee_coefficient = .05% + 1,500,000/1,000,000,000 = .20%

trading_fee_usd= .20% * $1,500,000 = $3,000

Future Mechanism Work

Additional mechanisms can be added such as charging an additional fee or rebate based on the long/short imbalance in JLP. Adding this functionality in addition to a long/short adaptive funding rate mechanism (where funding settlements are exchanged between long and shorts) will take more development time and should be implemented in a future version.

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What about before after comparison

lets say for 1000 USDC SOL trade on 3X

what was fee yesterday what is after the change

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hey @noccommander,

Price impact fees are primarily designed for large orders, and the fee on a $1000 order with 3x leverage will be minimal.

In your case, if you open a $1,000 SOL long with 3x leverage, all the fees you will pay are listed below:

Before:

  1. Open fee (0.1%): $3.2556
  2. Borrow rate: 0.0056% / hr (depends on the duration of your position)

After:

  1. Borrow rate: 0.0056% / hr (depends on the duration of your position)
  2. Open + Price impact fee:
  • trading_fee_coefficient = 0.05% + 3,000/1,000,000,000 = 0.0503%
  • trading_fee_usd = 3,000 * 0.0503% = $1.509

So in this example, you will pay $3.2556 - $1.509 = $1.75 less after the proposed change

Please note that the reason we recommend this is that now larger-sized trades can incur less slippage on JLP than top global venues, leading to an increased risk of market manipulation, which we aim to reduce.

3 Likes

Jupiter Perpetuals Price Impact Fee Update and Additional Analysis

Summary

Gauntlet has conducted an in-depth analysis of Jupiter Perpetuals’ current fee structure and trading patterns to propose adjustments that aim to enhance the trading experience for users while optimizing revenue for JLP token holders. The proposed fee structure maintains the current impact fee component and increases the base fee to 0.07%. This adjustment ensures a more equitable distribution of fees based on trade sizes and is expected to have a positive impact on the majority of traders, with only 1.11% of users experiencing an increase in fees. The recommended fee APRs demonstrate the potential for enhanced revenue generation, particularly for Solana trading. Gauntlet believes that these recommendations will contribute to the long-term success and growth of Jupiter Perpetuals.

Introduction

Jupiter Perpetuals is committed to enhancing the trading experience for its users while optimizing revenue for JLP token holders. To achieve these goals, Gauntlet has conducted an in-depth analysis of the current fee structure and trading patterns on the platform. Based on this analysis, we propose an adjustment to the base fee that aims to benefit both traders and JLP revenue.

Proposed Fee Structure

Gauntlet recommends maintaining the current price impact fee structure that consists of two components: a base fee and an impact fee.
The base fee is a fixed percentage of the notional cost, regardless of the trade size, while the impact fee is a variable percentage that scales with the notional size of the trade. This structure aligns with leading centralized exchange values and ensures a more equitable distribution of fees based on trade sizes.

The proposed fee structure can be implemented using the following formulas:

trading_fee_coefficient = base_fee + trade_notional_size / impact_fee_scalar

trading_fee_usd = trading_fee_coefficient * trade_notional_size

Base Fee Adjustment

Gauntlet suggests decreasing the base fee to 0.07%, which is in line with the indicative rate across all markets on leading centralized exchanges. This adjustment will minimize the impact on traders while still contributing to improved JLP revenue. The incremental change will allow traders to adapt to the new fee structure more easily.

Impact Fee Methodology

The impact fee component remains unchanged, as it has been developed using liquidity models based on historical trade size distributions on Jupiter. These models generate a curve that scales the impact fee with the notional size of the trade. The variable fee component ensures that larger trades contribute more to JLP revenue, while smaller trades benefit from lower fees, encouraging increased trading activity and volume on the platform.

Asset Base Fee Impact Fee Scalar
SOL 0.07% 1,000,000,000
ETH 0.07% 5,000,000,000
BTC 0.07% 8,000,000,000

A $1.5 million SOL trade will pay:

trading_fee_coefficient = .07% + 1,500,000/1,000,000,000 = .22%

trading_fee_usd= .22% * $1,500,000 = $3,300

A $100k SOL trade will pay:

trading_fee_coefficient = .07% + 100,000/1,000,000,000 = .08%

trading_fee_usd= .08% * $100,000 = $80

Impact on Traders and Volume Distribution

The proposed fee structure is designed to benefit the majority of traders on Jupiter Perpetuals. With a 7bps base fee, only 1.11% of users will experience an increase in fees, while 42.54% of traded volume, primarily from Solana, will contribute more to JLP revenue. This distribution ensures that the fee adjustments do not disproportionately impact smaller traders.

Furthermore, the average trade size on Jupiter Perpetuals is $23k, with 67% of the trading volume coming from trade sizes over $100k and 31.5% from trade sizes of $1m+. Gauntlet expects that the introduction of the new base fee will encourage users to optimize their trading strategies, leading to an increase in overall trading volume on the platform.

Asset-Specific Observations and Recommended Fee APR

The proposed fee structure will have varying impacts on different assets traded on Jupiter Perpetuals. Solana (SOL) stands out with the highest average trade size, total volume, and recommended fees. A significant portion of its volume currently pays more than the recommended fee, indicating that the new structure will be particularly effective in generating revenue from SOL trading.

In contrast, Bitcoin (BTC) and Ethereum (ETH) have similar fee structures, with no transactions currently paying more than the recommended fees. Under the new structure, trading these assets will generally become slightly more expensive, but the impact is expected to be minimal, and the trading experience for BTC and ETH traders will remain largely unchanged.

The recommended trading fee APR (APR coming only from open/close fees - without borrow fees, liquidations, trader PnL and etc.) for Solana will increase from 36.5% to 48.4%, signaling a more efficient fee generation for this asset. The total trading recommended fee APR will increase from 36.5% to 44.75%, demonstrating the overall effectiveness of the proposed base fee adjustment in enhancing JLP revenue.

Supporting Data

Conclusion

The proposed adjustment to Jupiter Perpetuals’ base fee is designed to strike a balance between improving the trading experience for users and increasing revenue for JLP token holders. By maintaining the current impact fee component and increasing the base fee to 0.07%, the platform can ensure a more equitable distribution of fees based on trade sizes, encouraging increased trading activity and volume. The asset-specific observations and recommended fee APRs demonstrate the potential for enhanced revenue generation, particularly for Solana trading. Gauntlet believes that this recommendation will contribute to the long-term success and growth of Jupiter Perpetuals.

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Pls make online calculator for fee and trading

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The recommendation to adjust the base fee for Jupiter Perpetuals is well-considered and has several merits. Let’s break down the key points:

  1. Balancing User Experience and Revenue:
  • The proposal aims to strike a balance between enhancing the trading experience for users and increasing revenue for JLP token holders.
  • By maintaining the existing impact fee component and adjusting the base fee, the platform seeks to create a fair fee structure that benefits both traders and investors.
  1. Equitable Fee Distribution:
  • Increasing the base fee to 0.07% allows for a more equitable distribution of fees based on trade sizes.
  • This encourages increased trading activity and volume, benefiting both small and large traders.
  1. Asset-Specific Considerations:
  • The recommendation takes into account asset-specific observations.
  • For Solana trading, the potential for enhanced revenue generation is highlighted.
  • This demonstrates a thoughtful approach to fee adjustments based on market dynamics.
  1. Long-Term Success and Growth:
  • Gauntlet, the organization behind this recommendation, believes that implementing these changes will contribute to the long-term success and growth of Jupiter Perpetuals.
  • Strategic fee adjustments can attract more users, improve liquidity, and strengthen the platform’s position in the market.

Overall, this proposal appears well-reasoned and aligns with the platform’s goals. It’s essential to monitor the impact of these adjustments and iterate as needed to ensure a positive outcome for all stakeholders. :blush::rocket:

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