Dynamics Slippage

The Peer-to-Pool mechanism has the advantage of unconditional liquidity and zero-slippage order filling, which results in higher capital efficiency and better trading experience. At the same time, it bears a direct risk exposure for LP.

Qilin V2 introduces the dynamic slippage mechanism to manage LP risk in the Peer-to-Pool model. In both order book and AMM, liquidity risk exposure is mitigated through slippage. So we have set up a slippage curve in Qilin V2 to simulates trading slippage in order to mitigate the LP risk exposure.

The slippage curve is determined by the unmatched position value and the pool asset value. The slippage is added to the TWAP price feed to finalize a current price of the contract.

Details of the slippage mechanism are as follows: slippage is applied on trades that increase the size of unmatched positions increase to add to the cost of opening positions, thereby reducing the number of users in that direction. For trades that reduce the size of unmatched positions, slippage is lowered, thereby incentivizing trades in the direction that reduces the risk exposure.