Understanding Margin Trading on Electric
Part 1 — Components in the Margin Trading process
Consider this a refresher in your journey of conducting margin trades on EasyFi Electric — our product for margin trades on DEXs.
After over 30000 transactions and almost USD $2 Million in volumes on the testnet version on 3 chains — Polygon, Avalanche and Binance Smart Chain — we wanted to revisit the different components and methodologies that will be used on Electric to make your trading experience better.
Our testnet is currently live on the 3 chains, in case you have not tested yet or want to start a new round of testing, please get started here: https://app.easyfi.network/#/electricn
Margin Trading Personas on EasyFi
There are 4 different personas that you will encounter in the entire margin trading process on EasyFi. It is important to know these so there is clarity on how the asset flow happens from and out of the application.
- Lenders: Those who offer their assets for trading and earn an interest on it. These lenders deposit their tokens in an asset pool that is utilized as funds that the traders can use for their leverage.
- Traders: Those who borrow funds from the assets pools provided and conduct leveraged trades on different trading pairs on DEXs. Anyone can connect their wallet to the application and start the margin trading process. Each trader is essentially a lender as well, because they have to deposit a collateral before they can even ask for leverage on it.
- DEXes: The asset exchange on which trades are done. Each trader uses the available funds to basically find a relevant pair on the various DEXs connected to EasyFi’s application.
- Electric — The application on EasyFi that brings all of the above together in a seamless interaction of assets on the 3 blockchains and post-trade calculations of the monies that have to be distributed to the various personas — profits, interests, trading fees etc.
Components on Electric
- Users deposit assets on different pools created on Electric.
- The deposit acts as a collateral and enables anyone to ask for leverage on their deposits and conduct their trades.
- The deposit feature allows any user to also be a lender and earn interest on their deposits as well.
- This corresponds to the Liquidity column on the Electric module as shown here.
- Users can borrow funds to trade with leverage by depositing collateral in the form of supported digital assets.
- The platform calculates the borrowing limit based on the value of the collateral and the lending rate.
- This is an example of Uncollateralized Lending — lending of higher amounts of assets than the deposits.
- Users can then use the borrowed funds to trade and amplify their returns on the platform.
- The platform supports multiple trading pairs, and users can execute their trades directly from the platform’s interface.
Debt, Interest & Profits
Interest Bearing Tokens
- This is akin to a liquidity pool token received on deposit to lending asset pool on Electric.
- Those who deposit tokens in lending asset pools will be given this token as a receipt to ascertain the lending yield to be shared with them
- Interest generated on Electric will be apportioned as per the interest bearing token held
- This will also allow the Token projects to incentivize their communities to provide liquidity into the lending pools on Electric and support margin trading for their token pairs on DEXs.
- Projects can integrate with the Electric to facilitate leverage trading on specific trading pairs by integrating this token.
- Users are charged interest on the borrowed funds, which is paid back to the lender once the position is closed and the asset is withdrawn from the pool.
- The interest rate is determined by the supply and demand for funds on the platform.
Repaying the loan
- Users can repay the borrowed funds and interest at any time by transferring them back to the platform.
- Upon repayment, the user’s collateral is released, and their position is closed.
- This happens when the user withdraws the collateral deposited.
- Once a user withdraws the amount deposited, the system calculates the profit or loss and transfers it to the user’s address & the interest on the loan taken and allocates the interest as per the depository of the liquidity provider.
- The interest payout is calculated based on the interest bearing tokens (LP tokens) that the user owns.
How the Funds Move
The following is the depiction of how the funds flow in the Electric ecosystem.
- Lenders get Lending Yield in the form of Interest on their deposits to the lending pool, in proportion to the Interest bearing token (LP Tokens) held
- DEXs get the trading fee generated on the usage of their platform for the purpose of margin trades
- Electric generates revenue on the Transaction fees when margin trade transactions are done on the platform
- Traders make the bulk of profit or loss based on their positions on DEXs
We hope this will help explain some part of how EasyFi Electric will function. There is more to it and we will be working this out one by one for you.
EasyFi Network is a universal layer-2 multi-chain money market protocol for digital assets with focus on liquidity sourcing & capital efficiency for structured lending in a non-custodial manner. The Protocol is currently live on Polygon, Binance Smart Chain and Ethereum.
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