Rabbit M, the First Margin Trading Protocol on Binance Smart Chain
Following leveraged yield farming, Rabbit Finance will introduce a major update of the project, Rabbit Finance V2, together with a new family member, Rabbit M, which will not only enrich the whole ecosystem by providing a risk hedging tool for leveraged farmers but also offer a decentralized and reliable margin trading tool for traders.
We will analyze Rabbit M of Rabbit Finance V2 in detail from the perspective of product design and gameplay.
Rabbit M Overview
1.Functions and UI
The first version of Rabbit M will support 3 assets as BTC/ETH/BNB, allowing traders to borrow funds from the Bank on margin to short or long target assets.
The demo design is shown below:
Similar to leveraged yield farming, traders provide principal (margin) and borrow funds from the Bank, entrusting strategic contracts to execute transactions through DEX by buying /selling target assets. Take long ETH as an example, the process of margin trading is as follows:
1. Traders provide principal in ETH and borrow USDT from the Bank.
2. The strategic contract swaps USDT into ETH.
3. ETH price fluctuates and rises up.
4. Close position (sell ETH/pay the debt and interest to the Bank / get back collaterals + long gains)
Simply put, when price of ETH is 3000 USDT, traders:
- Provide 1 ETH as principal, choose 3x leverage to long ETH, borrow 6000 USDT to buy 2 ETH, that is, 3x long ETH.
- Provide 3000 USDT as principal, choose 3x leverage to short ETH, borrow 2 ETH to sell 6000 USDT, that is, 3x short ETH.
2. Use case
We will use a simple case to show the process of Rabbit M:
Steven is a trader, he predicts BTC is about to rise while the current price of BTC is 50,000 USDT. Steven plans to provide 1 BTC as principal and open a long position with 3 times leverage.
Steven chooses margin on 1 BTC and 3 times leverage on the setting page. The contract will then borrow 100,000 USDT from Bank of Rabbit Finance, and swap 100,000 USDT into 2 BTC. At this time, the trading is completed, and Steven’s position of about 3 BTC will be entrusted to the vault contract of Rabbit Finance.
A few days later, BTC surges to 60,000 USDT, Steven decides to close the position and receive about 80,000 USDT. The profit is about 30,000 BUSD to long BTC. In the opposite instance, if BTC drops to 40,000 USDT, Steven closes the position and gets about 20,000 USDT. The loss is about 30,000 BUSD to long BTC.
Tips: In order to simplify the case, costs such as borrowing interests and trading fees are not considered. when Steven short BTC, vice versa.
3. Rates and incentives
Traders carry out margin trading by borrowing funds from the Bank on margin and entrusting strategic contracts to actually buy or sell target assets. Only a small amount of borrowing interest needs to be paid to win leveraged time gains by short or long target assets and RABBIT rewards in this process.
Costs and rewards of Margin Trading include: borrowing interest, DEX trading fee , Rabbit M fee and RABBIT rewards. The relevant details are as follows:
a. Traders can do either long or short positions. Open/close positions are charged only once, no more than 0.2% of the position value.
b. RABBIT rewards will be distributed to traders, the longer positions are held, the more rewards will be received.
4. Future plans
The first version of Rabbit M on Rabbit Finance V2 will support 3 assets as BTC/ETH/BNB, and subsequent version will update mainly in the following 4 aspects:
a. More target assets supporting — allowing to long/short more target assets.
b. Optimizing liquidity — integration of more DEXs to provide better and deeper liquidity.
c. Increasing leverage times — providing higher leverage for assets with good liquidity.
d. Empowering RABBIT — supporting deductions of trading fees with RABBIT or discount according to holding/lock-up amount of RABBIT.
Comparison of Rabbit M Vs dYdX
1. Lower trading fees and trading thresholds on Rabbit M
On Rabbit M, the fee to open a position is less than 0.2% (half of which is calculated based on the actual transaction amount), and the closing fee is 0.2%. Meanwhile the opening fee of dYdX varies according to the transaction volume. When the transaction volume is less than 5 ETH, it is 0.5%, and when the transaction volume is greater than 5 ETH, it is 0.15%.
Rabbit M provides traders with a minimum position limit low to $50 and equivalent, and with the minimum limit traders enjoy equal rights as the big traders. Compared with dYdX, Rabbit M provides a fully decentralized, low trading cost and lower threshold decentralized leveraged trading platform. The related rate is shown in the figure below.
2. Rabbit M supports more assets with lower borrowing cost
Rabbit M is a margin trading platform based on the borrowing and lending infrastructure of Rabbit Finance Bank. Currently, it supports margin trading of 3 trading pairs and lending of 4 types of assets.
Rabbit Finance designed a more friendly lending interest rate model, which provides traders with larger funds and lower-cost funding solutions. At the same time, traders participating in leveraged trading of Rabbit M obtain rewards in RABBIT.
3. Rabbit M supports more trading markets and more trading pairs
Rabbit M is a leveraged trading platform based on the lending infrastructure of Rabbit Finance Bank, based on the trading market and trading depth of the AMM fund pool of the DEX platforms. By aggregating more DEXs, Rabbit M will be able to conveniently support leveraged trading with more tokens. As Rabbit M continues to support more DEXs and achieve deep integration of multiple platforms, Rabbit M will provide traders with better trading experience.
Comparison of Rabbit M Vs CEX
1. Comparison with CEX perpetual contract — no funding payments
Under normal circumstances, CEX perpetual contracts will trade based on index price which is calculated by weighted multi-platform trading prices. In order to force convergence between market price and the index price, the long/short trader is required to pay counterpart a funding fee to traders on the opposing side when the relative price deviates. Funding payments are charged generally every 8 hours, but will vary on different platforms. No spot delivery or real asset transaction happens in the process, profit or loss depends on the power difference of counter parties on the platform.
Traders can borrow funds from banks on margin to conduct margin trading on Rabbit Finance, the essential difference from CEX perpetual is that traders are doing asset transactions based on liquidity pools of trading pairs on DEX. Traders buy or sell target assets with counterpart funds borrowed from the Bank. There are no funding payments in the process.
2. Comparison with CEX spot margin trading-lower borrowing interest rate + lower trading fee rate
Margin Trading is a new application scenario for funds deposited in Bank of Rabbit Finance, which is a market-proven feasible lending and borrowing platform and funding solution in the DeFi ecosystem.
2.1 Lower borrowing interest rates
Bank of Rabbit Finance supports lending and borrowing 14 kinds of assets at present, providing traders and farmers with sufficient funds and reasonable borrowing costs. The borrowing costs are extremely low compared with margin trading on CEX.
2.2 Lower Trading Fees
Margin Trading fee is charged by 0.1% of position value while DEX trading fee is 0.1%, the comprehensive fee rate is 0.2%.
When traders open a position, the borrowing fund will be swapped into the other asset while a comprehensive fee will be calculated based on leverage times and no more than 0.2%.
The first version of Margin Trading is based on Biswap, and the trading fee rate is 0.1% of position value.
2.3 Additional RABBIT rewards
Traders holding long/short positions will get RABBIT rewards in addition. RABBIT rewards are allocated according to the proportion of positions and holding period, the longer positions are held, the more rewards will be received.
3. In case of small amount trading, the market depth is better
The first version of Margin Trading will support 3 assets such as BTCB/ETH/BNB. Later, more DEXs and varieties of assets will be provided. More assets options can be added conveniently based on the AMM pools of DEXs.
Under the AMM rule of DEX’s pools, traders experience small slippages of market price fluctuating. With integration of more DEXs gradually, trading experience will be better and better.
4. Decentralized liquidation mechanism avoids price manipulation on CEX
Like leveraged yield farming, The “Gemini Liquidation System” is also applied to Margin Trading. In the event that your debt ratio has gone above the Kill Factor, that is to say, when the risk ratio of the position reaches 100%, your position will be liquidated by the liquidation bot. The specific rules are as follows:
During the position holding period, the oracle reads and compares prices from both DEX and CEX in a 1 minute time interval, it will be liquidated only if the next price verification from oracle also proves this position is qualified for liquidation. The two price verifications provide users with a time to add margin avoiding unnecessary losses.
Decentralized trading strategy and the “Gemini Liquidation System” provide traders with a more transparent trading environment, which help traders avoid the occurrence of liquidation due to price manipulation on CEX and ensure the safety of traders’ assets.
For more information about the “Gemini Liquidation System”, please refer to the introduction below.
Security measures & Liquidation System
1. Security measures
a. Authoritative audit
Security has always been the top priority of Rabbit Finance team since the project started, and 3 overall audits have been fulfilled by the three world class audit institutions, CertiK, ChainsGuard and PeckShield. PeckShield has also completed the audit report of margin trading products separately.
Link to audit report (the latest edition):
b. All the smart contracts related to users’ assets are time-locked
Timelock is a contract for delaying changes to the protocol. This contract is an owner of all the major contracts in Rabbit Finance. This is a security feature that enables the community to see any upcoming updates and prepare in advance for them. If anything looks suspicious, they can pull their funds from the protocol before the update takes effect.
c. Safety measures that avoid flash loan attack comprehensively
Contracts of Rabbit Finance open to EOA (Externally Owned Accounts) only, which evades potential risks that attackers open a position to borrow massively for flash loan attack.
Rabbit Finance liquidates leveraged positions through liquidation bot instead of bounty hunter like some other projects. The design will be able to cut the profit source of the attacks.
The maximum limit of positions in Rabbit Finance is more strict than other products, which avoids sharp fluctuation of token price caused by opening a large position. The maximum value of each position is strictly calculated according to the risk management algorithm and is highly relevant to liquidity of the trading pair, which avoids attackers manipulating prices.
2. The “Gemini Liquidation System” ensure accurate and safe liquidation
The liquidation strategy of some other products is, the oracle feed price and record it on the oracle contract, the price from oracle contract determine the liquidation price. But this liquidation strategy is not good enough, we have seen too many cases, in which users suffer from capital loss caused by Oracle failing to provide the correct price.
Rabbit Finance invented the Gemini Liquidation System based on the liquidation strategy of other products, The specific rules are as follows:
the oracle read and compare price from both DEX and CEX in a 1 minute time interval, when a position qualified to get liquidating for the first time, and the price difference from CEX and DEX is within 5%, then it will be listed in a liquidating waiting list, it will be liquidated only if the next price verification from oracle also proves this position is qualified for liquidation. The price verification from CEX is also double checked, the price is acquired from both Huobi and Binance, in this way, from which thoroughly avoids capital loss of users due to price verification not in time and inaccuracy.
For more security and liquidation parameter details, please pay attention to the follow-up announcements.