👩‍🎤Actors and Incentives

Here we discuss the incentives at play on Fermi DEX, and how it safeguards against potential attack vectors.

Allowing users to open trades without locking capital is an extremely promising approach in terms of capital efficiency, yet if not used carefully, may pose drawbacks to inexperienced users. Moreover, the economic system design needs to take into account the fact that trades may be placed at a low marginal cost, and proactively prevent/discourage any potentially dishonest order placement.

A. Order Finalisation Rate

At the simplest level, maintaining a high order finalisation rate allows traders to have higher confidence in the orderbook, and be able to easily trust that their matched orders would indeed get filled. This trust draws more traders, which increase revenues for market makers. Thus, it is in the interests of the market participants, and the DEX, to keep the finalisation failure rate low. OFR = Total number of orders finalised / Total number of orders matched # B. Trade Incentives Fermi DEX will employ a few mechanisms to reward honest traders, and penalise dishonest traders. Firstly, a low, marginal deposit may be imposed for opening an order - something in the ballpart of 0.5% of order size. This amount serves as a security, preventing spammy order placement, and encouraging users to close out positions if they no longer wish to fill them. A small deposit is ample for this purpose of detering spammy behavior, at scale, and we're confident that extremely high order finalisation percentages, around 98%, may be achieved by this mechanism - and requiring users to deposit the full collateral upfront is entirely unnecessary, and counterproductive. Second, to further reward honest market makers, over time we will develop a reputation score, based on prior orderFill percentage: OrderFillRate[USER] = total orders matched - user failed to provide JIT liquidity / total orders matched

This may be weighted by trade size, and high reputation score traders may recieve: i) a discount on trading fees ii) preference in order matching, in addition to price-time priority Together, these mechanisms will enable the formation of high-trust orderbooks, without upfront liquidity posted against every single order.