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The protocal of Utopia Finance
UtopiaFi.Com is a decentralized leveraged derivatives trading protocol currently deployed on zkSync Era adn Arbitrum network. In the future, it will be expanded to other potential chains.
I.Main Function And Feature
UtopiaFi.Com currently serves as the counterparty for leveraged traders by utilizing the stablecoin (USDT) liquidity pool (UPP). Liquidity providers inject stablecoins into the UPP and receive corresponding shares of ownership proof (UPS). Users can trade with valuable tokens such as USDT and also directly trade with UPS.
1. High utilization rate of LP funds
"UtopiaFi.Com is a highly efficient on-chain derivative trading platform with an AMM design, which is mainly reflected in two aspects:
Order book-free matching
No need to provide liquidity for each trading pair separately
UtopiaFi.Com supports trading with USDT and UPS as collateral, which theoretically allows for a much higher utilization rate of LP funds compared to other platforms. This will be discussed in detail in the position limit section of the economic model.
2. Strong scalability
In the early stages, the project supports cryptocurrency trading (up to 100x leverage), and will gradually increase support for forex (up to 1000x leverage), stocks (up to 50x leverage), indices (up to 50x leverage), and other speculative products in the future.
3. Low trading costs
Name of Fee | Trading fees using USDT | Trading fees using USDT |
Opening Fee | Crypto（0.05%） | 0 |
Fixed Trading Spread | BTCÐ（0.04%） | BTCÐ（0.04%） |
Dynamic Trading Spread | Only for trading pairs with low liquidity | Only for trading pairs with low liquidity |
Rollover Fee | Charges based on the amount of margin | 0 |
Funding Rate | Long pays short or short pays long | Long pays short or short pays long |
Liquidation Fee | Crypto（0.05%） | 0 |
Compared to other competing platforms, UtopiaFi.Com has lower trading costs. Traders can use UPS for trading and enjoy near-zero trading costs, which is very cost-effective for traders.
II.Economic System Model
1. Trading Modes: Normal Mode and PvP-AMM Mode
UPP (UtopiaFi.Com Fund Pool) Liquidity Pool and UPS (UtopiaFi.Com Share) Certificate of Share Income Token
LP (Liquidity Provider) users deposit USDT into the UPP to receive UPS tokens;
LP users can cast tokens using deposit certificates supported by the platform, enjoying dual benefits;
UPS can be freely traded on the secondary market;
UPS can be used as collateral for leveraged derivative trading;
Factors affecting the UPS price: Trader PnL (dynamic profit and loss changes) of trading users:
Ø Normal Mode
Trader use USDT for trading. If the trader incurs a loss, the lost USDT will be deposited into the UPP. If the trader makes a profit, USDT will be withdrawn from the UPP and distributed to the trader.
Ø PvP-AMM Mode
Trader use UPS for trading. If the trader incurs a loss, the lost UPS tokens will be directly burned. If the trader makes a profit, new UPS tokens will be cast and distributed to the trader.
For example: Initially, the UPP pool has 1000 USDT, and the total amount of UPS is 1000, so the UPS price is 100/100=1U. Assuming that after a period of user trading, the number of USDT in the UPP pool has increased to 1200 and the number of UPS has decreased to 800, then the UPS price will be 1200/800=1.5U.
2. UPS redemption time lock
Due to the insurance pool mechanism, in order to prevent UPS users from arbitraging the UPP pool through the insurance mechanism, when applying for redemption of UPS, a waiting period of 7 days is required. During the waiting period, users can still enjoy profits or bear risks. Users can trade UPS in the secondary market for cashing out.
3. Treasure Pool
The Treasure Pool is used to aggregate all the fees generated during the trading process and redistribute them.
Prior to the listing of UPT: 100% will be distributed to users who participate in UPS staking mining.
After the listing of UPT: All UPP revenue will be used to purchase UPT tokens, which will be distributed to users who participate in UPS staking mining.
4. UtopiaFi.Com Token
Token initial total supply: 1 billion
UPT Value Capture: Trading Fee Buyback + Platform Governance Rights
5. Position Limitation
UtopiaFi.Com is a trading platform that uses an LP fund pool and traders as counterparties to operate. To ensure the platform's sustainability, there are limits on the total open positions of traders.
For users who trade using USDT, UtopiaFi.Com sets limits based on the TVL (Total Value Locked) of the UPP pool. For users who trade using UPS, no upper limit is set.The following will use the examples to illustrate the position limit mode of UtopiaFi.Com:
For users who use UPS to trade, there will be no limit on the opening limit for the time being. Although there is no limit to the upper limit of opening a position, the overall risk is still controllable. Let us give an example:
-----Assume that there are currently 3000 USDT in the UPP pool, corresponding to 3000 UPS in the market, and the current corresponding price of UPS is 1 USDT.
Peteruses 1,000 UPS as a margin, uses 10 times leverage, and goes long BTC with an opening amount of 10,000 UPS.
Jack uses 2000UPS as a margin and uses 10 times leverage to short BTC with an opening amount of 20000UPS.
If the price of BTC rises by 5%, Peterand Jackboth close their positions, then Peter’s profit is 5%*10000UPS=500UPS, Jack’s loss is 5%*20000UPS=1000UPS, and the final UPS numbers of Peter and Jack are respectively 1500 and 1000. At this time, the total amount of UPS is 2500, and the assets in the UPP pool are still 3000 USDT, so the corresponding price of UPS is 1.2 USDT. Peter's actual profit is 1500*1.2-1000*1=800USDT. If USDT is used for trading, Peter's profit is 500USDT; Jack's actual loss is 2000*1-1000*1.2=800USDT. If USDT is used for trading, Jack's actual loss is 1000 USDT.
If the price of BTC falls by 5%, Peter and Jack both close their positions, then Peter’s loss is 5%*100000UPS=500UPS, Jack’s profit is 5%*20000UPS=1000UPS, and the final UPS numbers of Peter and Jack are respectively 500 and 3000. At this time, the total amount of UPS is 3500, while the assets in the UPP pool are still 3000 USDT, and the corresponding price of UPS is 0.857 USDT. Peter's actual loss is 1000*1-500*0.857=571USDT, and Jack's actual profit is 3000*0.857-2000*1=571USDT.
The same fluctuation is 5%. Peter's profit-to-lose ratio is 800 to 571, and Jack's profit-to-loss ratio is 571 to 800. Because Jack's opening amount is larger than Peter's, it is obviously for the minority in the trading pool. It is more beneficial. If the funding rate is added, it will be more beneficial to the minority, which will greatly encourage the minority to build positions, so as to achieve a balance between long and short.
Therefore, when users use UPS for transactions, there is no need to impose too many restrictions on the overall upper limit of opening positions, and the market will spontaneously reach a balanced state, thereby greatly improving the utilization rate of LP funds.
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