# Market Mechanics & Parameters

## Funding Engine

Funding is the mechanism that tethers a perpetual's price to its underlying index. Every hour, a payment is exchanged between long and short traders. Nunchi employs a "dampened" funding model, where the rate is a fraction of the basis (mark price - oracle price). This allows for genuine price discovery while still ensuring long-term convergence.

* **VXXN-PERP Dampening:** 1/120. A stronger tether necessary for a high-volatility product.
* **TBILLYLD Dampening:** 1/300. A gentle tether suitable for a low-volatility rate market.
* **HYPEYLD-PERP Dampening:** 0. This product is the rate, so applying funding would create circularity.
* **MONYLD-PERP Dampening:** 1/300. A gentle tether suitable for a low-volatility staking rate market.
* **ETHBASIS-PERP Dampening: 1/120.** This is a medium-to-high volatility, crypto-native basis product subject to sharp moves during liquidity shocks or "depeg" events. A stronger tether is necessary to ensure the mark price remains closely anchored to the true stETH/ETH basis, similar to the approach for the VXXN-PERP.
* **AAVEBORROW-PERP Dampening: 1/300.** As a rate-based product with low-to-medium volatility, it requires a gentle tether similar to other yield markets. This allows for price discovery based on forward rate expectations without being overly punitive.

## Market Parameters

Each market is launched with a conservative risk profile, including isolated margin, volatility-scaled leverage, and objective rules for increasing Open Interest caps over time.

### VXX Perp Market Parameters

* **Use Case:** tail hedges, short‑vol/long‑vol expression; can move double‑digits in a day.
* **Launch Stance:** tight leverage +smaller OI cap

#### **Margin Table**

| **Notional Position Value (USD)** | **Max Leverage** |
| --------------------------------- | ---------------- |
| 0 – 250k                          | 3×               |
| 250k – 750k                       | 2×               |
| > 750k                            | 1.5×             |

#### **Additional Parameters**

* **Open Interest Cap - Notional:** $1,500,000 at launch
* **Funding Rate:** Dampened model with (1/120)
* **Tick Size:** $0.01
* **Min Order Notional:** $500

#### **Step‑up Rules**

After 14/14 days and 30‑day realized vol ≤ 6% with on‑book depth ≥ $500k each side inside 50 bps, increase OI cap to $2.5m and bump first tier max leverage to 3.5×.&#x20;

## T-Bill Market Parameters

* **Volatility:** Extremely low daily vol, very high depth.
* **Launch Stance:** Generous leverage and the highest initial OI cap of the three.

### **Margin Table**

| **Notional Position Value (USD)** | **Max Leverage** |
| --------------------------------- | ---------------- |
| 0 – 2M                            | 10x              |
| 2M – 5M                           | 7x               |
| > 5M                              | 5x               |

### **Additional Parameters**

* **Open Interest Cap:** $10,000,000 at launch. May increase as depth/liquidity scales.
* **Funding Rate - Notional:** We use a dampened funding model to allow price discovery: funding = (1/300).
* **Tick Size:** 0.0001 (1 bp)
* **Min Order Notional:** $1,000

### **Step‑up Rules**

If the 30-day realized volume is less than 15 basis points (annualized, AND the depth on both sides is greater than or equal to $2 million (inside 10 basis points) for 14 out of 14 days, the OI cap is raised to $20 million. Moreover, the top tier is widened to $10 million.

## Funding Rate-Perp Market Parameters

* **What it is:** linear exposure to an index of perp funding (e.g., USD‑annualized funding).
* **Launch stance:** moderate leverage.&#x20;

### **Margin Table**&#x20;

| **Notional Position Value (USD)** | **Max Leverage** |
| --------------------------------- | ---------------- |
| 0 – 200k                          | 4×               |
| 200k – 500k                       | 3×               |
| > 500k                            | 2×               |

### **Additional Parameters**

* **Open Interest Cap:** $750,000
* **Tick Size:** 1 bp (0.01) on the index

### **Step‑up Rules**

After 21/21 days with index staleness < 5s, and daily move 99th‑pct ≤ 150 bps, we will raise OI cap to $1.25m DV01 and widen top tier to $750k.

## **Monad Staking Rate Perpetual Market Parameters**

* **Launch Stance:** Moderate leverage, reflecting the expected low-to-moderate volatility of network staking rewards.
* **Index Price:** The annualized staking APY, scaled by 100 (e.g., 5.50% APY = a price of 550.00).
* **Contract Multiplier:** To be defined based on final price scaling and desired notional value per contract.

### Margin Table

| **Notional Position Value (USD)** | **Max Leverage** |
| --------------------------------- | ---------------- |
| 0 – 200k                          | 5x               |
| 200k – 500k                       | 4x               |
| > 500k                            | 3x               |

### **Additional Parameters**

* **Open Interest Cap - Notional:** $1,000,000 at launch.
* **Funding Rate:** Dampened model with a factor of 1/300 to allow for price discovery while keeping the mark tethered to the oracle.
* **Tick Size:** 1.00 (representing 1 bp of APY).

### Step-up Rules

After 21 consecutive days with no clamp hits, oracle staleness under 10 seconds, and 99th percentile daily price moves under 75 bps, the Open Interest cap will be raised to $2.0M and the top leverage tier will be widened to $500k.

## stETH / ETH Basis Perp Market Parameters

* **Use Case:** Hedging stETH holdings against discount risk, relative-value trading, and speculating on the premium/discount of staked ETH. A medium-to-high volatility, crypto-native basis product.
* **Launch Stance:** Conservative leverage and a tight initial OI cap due to the potential for sharp, reflexive moves during periods of market stress or liquidity shocks.

### **Margin Table**

| **Notional Position Value (USD)** | **Max Leverage** |
| --------------------------------- | ---------------- |
| 0 – 250k                          | 3×               |
| 250k – 750k                       | 2×               |
| > 750k                            | 1.5×             |

### **Additional Parameters**

* **Isolation:** Isolated mode only
* **Open Interest Cap - Notional:** $2,000,000 at launch
* **Funding Rate:** Dampened model with (1/120)
* **Tick Size:** 0.001 (0.1 bp on the basis index)
* **Min Order Notional:** $500

### **Step‑up Rules**

After 14/14 days and 30-day realized volatility of the basis ≤ 10% with on-book depth ≥ $250k on each side inside 75 bps, the OI cap will be increased to $4m and the first tier max leverage will be bumped to 4×.

## Aave Borrow Rate Perp Market Parameters

* **Use Case:** Hedging variable-rate DeFi loans, speculating on on-chain credit conditions. A low-to-medium volatility product representing the Aave borrow curve.
* **Launch Stance:** Moderately generous leverage with a healthy initial Open Interest cap, reflecting the relative stability of major asset borrow rates.

### **Margin Table**

| Notional Position Value (USD) | Max Leverage |
| ----------------------------- | ------------ |
| 0 – 1,000,000                 | 8x           |
| 1,000,000 – 3,000,000         | 6x           |
| > 3,000,000                   | 4x           |

### **Additional Parameters**

* **Isolation:** Isolated mode only
* **Open Interest Cap - Notional:** $5,000,000 at launch
* **Funding Rate:** Dampened model with (1/300)
* **Tick Size:** 0.0001 (1 bp on the index)
* **Min Order Notional:** $1,000

### **Step‑up Rules**

If the 30-day realized volatility of the underlying Aave borrow rate is less than 50 basis points (annualized), AND the on-book depth on both sides is greater than or equal to $1 million (inside 20 basis points) for 14 out of 14 days, the OI cap will be raised to $10 million and the top leverage tier will be widened to $2.5 million.
