An Overview of Risk


Disclaimer: KRAV's DeFi offerings, like any financial product (including those managed by centralized banks and traditional financial institutions) face a level of risk. Nevertheless risk remains a central priority to Krav, and Krav has instituted various risk mechanisms to minimize risk to LP pools and Traders themselves.

Price Impact

The price impact mechanism employed by KRAV plays a critical role in maintaining balance within the liquidity pools by adjusting an individual trade’s open price based on the existing imbalance between long and short positions. The price impact skews the open price for any given trade, acting as a premium. Premiums are incurred when a trade acts to further the imbalance between longs and shorts, mitigating net PnL impacts on the pool and incentivizing traders to balance the pools.

Unlike traditional perpetual dexs with deep liquidity of a small basket of tokens, KRAV has a wide array of liquidity pools of individual tokens that facilitate trading. Thus the price impact factor must be more aggressive and take into account the remaining liquidity of the liquidity pool and the size of the trade itself. Price impact takes into account the size of the trade, the remaining liquidity of the pool, and the balance of longs and shorts to skew the price of each trade, in order to mitigate PnL impacts on LPs.

Funding Rate:

The funding fee is the most capital-efficient way of managing risk of live trades, limiting drawdown risk in case of violent market movement. Much like traditional funding rates, KRAV’s funding rate is a fee mechanism that minimizes liquidity gaps between open long and short trades over time to prevent overt one sided exposure.

Funding rate is calculated based on the difference of total volume between the two market direction positions - short and long. The side with greater volume of open trade positions pays the fees to the side with lesser, with individual payouts proportional to position size ex: if more Longs than shorts, then long funding fee paid to short.

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