LogoLogo
  • SDX Whitepaper
    • SDX Overview
    • Challenges
    • Opportunity
    • Features
    • SDX 2024 Roadmap
    • SDX Protocol Architecture
      • Pricing Model And Fee Incentives
        • Mark Price
        • Dynamic Bid-Ask Spreads
        • Capital Utilization Fee
        • Trade Fee
        • Option Pricing Example
      • Protocol Safeguards
    • Risks
  • User Guide
    • Trading On SDX
      • Trading Account
      • Option Markets & Strategies
      • Trading
      • Fees
      • Portfolio View
      • Market Configurations
      • Trading FAQs
    • SDX VIP Taker Program
    • Liquidity Pools - Earn Yield Passively
      • Liquidity Mining
      • Depositing as an LP
      • Withdrawing as an LP
      • LP FAQs
  • Developers
    • API Endpoints
    • Logos and Brand
Powered by GitBook
On this page

Was this helpful?

  1. SDX Whitepaper
  2. SDX Protocol Architecture
  3. Pricing Model And Fee Incentives

Capital Utilization Fee

Last updated 1 year ago

Was this helpful?

Due to the fully collaterized nature of trading with SDX, certain trades would require less collateral than others. This includes Put and Call Spread strategies and buying options from existing vault inventory.

A capital utilization fee, CCC, based on the increase in collateral usage multiplied by the option maturity and interest rate will be charged, to incentivize capital efficient trades. It is only charged when buying of options from the pool, not on selling.

C=Net_Collateral_Used∗IR∗MaturityC = Net\_Collateral\_Used * IR * MaturityC=Net_Collateral_Used∗IR∗Maturity

Example 1: Suppose Alice buys 1 SOL Put option, with strike of $20, expiring in 1 month, at 4% Interest APR.

Since the pool will have to lock-up 20 USDC for 1 month to issue these options, it imposes the Capital Utilization fee of 20 x 1/12 year x .04 = 0.067 USDC.

Example 2: Suppose Alice buys 1 SOL Put Spread option, with strikes of $15 to $20, expiring in 1 month, at 4% Interest APR.

Since the pool will have to lock-up 20-15 = 5 USDC for 1 month to issue these options, it imposes the Capital Utilization fee of 5 x 1/12 year x .04 = 0.017 USDC.

From the provided examples, it's evident that Alice would be more encouraged to engage in the Put Spread trade because it offers a lower cost in terms of the capital utilization fee.

Example 3: Suppose Alice sells 1 SOL Put option, with strikes of $20, expiring in 1 month, at 4% Interest APR.

Since Alice is selling to the pool, no capital utilization fee will be charged on the trade.