Risk Mitigation

We acutely recognize the balance needed to achieve an appropriate degree of risk mitigation for our liquidity providers, traders, and the vault. We perform regular risk tolerance assessments based on market volatility, asset performance (per side), and historical trading data in an attempt to maintain a fair and equitable Vela trading ecosystem for all users. VLP price performance and trading profit/ loss are two of the most crucial areas to balance within the platform. We have provided a minimal interference approach to ensure that all trading is done so honestly and strategically, without manipulation. Our current risk mitigation contract rules are as follows:

Max Minting Limit

Contract operators within the Vela team may set a maximum amount of VLP minted per block in order to prevent potential flash loan attacks. A flash loan attack occurs when a bad actor uses unsecured loans from DeFi protocols to manipulate the price of an asset (or several) for their own benefit.

Minimum Profit Duration

Based on past protocol trading data, we have found that legitimate (not via price manipulation) trades can only achieve a certain rate of profit increase based on OI limits per asset, whereas harmful trades that leverage market manipulation tend to achieve a relatively large profit in very short amount of time (typically less than 10-15 minutes). For this reason, we have implemented a schedule of rules to discourage potential malicious trades: Minimum Profit Duration requires that a prescribed amount of time, from the last increase position, has elapsed in order to close a trade that meets any of the following criteria: 1. The profit of a trade is greater than Maximum Close Profit 2. The percent profit is greater than Maximum Close Profit Percent

For example, let's say MATIC has a minimum profit duration set at 15 minutes, with a maximum close profit of $2000, and a maximum close profit percent set at 300%.

  • Alex has a MATIC position that was opened 10 minutes ago, with a total position size of $10,000 and a collateral of $1000 (10x leverage).

  • In a spectacular burst in MATIC's price of 25% in only 10 minutes, Alex's MATIC position is now at an unrealized profit of $2500 and an unrealized profit percent of 250%.

  • Alex may only close this MATIC position after 5 more minutes, since his profit is greater than the limit of $2000 and only 10 minutes have elapsed. Although the position does not exceed the profit percent of 300% only one condition is required to be met to enforce this minimum duration limit.

Last updated