FAQ
What is the maturity profile for Kvadrat?
Kvadrat is a perpetual position that does not expire.
What is the Mark Price?
Mark is the current trading price of Kvadrat.
What is the index price for Kvadrat, and how is it calculated?
The Kvadrat Index Price is tzBTC²
What is tzBTC? How is it related to Bitcoin?
tzBTC is an on-chain Tezos Bitcoin wrap that allows Tezos users to have full access to BTC-backed use cases via native Tezos Dapps. The tzBTC system is governed by highly trusted institutions (Keyholders). Keyholders can access via multi-signature wallets the underlying Bitcoin and oversee supply management by minting and burning the corresponding tzBTC. Other members of the tzBTC ecosystem - Gatekeepers interact directly with End-Users and ensure compliance with KYC & AML documentation. Together Keyholders and Gatekeepers ensure the stable and predictable functioning of tzBTC and its one-to-one correspondence with Bitcoin.
What is kvBTC?
It is a native FA2 token on Tezos Blockchain that aims to track the Kvadrat spot price movement up to the funding rate impact.
What is the Basis?
The basis is the price gap between the Mark Price (the current trading price of kvBTC) and the Index Price (tzBTC²).
What is the Funding Rate?
The funding rate is what the long Kvadrat trader pays to the traders who are short Kvadrat. And it is based on the difference between the Index Price (tzBTC²) and the Mark Price (the current trading price of kvBTC token). It is governed by the so-called instantaneous drift
The instantaneous drift dt, or just drift, is a dynamic parameter (which varies continuously over time) used for adjusting the value of kvBTC. We essentially use the robocoin checker library for implementing it.
The dritft is responsible for the downward drift in kvBTC price and is measured in Nepers (Np) or sub-units thereof, such as centinepers (cNp). The drift is implicitly continuous, piecewise-quadratic between two clock ticks with continuous derivatives.
Can I make a Short bet on Kvadrat's price?
Yes, you can either open a vanilla short position or a Mint+LP one (where you also get rewarded for supplying liquidity to the tzBTC²/tzBTC trading pair). Opening a Short position requires the provision of a collateral into a particular deposit (called "Burrow"), and you also need to provide a Burrow fee of 4900 sats additionally.
How is PnL on my Kvadrat position calculated exactly?
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- : amount you earned for selling Kvadrat + funding you earned while being short minus the amount you’d have paid for buying back Kvadrat to close the initially opened position
How does Kvadrat Protocol make money? What are the commissions?
We take three types of commissions:
- Annual commission as a percentage of total kvBTC volume
- Commission per trade
- Commission per each mint
Is Kvadrat a leveraged product?
The answer is "Yes". Kvadrat's long payoff is the tzBTC² token. For short Kvadrat positions, the calculations are slightly more complicated, as short-sellers' exposure to the price of Bitcoin (tzBTC is just a tezo on-chain wrap for BTC, after all) depends on the amount of collateral they have deposited when opening a short position.
Can I get liquidated as a buyer of Kvadrat if the price of tzBTC falls by a lot?
No. Long Kvadrat is a leveraged position with unlimited tzBTC² (de-facto Bitcoin squared) upside, protected downside, and no liquidation risk. However, this comes at a cost: funding is paid in-kind (as a percentage of the Kvadrat holder’s position). As the funding cost is deducted from the long trader’s position, the amount of tzBTC² exposure will decrease over time. This means that a long Kvadrat position works best if you plan to capture rapid, strong moves in Bitcoin price, while a prolonged long position will not be as effective due to sizeable funding cost that accrues over time.
Is there a margin call (liquidation) risk when shorting Kvadrat?
Yes, unlike going long Kvadrat, if short Kvadrat positions drop in price below the so-called safe collateralization threshold (130%), they are at risk of liquidation. The downside risk for short Kvadrat positions is limited to the amount of collateral you use to mint Kvadrat (and sell it). We recommend the 200% collateralization rate for short Kvadrat positions.
How does the short Kvadrat liquidation process work?
It is performed by third-party users who can make money on the spread between the price they acquire the burrow (or more correctly, its slices) and the market value of the tez assets that serve as the collateral for Short or Mint+LP positions that are getting liquidated. The price at which they acquire the ownership of these assets is set through an auction mechanism, described on a separate page about liquidations.
