📈 Pricing

AMM

Token prices are determined by the amount of each token in a pool. The liquidity pool contract maintains a constant using the following function: x*y=k.


  • x = token1
  • y = token2
  • k = constant


Liquidity pools on Perplex require that the pool price is a constant K. During each swap, a certain amount of one token x is removed from the pool for an amount of the other token y. To maintain k, the balances held by the smart contract are adjusted, which changes the price.

Spot

In a spot market, price is determined by the order book. Here is how it works:


  • Supply and Demand: The price of an asset is determined by supply and demand. If more people want to buy an asset (demand) than sell it (supply), the price goes up. Conversely, if more people want to sell an asset than buy it, the price goes down.


Order Book: The order book is a real-time list of buy and sell orders. It shows:

  • Bid Prices: Prices that buyers are willing to pay.
  • Ask Prices: Prices that sellers are willing to accept.


The highest bid and the lowest ask determine the current market price.


Learn more about order book

Perpetuals

Perpetual markets also rely on an order book for the price matching between traders, but there are some additional elements to be taken into account:


  • Underlying Asset’s Spot Price: The price of a perpetual contract is closely linked to the price of the underlying asset in the spot market.

For example, if you are trading Bitcoin perpetual contracts, their price will be closely tied to Bitcoin’s spot price.

  • Mark Price: The mark price is an estimated fair value of the perpetual contract and is used to prevent unfair liquidations. It is usually calculated as a combination of the spot price and a moving average of the contract price. Exchanges use the mark price to determine margin requirements and liquidations.


  • Funding Rates: Since perpetual contracts do not expire, funding rates are used to keep the perpetual price close to the spot price.

Learn more about funding rates


  • Positive Funding Rate: If the perpetual price is higher than the spot price, traders with long positions pay a funding fee to those with short positions. This encourages more short positions, pushing the price down.


  • Negative Funding Rate: If the perpetual price is lower than the spot price, traders with short positions pay a funding fee to those with long positions. This encourages more long positions, pushing the price up.


  • Order Book: Similar to spot markets, the order book in perpetual markets lists all buy and sell orders.

Learn more about orders