We are pleased to announce that the CVI funding fee structure has been upgraded, and from now on, the funding fee rate will be dynamic. The funding fee is an important aspect of the CVI ecosystem, as it helps to ensure that liquidity providers are adequately compensated for the risks they take on. The funding fee is calculated based on the CVI Index values, with higher values resulting in lower funding fees.
The essence of the new Dynamic Funding Fee model is that it takes the CVI utilization rate into account. The utilization rate refers to the amount of CVI tokens being used for trading at any given time (open positions), and the lower the utilization rate, the lower the funding fee rates.
This new Dynamic Funding Fee model is designed to incentivize traders to mint CVI tokens (i.e., open long positions) when the utilization rate is low, and to compensate Theta vault depositors when the utilization rate is high. This helps to ensure that both traders and liquidity providers are adequately compensated for their risks and expenses.
High utilization means that a large percentage of the CVI tokens are being used for trading. This leads to more fees for the Theta vault depositors, as more tokens are being put to use, resulting in higher Annual Percentage Rates (APRs) for liquidity providers.
A high APR incentivizes liquidity providers to deposit their funds into the Theta vault, as they can earn a higher return on their investment. This increased liquidity in the Theta vault allows for more trading volume for CVI, which generates more fees and drives market demand.
As part of the upgrade, the funding fee will fluctuate inside a narrow band according to the demand for the CVI token. As shown below, The funding fee chart now displays two lines that indicate the upper and lower limits of the narrow band within which the fee will fluctuate. When the utilization of the CVI token is low, the funding rate will decrease, which will encourage more demand. Conversely, as utilization increases, the funding rate will go up.
In conclusion, the Dynamic funding fee model aims to strike a balance between incentivizing trading and compensating liquidity providers, while promoting market demand and avoiding supply constraints.
For all of our updates and to join the conversation, be sure to check out CVI channels:
Website: https://cvi.finance
v3 Litepaper: https://cvi.finance/files/CVI.v3.Litepaper.pdf
GitBook: https://docs.cvi.finance/
Whitepaper: https://cvi.finance/cvi-white-paper.pdf
Twitter: https://twitter.com/official_CVI
Telegram (group): https://t.me/cviofficial
Telegram (channel): https://t.me/cvichannel
Discord: https://discord.gg/yuDsy7SM2H
