NFEX: Decentralized NFT derivatives exchange

NFEX is a decentralized derivatives exchange that primarily provides trading in popular blue chip NFTs' perpetual futures. In contrast to conventional NFT markets, NFEX uses smart contracts trading to reduce the range of NFT trading limits, while also boosting market liquidity, giving users access to leverage, and offering long-short trading alternatives.

This implies that users can short NFT without owning any assets or buy NFT at a cheap entry fee to speculate on future price movements.

NFEX is dedicated to offering customers secure, expert, and user-friendly products and services that let NFT traders use a range of trading tactics, such as hedging, speculation, and arbitrage. The company wants to create the world's top NFT derivatives trading platform.

Compared with other NFT markets, NFEX has the following characteristics:

1. More trading opportunities

Investors can short NFT without holding any assets, which opens up a variety of trading strategies, including hedging, speculation and arbitrage.

2. The development of leverage

By allowing investors to leverage their capital up to 10 times in order to trade the underlying assets with a minimum ratio of 0.01%, NFEX effectively lowers the entrance barrier for investors to build up positions in the well-known NFT series by 10,000 times.

3. Negative market maker costs and minimum transaction fees

When compared to other well-known NFT marketplaces, NFEX provides the lowest transaction fees and negative market maker fees. The NFT market used to impose a royalty of up to 10% and a 2.5% transaction fee. NFEX, on the other hand, lowers transaction fees to the lowest level in the sector. Also, market makers are rewarded by NFEX with a transaction fee of 0.05%, which encourages them to increase the platform's liquidity.

4. Increase the industry's overall liquidity.

By supplying more liquidity at a reasonable price and bringing topinnovations that will assist NFT traders around the world, the NFEX seeks to change the budding NFT industry.

NFEX Perpetual Market

1. What is NFT Perpetual Futures

Perpetual Futures, as used in finance, is an agreement that gives a trader unlimited time in the future to buy or sell an asset. This kind of futures gives the trader the option to go long or short on the underlying asset, maximizing profit potential and reducing risk.

2. NFEX perpetualmarket mechanism

NFT perpetual futuresat NFEX is a financial instrument that enables a trader to go long or short the NFT's floor price while utilizing a small portion of the position's value as collateral. The NFT perpetual futuresfrom NFEX has the following characteristics:

1) No maturity date exists

Trading positions can be held in NFT perpetuals as long as they are not liquidated because they have no expiration date.

2) Significant leverage

Traders can purchase and sell NFT collections using as little as a modest quantity of ETH as collateral thanks to NFEX's up to 10x leverage.

3) Fund interest rate methodology

Since the price of perpetual futures is determined by the value of the underlying assets, NFEX uses the money rate mechanism to regulate supply and demand between buyers and sellers to make sure that the price of perpetual futures reflects the index. The perpetual futuresprice on NFEX will eventually converge with the series' floor price as a result.

Trading rules

1. General rules

1) Trading hours

NFEX offers eligible users access to all perpetual markets 24 hours a day, 7 days a week.

2) Direction of orders

A. Open the positions

When a user initiates a new trade, either long or short, it is said to open a position.

B. Close the positions

When a user exits a trade, it is said to close a position.

NFEX perpetuals support two-way positions, much like conventional futures do, enabling both buyers and sellers to participate in the market. At thefloor priceof a specific NFT series, a trader can take a long or short position without actually owning it.

A. Long orders, referred to as buy orders, are placed by traders who purchase perpetual futures on the underlying asset and hold them until the price of the asset rises before selling them.

B. Short orders,is called sell orders. Traders sell and then buy back. Short trades profit from a decline in the price of perpetual futures.

3) Order types

There are several types of orders to buy or sell NFT futures on NFEX.

A. Market order

Market orders are requests to purchase or dispose of NFT futures at the going rate. It executes as rapidly as it can without committing to a certain cost. A market order is a bill that a dealer places and for which they will be billed at the buyer's fee rate.

B. Limit order

Orders to purchase or sell futuresat a specific limit price are known as limit orders. It won't be exercised if the current price on the market is below the limit priceor higher. Orders are put on the order book and bring liquidity to the market but are not guaranteed to be executed.

4) Leverage

NFEX provides leverage for all listed futures and supports up to 10 times leverage. Users can trade using a cross-margin model to ensure maximum capital efficiency.

The cross-margin model allows traders to share margin across all futures. This margin policy shares assets across all positions and margin levels will be calculated based on the total asset value.

5) Positions

A position in the perpetual futuresmarket is the number of underlying futuresthat have not been closed. All futures on the NFEX will be offered a hedgingmode.

Users can use the hedging model to take both long and short positions on the same trading pair. This assists users in minimizing losses and protecting their positions.

2. Restrictions and safety precautions

To ensure a safe and efficient trading environment for all users, NFEX has implemented a number of restrictions and safeguards. These restrictions, which include position limits, order limits, and price limits, are intended to reduce risk and improve the platform's trading experience.

Risk-Weighted Standard

To manage risk and avoid massive liquidation across the perpetual market, NFEX uses two measures of risk.

1. Stratified adjustment coefficient

The tiered adjustment factor is a risk management mechanism used by NFEX that adjusts margin requirements for each trading account based on the size of open interest.

Positions will be divided into several tiers, each with a specific ratio, based on the value of the dealer's position. The greater the value of the position, the higher the level, the greater risk of the position will be.

2. Futures risk coefficient

The futures risk factor is a measure of the risk inherent in the underlying NFT on which the perpetual futures is based. Each NFT series has its own risk factor, assigned by the NFEX, ranging from 1 to n, with higher numbers indicating greater risk. This risk factor is used in conjunction with the tiered adjustment factor to calculate the margin required for a particular position.

Price Index——NFEXFP

When it comes to NFT futurestrading, the real-time floor price of NFT is unquestionably an important factor. So, how closely does NFEX follow real-time NFT floor prices?

The floor price is a popular index for determining the value of NFT. Simply put, it is the lowest asking price for a specific series of NFT in various markets. However, the current market is vulnerable to floor price manipulation, which can result in large price differences between NFT perpetuals and spot prices, resulting in financial losses for users.

NFEX, on the other hand, is dedicated to increasing liquidity throughout the NFT industry. As a result, it developed the NFEXFP (NFEX floor) price index. The NFEXFP index is a basket of floor prices for specific NFT series from major NFT markets. This fair spot price index allows for real-time tracking of floor prices, facilitates price discovery, and has the potential to reduce manipulation in the NFT market.

NFEXFP is primarily used to hedge risk or speculate on future price movements of the relevant NFT. It is also capable of calculating marker prices.

The NFEXFP Price index currently has four data sources: Blur, Opensea, X2Y2, and LooksRare.

Each futureswill have its own NFEXFP index price, which will be calculated by taking the weighted average of the final prices on the four exchanges mentioned above.

NFEX calculates the NFEXFP price index by taking a weighted average of the final floor price on each exchange that makes up a specific set of NFT. It obtains NFT exchange floor price data via API and calculates and updates the index price every 3 seconds.

Conclusion

The NFT marketrecently experienced a brief boom as a result of competition between new entrants Blur and established NFT market OpenSea. In this context, the liquidity issue that NFT has been chastised for appears to have been alleviated to some extent.

But this pattern is unlikely to become normal, and the problem of NFT liquidity may continue to present itself in a more acute way as we enter the next phase. Therefore, we should undoubtedly expand the financial instruments of the NFT market.

The introduction of the NFT derivatives market today is a positive experiment. In the traditional model, derivatives trading can only exist in fungibletokens, but NFEXFP, a oracle-like machine, allows for NFT derivatives trading.

However, at present, its data sources are too narrow to exclude the possibility of failure under extreme conditions. Therefore, making the whole system more stable will be an important proposition for the future development of NFEX.