smart-contract-jojo v1.0.1

smart-contract-EVM

Smart contract for JOJO Exchange (EVM version)

What is a perpetual contract

A perpetual contract is simply a group of people who buy and sell virtual notes (also known as financial derivatives). In principle, the price of a note can be arbitrary. But through the mechanism of funding rate, it can be anchored to an external number, such as the "price of Bitcoin".

In this way, trading such notes is very similar to trading bitcoin spot. Since the liquidity of such a note is independent of spot liquidity, it can achieve liquidity and leverage multiples that far exceed those of the spot market. This feature has made perpetual contracts the most popular derivative in the cryptocurrency market.

JOJO is a decentralized perpetual contract exchange based on an off-chain matching system.

Smart contract overview

We will walk you through a comprehensive understanding of the whole perpetual contract system.

We don't expect this readme to explain the entire contract system. We just want to show you where to find the corresponding code for each function. There are enough commetns in the code to explain all the details.

There are only two core smart contracts: Perpetual.sol & JOJODealer.sol.

• Perpetual.sol is the core balance sheet of a certain perpetual contract market.
• JOJODealer.sol is the owner of Perpetual.sol. One JOJODealer.sol may have several Perpetual.sol at the same time.
• JOJODealer.sol is seperated into JOJOView.sol, JOJOOperation.sol and JOJOExternal.sol.
• JOJOView.sol contains all view functions of JOJODealer.sol.
• JOJOOperation.sol contains all "onlyOwner" functions of JOJODealer.sol.
• JOJOExternal.sol contains all "external" functions of JOJODealer.sol.
• JOJOStorage.sol is where all data stored.

Perpetual.sol: The balance sheet

From now on, we are going to design a perpetual contract computing system on the blockchain, which is referred as Perpetual.sol

For a trader, we only need to maintain the number of paper and credit s/he holds. Both the number of paper and the number of credits can be negative. We call the combination of these two number "balance".

If a trader long 1BTC at 30,000USD, then his balance is

paper = 1
credit = -30000

If a trader short 1BTC at 30,000USD, then his balance is

paper = -1
credit = 30000

The essence of the perpetual contract calculation is the state transfer of balance. Luckily, there are only 3 types of operations that affect balance.

1. Funding rate
2. Trading
3. Liquidation

Funding rate

It is the dealer's responsibility to ensure that the perpetual contract price is anchored to the spot price. Using the funding rate is one of the most common ways to achieve that.

• If the contract price is higher than spot, the dealer should punish the long side and reward the short side. So the contract price decreases until it equals to the spot price.
• If the contract price is lower than the spot, the dealer should punish the short side and reward the long side. So the contract price increases until it equals to the spot price.

The funding rate adjusts credit according to the paper amount. It is impossible to record the number of credits on the chain, otherwise it would be too costly to modify thousands of credit values each time the funding rate is updated. So we record a value called "reducedCredit" on the chain, and the real credit is calculated using the following formula:

credit = (paper * fundingRate) + reducedCredit

In this way, each trader's credit is automatically updated each time fundingRate is updated. fundingRate can be positive or negative. When fundingRate increases, the dealer could transfer fund from short positions to long positions. When fundingRate decreases, the dealer could transfer from long positions to short positions.

JOJO team will update the fundingRate every 8 hours.

You can call the function below to check your paper and credit balances:

function balanceOf(address trader)
        external
        view
        returns (int256 paper, int256 credit);

However, we must point out that we use the cross model, so the balance under a single market does not reflect your risk level. Please refer to getTraderRisk in JOJOView.sol.

Trading

An order sender is a relayer. He collects orders from makers and takers, match and submit to the perpetual contract via function trade.

For now, to avoid endless expansion of systemic risk, only validated addresses can be order senders.

We leave all the validation and calculation in approveTrade JOJOExternal.sol. This is a complex issue so we will not dive deeper.

Liquidation

Liquidation is a mandatory trading behavior. You can trigger a liquidation by calling function below:

function liquidate(
        address liquidatedTrader,
        int256 requestPaper,
        int256 expectCredit
) external returns (int256 liqtorPaperChange, int256 liqtorCreditChange);

Like trading, we leave it to JOJOExternal.sol.

So far we have successfully defined the core Perpetual contract. Next, we will solve the outstanding issues one by one.

JOJODealer.sol: Dealer of the table

Just as there is a dealer at the table, there is a moderator in the perpetual contract game. Dealer is the owner of the perpetual, it is responsible for solving all the problems that the perpetual does not know how to do. A dealer can have more than one perpetual at a time.

The dealer has three main responsibilities:

1. Maintain funding rate
2. Trade
3. Execute liquidation

The Dealer can be designed in various ways, and JOJODealerV1.0 is just one of the solutions proposed by the JOJO team. For example, you can develop an AMM version of Dealer.

JOJODealer has four main features below:

• Off-chain matching, on-chain settlement
• Cross model
• Fixed discount liquidation
• Virtual credit

Trading: Off-chain matching, on-chain settlement

JOJODealer uses the orderbook model to provide liquidity. Orders are placed, canceled and mathced off-chain, while the final settlement occurs on-chain. This architecture is similar to 0xProtocol, which allows for an excellent trading experience while keeping the system decentralized enough.

It is implemented by users signing orders and sending them to JOJO's server. Whenever orders are matched, JOJO's server submits these orders to the blockchain and immediately notifies the user on the front end.

The only centralized thing is: JOJO server will delete order info and signature when a user cancels an order. However, users may choose to place orders with very short expiration time to de-risk the need for trusting JOJO server.

In addition, anyone can match orders, and whoever submit the matching result to blockchain receives trading fees.

See approveTrade in JOJOExternal.sol.

Cross mode

JOJODealer only offers a cross position mode, where positions under different markets share margin. Positions under either market will affect the account net value and global exposure.

See getTraderRisk in JOJOView.sol.

If you wish to use the isolated mode, you could simply switch wallets or create sub-accounts.

Fixed discount liquidation

For accounts with low margin rates, JOJODealer will sell their positions at a fixed discount. Anyone can take as many positions as they want, as long as the position is cleared or the account margin rate is at a healthy state.

See getLiquidationCost in JOJOView.sol.

Deposit margin

JOJODealer only accepts a single ERC20 token as margin. Deposits and withdrawals do not require the permission of the JOJO server.

Pending withdraw

In order to save time for the matching engine to cancel orders when users withdraw, user withdrawals need to be submitted in two steps, with a waiting period in between (no more than 1 minute).

Virtual credit

JOJO can grant credit to some accounts to temporarily obtain more margin. This design has two main purposes:

• Supporting multi-margin feature in the future
• Matching funds to market makers in exchange for better liquidity

Other questions

Index price & Mark price

Index price and mark price are both provided by 3rd parties' price oracle.

Subaccount

This feature is implemented by peripheral smart contracts subaccount. Subaccounts can help you seperate positions and risks. You can also give trading access to others and let a professional team trade for you.

Insurance

For each liquidation, an insurance fee is charged. When there is a bad debt, it will be covered by insurance fund. If the insurance account is not sufficient to cover the bad debt, the insurnace fund will stay negative until it is paid off.