Price Impact

In YFX versions V1, V2, and V3, the trading price solely depended on the index price and the slippage calculation formula, leading to issues such as imbalance between long and short positions. Over time, as decentralized perpetual contract products adopting the PvPool model emerged, discussions began to revolve around Price Impact, Depth, Premium, and Funding, with different solutions being proposed for each issue.

Building on these solutions, YFX V4 introduced the LP Balance Automated Market Maker (LPB-AMM) mechanism, where the trading depth in YFX is determined by the LP Balance. A greater LP Balance results in better depth and lower slippage, whereas a lesser LP Balance leads to worse depth and higher slippage.

When an imbalance between long and short positions occurs, the Premium will increase, causing the Market Price to deviate from the Index Price. At this point, the Price Impact becomes more favorable towards the direction with smaller positions, thus gradually balancing out the long and short positions.

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