How it Works?

The synthetic asset prices will be stochastic Markov processes with the prices moving up or down every second, with the size of each movement being derived from random cryptographic hashes.

Each synthetic asset can be customized by changing key variables such as volatility, drift or Bernoulli factors.

The following is a simple example of a synthetic asset that has 50:50 odds of moving up or down every second, with the size of each movement being random, based on a normal distribution.

$$P_t = P_{t-1} + N(u,\sigma^2)$$

Traders can then either long or short the price and cash out at anytime to profit from fluctuation in the price.

Traders can also leverage up their long or short positions up to a maximum position limit.

Traders will be automatically liquidated once their equity falls below the max position thresholds. Traders elect to set this liquidation feature to either adjust the position to less than or equal to the max limit or to completely exit the entire position once triggered.

Max Position Size:

$$n =\, \frac {\varepsilon}{ \; 6 \, \sigma}$$

$$n = Position \; Size \;| \;\varepsilon = Equity$$

Liquidation Threshold:

$$\varepsilon \le n * 6 \,\sigma$$

On average the market is expected to have a 50:50 long to short ratio, making it a zero-sum game between traders. However, when this ratio does not hold, the open Crypta Bankroll will then take on the risk and cover the excess longs or shorts. To ensure the bankroll and liquidity providers are not taking on excess risk there will be market aggregate betting limits implemented.

Therefore, the bankroll will not risk more than 1.5% of its capital at any one point and may cash out excess positions to fulfil the threshold.

$$Current \; Excess = | \sum n_{Long} \; - \; \sum n_{Short} \, |$$

Aggregate Market Limits:

$$Long (n) = \frac {1.5 \,\% * Bankroll}{6 \,\sigma} \; - \; \bigg(\sum n_{Long} \; - \; \sum n_{Short} \bigg)$$

$$Short (n) = \frac {1.5 \,\% * Bankroll}{6 \,\sigma} \; - \; \bigg(\sum n_{Short} \; - \; \sum n_{Long} \bigg)$$

The house bankroll will make its long-run profit by charging small transaction fees per trade, acting the same way as a broker / exchange.

Crypta uses the following aggregate market fee structure which acts similar to a market maker-taker fee schedule. The fee schedule is built to encourage traders to open positions to bring the market to equilibrium and minimize bankroll exposure.

Aggregate Market	Long Fee	Short Fee
>80% Excess Long (90% Long : 10% Short)	0.70%	0.30%
>60% Excess Long (80% Long : 20% Short)	0.65%	0.35%
>40% Excess Long (70% Long : 30% Short)	0.60%	0.40%
>20% Excess Long (60% Long : 40% Short)	0.55%	0.45%
Equilibrium (50% Long : 50% Short)	0.50%	0.50%
>20% Excess Short (40% Long : 60% Short)	0.45%	0.55%
>40% Excess Short (30% Long : 70% Short)	0.40%	0.60%
>60% Excess Short (20% Long : 80% Short)	0.35%	0.65%
>80% Excess Short (10% Long : 90% Short)	0.30%	0.70%