Motivation
The recently adopted Additive on Imbalance price impact model aims to balance the systemic risks introduced by large imbalances and price distortions caused by large trade sizes. The new model also removes a significant shortcoming of the linear model and a probable attack vector: trade splitting. The non-linear nature of the latest price impact function ensures exorbitant fees do not hit the regular user. It also guarantees that trades that further increase imbalance and risks for Jupiter are paying their fair share.
The below heat map showcases the non-linear nature of the new price impact function.
Proposed Increase of Max Position Size
Currently, Jupiter’s max position size is limited at $2.5M. However, the above heat map indicates that an increase in this parameter is now possible with the new price impact function. The two-pronged approach of the additive on imbalance model ensures that even when starting with a completely balanced pool and splitting trades, the price impact fees paid by large trades would compensate for the platform’s risks.
Recommendation
As Chaos Labs, we recommend increasing the max position size to $5M to allow for larger trade sizes and a better user experience.
Future Steps
Following the implementation of the above recommendation, and provided that the change will not exhibit any new risks we expect to recommend shortly a follow-up increase in max position size to $10M. We will monitor user behavior, and based on that, consider future adjustments to fees, balancing the risks and allowing for even higher max position sizes.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
Copyright and related rights waived via CC0