📊Trading overview on WOWswap
Last updated
Last updated
Unlike margin trading accounts on centralized exchanges, WOWswap has an extremely simple interface: just select a token you want to buy for BNB or BUSD on BNB Chain, and ETH or USDC on Polygon Network and move the leverage slider to the right to set the leverage coefficient 😎
For more professional experience users can choose to use WOWswap Pro.
Leverage can vary from x1️ (no leverage) to x5️ (maximum leverage). At launch for a few days the maximum leverage is set to x3️— this constraint will be removed shortly.
When you buy a token with leverage you finance only a portion of the purchase with your own capital — the rest of the funds you borrow from a liquidity pool. In the lower part of the swap screen you can see information about your loan and Hourly Interest Rate (HIR).
Offered HIR depends on the utilization ratio of the liquidity pool and the leverage coefficient set by you. However, once you make a swap, the HIR for this swap will remain constant until the position gets closed or is liquidated.
After you complete a swap you will get “proxy-tokens”, which are pegged 1:1 to real tokens held by WOW smart contract on your behalf. Proxy-tokens are needed for the protocol to guarantee the repayment of your loan once you sell proxy-tokens back for BNB or BUSD: the protocol will change proxy-tokens to real tokens, exchange real tokens for BNB/BUSD on Pancakeswap, repay the loan to the liquidity pool and transfer the rest of the funds to you.
If you buy more of the same token, your new purchase will be merged with the previous one, and the balance of your proxy-tokens will be summarized. Also, your existing loan to the liquidity pool will be merged with a new one. Finally, the HIR for the combined loan will be updated as a weighed average of interest rates for both loans.
If you want to close your leveraged trading position you can simply press on any arrow down ⬇ or manually select tokens for a swap. Please, note that in version 1 you can only sell tokens for the same currency that you bought them for.
When a trader closes a leveraged trading position, WOWswap performs the following actions:
1. sell underlying tokens on Pancakeswap, Uniswap or any other supported decentralized exchange;
2. repay the trader’s debt with interest to the liquidity pool;
3. calculate the trader’s net profit and, if any, takes a profit fee;
4. return the rest of the funds to the trader;
5. burn a corresponding amount of proxy-tokens owned by the trader.
WOWswap interface is minimalistic and is extremely easy to use. In fact, opening leveraged short or long position takes just 1-click.
Yet we recognize the demand for more professional trading experience that gives you the most options and control of your assets.
Opening a position on WOWswap Pro is similar to the original WOWswap.
To open a long position just move the slider to the right. To open a short position move the slider to the left.
Besides the different design, WOWswap Pro brings the following improvements:
📈Always on chart for all assets supported on WOWswap for a professional analysis when to open and close a position. 👌Monitoring and managing all the opened positions, debt level, liquidation price & health in one page. 👍Liquidation price is displayed before opening a position. 🤑Display of daily gainers & announcements. 🦊Set limit orders before you open a trade.
Let's imagine a situation that a trader buys $CAKE tokens through WOWswap for 300 BUSD at the price of 10 BUSD per $CAKE. Let’s also assume that for this swap the trader uses own capital of 100 BUSD with 3x leverage, which mean that the trader borrows additional 200 BUSD from the liquidity pool. As a result of this swap the trader should receive 30 $CAKE tokens. However, since the trader owns only a part of the trading position, the trader receives 30 proxy-CAKE tokens, while 30 real $CAKE tokens are held by the protocol as a collateral against the 200 BUSD loan given to the trader.
Using the following formal definitions, let’s calculate CAKE’s liquidation price at the time of the swap:
CP – Current token price ($10)
N – Number of tokens (30)
CV = CP *N – current value of tokens ($300)
UF – User’s own Funds ($100)
D – Total debt for this swap position ($200)
IL – Initial leverage factor (3)
𝐼𝐿 = (𝑈𝐹 + 𝐷)/𝑈𝐹
LM – Liquidation margin (for example, 3%). Liquidation margin is a “safety buffer”, which also includes a reward for a margin caller, who triggers the liquidation. The liquidation margin can be changed via the governance at any time.
LP – Liquidation price:
𝐿𝑃 = (100% + 𝐿𝑀)*𝐷/𝑁
At the time of the swap (while the interest on the loan has not yet accumulated), the position liquidation price (CAKE’s liquidation price) can be calculated as follows:
LP = (100%+3%) $200/30 = $6.87
This means that if $CAKE’s price becomes $6.87 or lower, the whole trading position will be liquidated, and the trader will lose all (or almost all) capital invested in the trade. In our example, if $CAKE’s price drops to $6.87 immediately after the swap then upon the liquidation the protocol receives revenue of $6.87 30 = $206.1.
After paying back $200 to the liquidity pool, the margin caller gets a reward of $6.1. Since in reality all debts accumulate interest, the liquidation price will be also growing over time.
Now, let’s imagine that $CAKE’s price rises to 15 BUSD per $CAKE and the trader decides to buy more $CAKE tokens for 150 BUSD with 2X leverage, by borrowing additional 150 BUSD from the liquidity pool. At the current price for 300 BUSD the trader will buy 20 $CAKE tokens. Once again, the trader will receive 20 proxy-CAKE tokens, while leaving 20 real $CAKE tokens to the protocol as a collateral.
To avoid having multiple trading positions for the same token, WOWswap will merge the new trading position with the previous one. Let’s assume that by the time of the second trade the first 200-BUSD loan accumulated 20 BUSD as interest. In this case, the total debt of the trader will be 200 BUSD + 20 BUSD + 150 BUSD = 370 BUSD. At the same time, the total collateral against this loan equals to 50 $CAKE tokens, which current value is 50*15 BUSD = 750 BUSD. $CAKE’s liquidation for the merged position also will be updated as follows: 103% * $370/50 = $7.62.
