Base cases: Ethena, Lemma, UXD

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Overview

Basis trading involves profiting from small price discrepancies of the same asset across different markets. However, executing these trades manually is challenging due to the need for constant monitoring and quick decision-making in rapidly changing market conditions. Ritual lets you build basis trading protocols that use AI to continuously assess all the markets at once, ensuring more efficient and intelligent execution.

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Traditional System Failures

Risk management in current basis trading protocols remains a significant challenge, hampered by its reliance on manual monitoring of leverage and liquidation parameters. These systems struggle to react efficiently to sudden market regime changes and demonstrate limited capability in handling heightened market volatility. The centralized and opaque nature of these processes demands a high degree of trust from users, while also requiring sophisticated timing for entry and exiting of positions. This complexity is further compounded by the intricate requirements for tracking multiple positions across various venues. Execution issues present another layer of vulnerability in these systems. Protocols face significant legging risk from potential exchange failures, while their transparent nature makes them susceptible to front-running attacks. The situation is further complicated by exchange-specific idiosyncrasies that can lead to unexpected losses. Market makers’ lack of transparency and potential dishonesty adds another layer of risk, while the exposure of order sizes makes positions vulnerable to predatory trading practices.
Legging risk is the risk that market price or liquidity of one of the desired legs becomes unfavorable in the time it takes to execute an order.
Liquidity management in these protocols is constrained by rigid capacity limits that fail to adapt dynamically to changing market conditions. The reliance on manual Average Daily Volume (ADV) calculations creates inefficiencies, while the limited ability to aggregate liquidity across multiple venues restricts the protocols’ ability to scale effectively and maintain stable operations during periods of market stress.

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Ritual Solutions

Ritual is uniquely positioned to solve many of these issues:
  • Heterogeneous Compute: Dynamic risk model execution
  • Scheduling:
    • Continuous protocol monitoring and adjustment
    • Automated parameter updates
    • Reduced keeper dependency
  • DON Integration: Real-time market data for risk assessment
  • Model Marketplace:
    • Competitive models for different market regimes
    • Separation of signal generation from execution
    • Specialized expertise utilization