The Method of Choosing Parameters for Margin Trading Protocols in the Constant Product Model

Round 1

Reviewer 1 Report

I have uploaded the file, containing my review. Good luck.

Comments for author File: Comments.pdf

Author Response

Letter about our corrections after reviews.

 

Below we give our responses on reviewers’ remarks. We write reviewers’ comments in italic, followed immediately by our responses.

All added and changed parts of document are highlited.

 

THE METHOD OF CHOOSING PARAMETERS FOR MARGIN TRADING PROTOCOL IN THE CONSTANT PRODUCT MODEL

 

 

Review 1

 

This manuscript is highly technical, although it is a sound work.

1. A detailed approach from user-friendly writing is required in almost all the parts (please add one paragraph deciphering the technical jargons for non-technical readers in each section).

 

In the article we use only traditional terms which are use in DeFi-articles. Nevertheless, we add some extra explanations in different parts of article. For example, lines 19-24; 85-90; 121-140. Moreover, in lines 175-177 we give references for the literature with corresponding terminology.

In Intro, we give detailed comparative analysis of all types of DeFi-protocols; also in lines 185-205 we introduced notions of Lenders, Traders, and Keepers, and explained in details their activities (this information was not changed).

 

2. Further, these are mostly virtual assets, therefore the traditional valuation techniques and leverage implementations cannot be implemented. Moreover, these are non-changeable as the first block has to specify all the traits. Therefore, during a Black Swan event, how will it adapt and become ‘antifragile’? If it can’t become ‘antifragile’ then is it even weaker than a real-asset? Further, an automated trading contract allows X & Y to exchange their assets according to an agreement on the terms of the transfer, contingent on pre-specified rigid conditions. Financial markets often face structural breaks and huge drawdowns based on credit or liquidity-based crash; how will it tackle all of it. Therefore, fundamentally the idea seems novel, however, the glaring warts are far too many to hide. In fact, a recent study proved that AMMs are too volatile during stress periods. In fact, crypto are far more volatile along with NFTs over traditional assets and they keep on forming recursive bubbles having LPPL patterns. Under these volatile circumstances, the premise has to be very clear, the underlying weakness has to be clearly stated before further investigation. Another important aspect of Primex being a non-custodial brokerage protocol. I don’t have any problem with various Corollary from specific Theorems, once the premise is properly stated with all it’s fragility.

 

The remark that protocol parameters and relations “are non-changeable as the first block has to specify all the traits” was caused by a misunderstanding of the difference between new blockchain (with new asset and new rules, which are set in so-called Genesis block and hence are non-changeable) and new DeFi protocol, which have no Genesis block, because it works with existing assets and on the top of existing blockchains. Primex protocol is adoptive; moreover, we are going to collect statistical data and adopt protocol parameters in accordance with them.

 

To avoid misunderstanding, we also add extra explanations in lines 121-140 about how our protocol works. We emphasize, that Primex does not try to guess market’s behavior in the nearest future. The protocol gives Traders possibility to use leverage for borrowing liquidity, provided by Lender. At the same time, Primex tries to reduce risks only for Lenders and protocol itself. For these purposes the liquidation condition (condition of immediately position closing) and maximal leverage size are set in such a way, that even in case of significant drop of one asset w.r.t. another, Trader’s deposit will cover Lender’s and Protocol’s expenses.

Trader is the actor who bears the main risks concerning assets volatility and price bubbles behaviour in DeFi markets ([36], [37]), and they is completely responsible for their decision what asset to borrow, for what time period, and on what asset to exchange this borrowed asset. In the worst (for them) case, they will completely lose their deposit, which is frozen until position is closed.

 

We also change the name of protocol from “Margine Trading Protocol” to “Decentralized Prime Brokerage Protocol”, because on the next stages there will be more use cases for Primex.

Author Response File: Author Response.pdf

Reviewer 2 Report

I deeply read your paper entitled "THE METHOD OF CHOOSING PARAMETERS FOR MARGIN TRADING PROTOCOL IN THE CONSTANT PRODUCT MODEL". After reading I feel that the paper has potential to published in this journal. But before to publish the paper please take care of my comments and suggestions.

1. The paper is written good, but the format is not good especially introduction. Please eliminate the headings and bulletin because in the good journal researchers do not like the headings and bulletin except the requirements.

2. Please clearly show the novelty, model and very brief main result at the end of the paper.

3. The is paper lack of new literature. Please include and extend the literature.

Best of luck!

 Minor editing of English language required.

Author Response

Review 2.

 

Letter about our corrections after reviews.

 

Below we give our responses on reviewers’ remarks. We write reviewers’ comments in italic, followed immediately by our responses.

All added and changed parts of document are highlited.

 

THE METHOD OF CHOOSING PARAMETERS FOR MARGIN TRADING PROTOCOL IN THE CONSTANT PRODUCT MODEL

 

 

Comments and Suggestions for Authors

I deeply read your paper entitled "THE METHOD OF CHOOSING PARAMETERS FOR MARGIN TRADING PROTOCOL IN THE CONSTANT PRODUCT MODEL". After reading I feel that the paper has potential to be published in this journal. But before to publish the paper please take care of my comments and suggestions.

1. The paper is written good, but the format is not good especially introduction. Please eliminate the headings and bulletin because in the good journal researchers do not like the headings and bulletin except the requirements.

 

Is done.

 

2. Please clearly show the novelty, model and very brief main result at the end of the paper.

 

We add this in lines 550-570 and lines 591-593.

 

3. The is paper lack of new literature. Please include and extend the literature.

 

 

We add recent references 33-39.

 

4. Comments on the Quality of English Language: Minor editing of English language required.

 

Is done (proofreading by native speaker).

Author Response File: Author Response.pdf

Reviewer 3 Report

Kovalchuk et al. studied parameter selection for margin trading protocols in the Constant Product Model and its application to Primex. The authors introduce a new method for choosing parameters in margin trading protocols and specifically emphasize its application to their DeFi Margin Trading protocol, Primex. The article provides a detailed explanation of their approach to setting protocol parameters and determining their numerical values within the framework of the Constant Product Model. However, certain aspects of the article require improvement, and addressing specific comments would enhance its overall efficacy and contribution to the field.

The abstract structure should be reorganized to adhere to the common format. Typically, an abstract consists of four key sections: background or introduction, methods, results, and conclusions. Adjusting the abstract structure to align with this format will ensure that the key aspects of the research are effectively communicated.

It is inappropriate and lacks scientific soundness to present the research findings as unproven benefits of the Primex protocol before demonstrating the actual research. The assumptions regarding the benefits should not be included in the introduction section but rather be mentioned in the discussion or conclusion sections, where they can be thoroughly examined and debated.

The research activities should be described using past tense to maintain consistency with scientific writing conventions. Utilizing past tense will allow for a clear differentiation between the description of the research process and the discussion of the obtained results.

Including a dedicated discussion section in the article is highly recommended to provide an opportunity to explain and interpret the research results. This section will enable the authors to analyze the data, compare their findings with previous studies, and discuss the implications and limitations of their research.

 

The benefits of the Primex protocol need to be further supported by solid results and arguments before being stated as definitive conclusions. It is essential to thoroughly analyze the data and provide robust evidence to back up any claims regarding the protocol's advantages. This will enhance the credibility and reliability of the research findings.

The article requires significant language editing to enhance its quality and clarity.

Author Response

Letter about our corrections after reviews.

 

Below we give our responses on reviewers’ remarks. We write reviewers’ comments in italic, followed immediately by our responses.

All added and changed parts of document are highlited.

 

THE METHOD OF CHOOSING PARAMETERS FOR MARGIN TRADING PROTOCOL IN THE CONSTANT PRODUCT MODEL

 

 

Review 3.

Kovalchuk et al. studied parameter selection for margin trading protocols in the Constant Product Model and its application to Primex. The authors introduce a new method for choosing parameters in margin trading protocols and specifically emphasize its application to their DeFi Margin Trading protocol, Primex. The article provides a detailed explanation of their approach to setting protocol parameters and determining their numerical values within the framework of the Constant Product Model. However, certain aspects of the article require improvement, and addressing specific comments would enhance its overall efficacy and contribution to the field.

 

1. The abstract structure should be reorganized to adhere to the common format. Typically, an abstract consists of four key sections: background or introduction, methods, results, and conclusions. Adjusting the abstract structure to align with this format will ensure that the key aspects of the research are effectively communicated.

 

We fully rewrite Abstract, now it consists of three parts, as reviewer recommended: background (the first paragraph), the methods and results (the second one), and conclusions.

 

2. It is inappropriate and lacks scientific soundness to present the research findings as unproven benefits of the Primex protocol before demonstrating the actual research. The assumptions regarding the benefits should not be included in the introduction section but rather be mentioned in the discussion or conclusion sections, where they can be thoroughly examined and debated.

 

Is done (these text is removed to conclusion), lines 561-570.

 

 

 

 

3. The research activities should be described using past tense to maintain consistency with scientific writing conventions. Utilizing past tense will allow for a clear differentiation between the description of the research process and the discussion of the obtained results.

 

Is done.

 

4. Including a dedicated discussion section in the article is highly recommended to provide an opportunity to explain and interpret the research results. This section will enable the authors to analyze the data, compare their findings with previous studies, and discuss the implications and limitations of their research.The benefits of the Primex protocol need to be further supported by solid results and arguments before being stated as definitive conclusions. It is essential to thoroughly analyze the data and provide robust evidence to back up any claims regarding the protocol's advantages. This will enhance the credibility and reliability of the research findings.

 

We included more discussion in conclusion: lines 571-587 and 593-595.

 

 

 

5. Comments on the Quality of English Language: the article requires significant language editing to enhance its quality and clarity.

 

Is done (proofreading by native speaker).

Author Response File: Author Response.pdf