CVA Calculations

Provided by Rasa Capital

CVA and Max Leverage:

Note: contract parameters — maintenance margin and maxLeverage — are set by Solvers based on their own risk assessment.

The Rasa Solver has the following (basic) settings.

1) logic is as follows

• CVA is the overall maintenance margin ( in case of liquidation, part goes to liquidators as incentives, part to the non-liquidated party who they needs to unwind their positions )

• CVA is a fixed proportion of initial notional:

cn = CVA/Notional=CVA/(deposit*leverage)

$CVA = cn * notional (with cn fixed per market)

cn depends on the volatility and risk of the coin.

• When measured as a fraction of collateral, CVA increases with leverage:

cd = CVA/deposit = cn * leverage

• In order to avoid excessive trader risk, leverage is capped so that maintenance margin (CVA) does not exceed 65% of deposit.

• The initial CVA in dollar terms remains unchanged as long as the position in unchanged

2) parameters are as follows

• cn=CVA/notional starts from just above to 1% (1.08% for BTC and ETH), is 1.3-1.5% for blue chips (most alt and layer 2 coins), 4%-5% for exotic coins (three very risky coins require even more margin)

• maxLeverage (where cd=CVA/deposit = 65%) is 60x for ETH and BTC, 40-50x for alts and layer 2 (ARB, OP), and down to 20-25 for exotic coins (3 coins have lower leverage)

Overall, each Market has a different parameters depending on its volatility and risk, with max leverage falling as risk increases, see full list in Max Leverage.

CVA and maxLLeverage Formulas:

maxLev= 65\%/ ($CVA/notional) = 65\%/ cn

maxLeverage is (expect for 3 coins) is in the 20-60 range

Example:

Consider a scenario where User A desires to engage in a trade with a leverage of buying a 10,000 USDT 60x BTC Long (the maximum leverage for BTC is set at 60x).

1. User A navigates to the SYMMIO frontend.

2. Upon arrival, User A expresses an intent:

Tade Size: 10,000 USDT 
Leverage: 60x, 
Notional value: 600,000 USDT. 
Price: $34,676.1 per BTC, 
Size: 17.31 BTC.

3. The frontend then responds with the Solvers required Maintenance Margin of:

CVA: 6499.84 USDT

The CVA (Credit Value Adjustment) for this trade is calculated as:

$$CVA=10,000×0.65 = 6500 USDT$$

Should the unrealized profit and loss (uPnL) on his BTC position reach -$3500, User A will automatically be moved into the Liquidation Process by Liquidators. This example illustrates the interplay of leverage, CVA, and the liquidation threshold within the Rasa - Demo Solver environment facilitated through the SYMMIO frontend.