#Protocol Overview

This section covers the technical mechanics of how Exolane works under the hood.

#Architecture

Exolane is built on a modular smart contract architecture:

text
┌─────────────────────────────────────────────────────────────┐
│                         EXOLANE PROTOCOL                     │
├─────────────────────────────────────────────────────────────┤
│                                                              │
│  ┌─────────────┐    ┌─────────────┐    ┌─────────────┐     │
│  │   Markets   │    │   Oracles   │    │   Vaults    │     │
│  │  (Trading)  │◄───│   (Pyth)    │    │ (Liquidity) │     │
│  └─────────────┘    └─────────────┘    └─────────────┘     │
│         ▲                                     │             │
│         │                                     │             │
│         ▼                                     ▼             │
│  ┌─────────────┐    ┌─────────────┐    ┌─────────────┐     │
│  │ Controller  │    │  Invoker    │    │   Reserve   │     │
│  │ (Accounts)  │    │ (Batching)  │    │ (USDC/EXU)  │     │
│  └─────────────┘    └─────────────┘    └─────────────┘     │
│                                                              │
└─────────────────────────────────────────────────────────────┘

#Core Components

#Markets

Each market is an independent contract representing a tradeable asset:

Component Function
Market Contract Manages positions, margins, and settlements
Position Tracking Tracks all long and short positions
Risk Engine Enforces margin requirements and liquidations
Fee Collection Handles trading fees

#Oracle System

Prices are provided by Pyth Network:

Component Function
Oracle Factory Creates and manages oracle instances
Keeper Oracle Processes price updates
Pyth Integration Fetches prices from Pyth Network

#Collateral System

The protocol uses a wrapped stablecoin internally:

Component Function
USDC User-facing collateral
EXU (ExoUnit) Internal accounting token, 1:1 with USDC
Reserve Manages USDC↔EXU conversions

#Position Lifecycle

text
1. DEPOSIT      User deposits USDC → Gets EXU
      ↓
2. OPEN         User opens position with collateral
      ↓
3. ACTIVE       Position accrues PnL and funding
      ↓
4. SETTLEMENT   Oracle price updates → Position settles
      ↓
5. CLOSE        User closes position → PnL realized
      ↓
6. WITHDRAW     User withdraws USDC

#Settlement Mechanism

Exolane uses oracle-based settlement:

  1. User submits an order (open, close, modify)
  2. Order enters "pending" state
  3. Oracle updates with new price
  4. Order settles at oracle price
  5. Position state is updated

#Why Oracle Settlement?

Benefit Description
No front-running Orders settle at future price, not current
Fair execution All orders in same window get same price
Manipulation resistant Can't game the execution price
MEV protection Reduces opportunities for MEV extraction

#Risk Management

#Margin Requirements

Type BTC/ETH Other Markets
Initial Margin 10% (10x max) 20% (5x max)
Maintenance Margin 8% 16%

#Position Limits

Limit Purpose
Max Leverage Prevents excessive risk-taking
Position Caps Limits per-market exposure
Pending Limits Prevents order spam

#Liquidation

When margin falls below maintenance:

  • Position becomes liquidatable
  • Keepers can trigger liquidation
  • Position closes at oracle price
  • No liquidation penalty

#Funding Rate System

Funding rates balance long and short interest:

  • Longs pay shorts when more longs than shorts
  • Shorts pay longs when more shorts than longs
  • Rate is proportional to imbalance
  • Capped at ±15% per year

See Funding Rates for full details.

#Fee Structure

Fee Type Amount Recipient
Taker Fee 0.02% Protocol
Maker Fee 0.00% N/A
Funding Variable (capped ±15% APR) 100% to counter-traders
Liquidation Penalty 0.00% N/A

See Fee Structure for full details.

#Security Model

#Non-Custodial Design

  • Users control their funds via smart contracts
  • No admin function can transfer user collateral
  • All operations require user signatures
  • Multisig can pause operations in emergencies (including withdrawals)
  • Contracts use upgradeable proxies; upgrades are visible on-chain

#Governance

Role Control
Timelock Protocol parameter changes (7-day delay)
Multisig Emergency pause functionality
Coordinator Market-specific risk parameters

#Protocol Constraints

Key protocol behaviors are bounded by on-chain parameter limits:

  • Funding rate cap — currently ±15% APR per market, enforced by risk parameters and bounded by the protocol-level maxRate
  • Settlement mechanism — oracle-based; all orders settle at the next valid oracle price
  • Core math — position accounting and margin logic are defined in audited smart contracts

These parameters are configurable through governance (coordinator for market-level, timelock for protocol-level). They are not hardcoded immutable values. See Market Parameters for details.

#External Dependencies

#Pyth Network

  • Provides price feeds
  • Updated frequently (sub-second)
  • 40-second staleness threshold

#Arbitrum One

  • Layer 2 on Ethereum
  • Low fees (~$0.01 per transaction)
  • Fast confirmations (~250ms)

#Protocol Sections

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