Here at Bybit, we are always looking to listen, care and improve, which is why we have introduced a new global spot price index and Mark Price system, based on the feedback of our clients. Let’s take a look at how we’ve made it better.
Why is Mark Price so crucial and important to clients/traders?
- Triggers liquidation
- Measures unrealized PnL
- Core design of the perpetual swap and reflect fairness and transparency
What is the global spot price index?
The global spot price index as the name suggests represents the global spot price of eg BTCUSD. Bybit currently uses Bitstamp, Coinbase Pro, and Kraken on an equal-weighted average.
How is the Mark Price calculated?
The Mark Price is the global spot price index plus a decaying funding basis rate, which is used as the reference price to anchor the global spot price while taking consideration of the Bybit internal buy and sell pressure. Along with the Last Traded Price, it is used as the dual price mechanism, with the Mark Price acting as the trigger for liquidation for perpetual contracts on Bybit.
Issues with the previous Mark Price system
Despite implementing a system which at the time we believed was as fair and transparent as possible, we fully admit that the system still had some issues (which we now believe are rectified)
- Still prone to Market manipulation - When the three exchanges were used to represent the global spot price index, without the measures in place to remove an exchange that significantly deviated from the others, the Mark Price was potentially prone to market manipulation during periods of lower liquidity.
- API connection issue/technical issue from any of the three exchanges - This could happen if, for example, one of the exchange undergoes maintenance unannounced, which would cause major issues to the global spot price index, thus affecting the Mark Price too.
The new Mark Price system explained
The new system, :coinUSD, is calculated from the index price of. Ecoin. Additional measures have been implemented on top of these already in place in the event of the price on one of the exchanges significantly deviating from the others.
How the new Mark Price calculation works:
We’re fully confident the new system will allow for a smarter, fairer and more transparent trading experience for our clients. Let’s look at how it will do this.
Bybit will temporarily remove the exchange from index calculation if:
- An exchange's coin spot transaction price has not updated within one minute, indicating that short-term liquidity is insufficient or they have stopped their service
- An exchange's spot trading price changes by more than 5% compared to the average price by other reference exchanges, indicating abnormal price fluctuations.
Subsequently, if the one-minute spot transaction price of the trading exchange is within 5% difference of the .coinUSD index, Bybit will automatically re-integrate the exchange back into index calculation.
Therefore, if there is a price deviation from one exchange, the Mark Price will NOT be affected. This will, consequently, create a fairer Mark price system for our traders.