Strategy Capacity

Strategy Capacity defines the maximum amount of capital the BasisOS vault can deploy effectively while still allowing positions to be closed without incurring excessive slippage. It considers limitations on both the spot and hedge sides of the strategy.

Technical Details:

• Spot Capacity: Determined by two main constraints:

  • Liquidity Constraint: $CAP_{liquidity} = T_l \times \$AvgPoolTVL$ where $T_l$ is a fixed percentage (e.g., 5%) and is the average total value locked for the asset.

  • Slippage Constraint: Ensures that the trade-induced price impact does not exceed a predefined maximum slippage: $slpg(CAPslippage) < T_s$

  • Effective Spot Capacity: $CAP_{spot} = \min (CAP_{liquidity}, CAP_{slippage})$

• Hedge Capacity: Based on the average open interest ($AvgOI) and a threshold percentage $T_{oi}$ (e.g., 10%): $CAP_{hedge} = T_{oi} \times \$AvgOI$

• Overall Vault Capacity: The vault’s effective capacity is the minimum of the spot and hedge capacities: $\text{Vault Capacity} = \min (CAP_{spot}, CAP_{hedge})$

• Purpose: These constraints ensure that positions can be adjusted (or liquidated) with acceptable slippage and without significantly affecting market depth. They also help maintain the balance between spot and hedge positions, which is critical for achieving the targeted leverage and overall risk profile.