Cumulative Price Impact in Vault Transactions

"Understanding Price Impact and Cumulative Price"

The vault manager records three key variables for each buy/sell transaction: Initial Price (price before the trade), Amount (trade size), and Execution Price (price at which the trade is filled).

Price Impact Loss measures the loss incurred on a single trade due to market impact. In deep-liquidity pairs (e.g., ETH/USDT spot) this loss is typically small, while in low-liquidity markets it tends to be larger.

To compute total adverse price impact over a period (e.g., daily for vaults), sum the individual Price Impact Loss values for all trades executed within that period.

Convert the total USDT lost to price impact for the period into a percentage of the vault’s Net Asset Value (NAV). That percentage is the vault’s Cumulative Price Impact for the period.

Cumulative Price Impact Tolerance (CPIT) is a predefined, immutable threshold set when the vault is created; it defines the maximum allowable cumulative price impact. Before executing any trade, the CPIT check is applied to ensure the post-trade cumulative price impact will not exceed the CPIT limit. If a trade would push the cumulative impact above CPIT, the trade is blocked or adjusted.