Overview
Perpetual Trading Overview
Twilight introduces a new standard for Bitcoin perpetuals — combining privacy, capital efficiency, and on-chain verifiability within a single decentralized protocol.
Unlike conventional perp DEXs that rely on funding rate arbitrage or order book depth, Twilight uses a spot-priced liquidity pool architecture to maintain balance between longs and shorts — enabling interest-free leverage and basis-neutral trading.
Core Concept
In most perpetual exchanges, funding rates are used to align the perp price with spot markets.
Twilight redefines this mechanism into what it calls hourly market funding — a pool-based system that redistributes value between longs and shorts based on market imbalance, not price deviation.
The rate is computed each hour from the relative open interest across the pool:
skew_raw = (L_usd - S_usd) / (L_usd + S_usd) # Range: -1 to +1
rate_hr = (skew_raw * skew_raw) / (ψ * 8) # Unsigned rate
rate_hr = rate_hr * sign(skew_raw) # Directional fundingL_usd: total long position size
S_usd: total short position size
ψ: pool stability parameter
A positive rate means longs pay shorts; a negative rate means shorts pay longs.
This ensures market balance without introducing interest costs or external spot dependencies.
What This Means for Traders
Funding redistributes exposure, not debt.
No borrowing costs → leverage is inherently interest-free.
Pool incentives remain symmetric, rewarding contrarian liquidity that reduces skew.
All funding flows ultimately settle into the Twilight Liquidity Pool, increasing returns for liquidity providers.
System Design at a Glance
Twilight’s trading layer is composed of three coordinated modules:
Component
Function
Nyks Chain
Publishes verifiable trade metadata and pool states using the Cosmos SDK and Tendermint BFT consensus.
Relayer Core
Executes trades against the pool, handles margin updates, and applies hourly market funding.
zkOS
Processes encrypted balances, ensuring all position data and PnL remain private yet provable on-chain.
Together they deliver a trustless, privacy-preserving exchange with deterministic on-chain settlement.
User Roles
Role
Description
Trader
Opens long or short positions using SATS as margin collateral; pays or earns hourly funding depending on market direction.
Liquidity Provider (LP)
Supplies BTC or SATS liquidity to the pool and earns yield from trading fees, liquidations, and net funding inflows.
Market Maker / Institutional Participant
Connects via the Relayer API for automated hedging or arbitrage; benefits from zero interest cost and programmable execution.
Key Advantages
Interest-Free Leverage → No margin borrowing or financing costs.
Hourly Market Funding → Dynamic rate balances open interest while rewarding contrarian liquidity.
Encrypted Execution → All balances, positions, and PnL are shielded through zkOS.
Bitcoin-Denominated Settlement → All margin and yield accounted in SATS.
Basis-Neutral Design → Removes dependency on spot-perp price convergence.
Unified Pool Architecture → All positions share a common liquidity source for deterministic pricing and instant execution.
Lifecycle of a Trade
Position Opening → Trader deposits SATS as collateral; zkOS generates a proof of position.
Execution → Relayer executes trade directly against the Twilight Pool.
Funding Accrual → Hourly market funding is applied to margin continuously.
Settlement → On position close or liquidation, net PnL and accrued funding settle to the trader’s account and pool balance.
On-Chain Publication → An anonymized record of the trade and funding adjustment is published to Nyks for public verification.
Next Steps
Twilight Pool Mechanics → How liquidity is structured and returns are generated.
Pricing & Oracle Design → Learn how Twilight maintains spot-based pricing without order books.
Risk & Liquidation → Understand margin safety, liquidation triggers, and LP protection mechanisms.
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