Editor's Note: Last week, the AI chip newcomer known as the "NVIDIA Challenger," Cerebras Systems, officially landed on the Nasdaq. The stock price soared to $350 on the first day of trading, almost doubling from the $185 IPO price, attracting widespread market attention.

However, prior to the official listing, the Pre-IPO perpetual contracts on tradeXYZ had already provided on-chain price discovery for CBRS hours or even weeks in advance. Through perpetual contracts, tradeXYZ enabled continuous trading and real-time price discovery that traditional finance cannot reach, allowing retail investors to participate in pre-IPO pricing weeks ahead of time. This signifies that traditional finance's IPO gray market and roadshow process are being disrupted by on-chain finance, gradually eroding the pricing power of traditional finance.

Today, according to official sources, tradeXYZ's Pre-IPO market has officially launched SpaceX under the code SPCX. As one of the most anticipated unlisted companies globally, SpaceX is seen as a potential IPO of historic proportions, with market valuations even hinting at $2 trillion. If tradeXYZ once again successfully completes on-chain pricing for SpaceX in advance, its influence may further expand.

This article was first published on March 19, dissecting the pricing mechanism and operational logic of tradeXYZ in detail. The following is the original content:

In the early hours of March 9, tensions escalated in Iran. CME closed, ICE closed, and major global futures exchanges shut their doors. The next official quote for oil prices would not arrive until early Monday opening after more than ten hours.

However, the crude oil contract CL-USDC on Hyperliquid didn't wait. That day, the trading volume of this on-chain perpetual contract surged from a daily $21 million to over $12 billion. Traders, during the time window when traditional markets were closed, used an on-chain protocol to instantly price geopolitical risks.

This event has been hailed in the crypto community as another triumph of DeFi. But few have asked a more fundamental question: where does the price on this on-chain exchange come from when external markets are closed?

When there are no external quotes, where does the price come from?

tradeXYZ is the largest provider of traditional asset perpetual contracts on Hyperliquid, operating on the HIP-3 protocol, accounting for 90% of the total HIP-3 open interest. The S&P 500, Nasdaq 100, WTI Crude Oil, Gold, Silver, South Korean stocks can all be traded 24/7 on it. However, the pricing logic of perpetual contracts is entirely different from spot trading. While the price on spot exchanges is directly matched by buyers and sellers, perpetual contracts require an "anchor" to peg the contract price to the real price of the underlying asset. This anchor is the oracle.

In the traditional futures market, the pricing anchor is the exchange itself. The price of CME's crude oil futures contract is the price of oil itself and does not require any additional reference. However, tradeXYZ's contract runs on the Hyperliquid chain, which is not directly connected to Chicago's matching engine. When CME is open, tradeXYZ's oracle directly references CME's price quotes, which is straightforward. The real challenge arises after CME closes.

tradeXYZ's solution is to have the oracle extract information from its own order book. The system calculates an "impact price difference," which is simply: If someone wants to buy a large amount now, how much higher will the average transaction price be compared to the current price? If someone wants to sell a large amount, how much lower will it be? This deviation reflects the imbalance of buying and selling pressure in the order book. The oracle adds this deviation to the current price to get a "target price," and then uses a decay function to slowly converge the current price to the target price.

The key word here is "slowly." The oracle updates every 3 seconds, but each time it only moves a small portion of the gap between the current price and the target price. This movement speed is controlled by a time constant. The larger the time constant, the more sluggish the oracle, making it harder to manipulate, but also less able to reflect true market sentiment.

At the launch of tradeXYZ, this time constant was set to 8 hours. In November 2025, this parameter was lowered to 1 hour. The reason for the reduction is related to the traders' real money: tradeXYZ settles funding rates every 1 hour. The oracle tracking the real price too slowly would continuously drain profitable traders through funding rates.

As shown by the red line in the graph below, after the same 8 hours, if you are long on crude oil and the direction is correct, but the oracle took 8 hours to catch up to the real price, during these 8 hours, the price never reached your target position (the real price), and your gains were significantly eroded by funding rates.

After lowering the parameter to 1 hour, the price only took 5 hours to reach your expected position (blue line). The price can confirm your judgment more quickly, saving you from paying funding rates as many times as before.

However, a faster oracle also brings new risks. If the oracle fails for 6 hours and then suddenly recovers, according to the formula, it will jump to 99.7% of the target price in one step. This instant price jump can trigger large-scale liquidation. tradeXYZ's solution is to add a safety valve: regardless of how long it has actually been, the maximum effective time difference for each update is 6 minutes. Even if the oracle crashes and recovers, the price can only catch up in small steps.

Cage, Reanchor, and Monday Opening Gap

The oracle pricing solved the issue of "how to price over weekends." But another issue arose: to what extent can the price freely move?

tradeXYZ drew a "cage" around each contract. The mark price is restricted within a certain percentage range above and below the last external closing price. This percentage is equal to the reciprocal of the maximum leverage. For the crude oil contract with a maximum leverage of 20x, the cage is 5% above and below the closing price. If crude oil closed at $100 on Friday, the mark price over the weekend can only fluctuate between $95 and $105. If the boundary is touched, trading halts immediately.

Crude Oil Contract Halted Over Weekend in Early March

During a normal weekend, this mechanism works well. The 5% range is sufficient to absorb most overnight fluctuations. However, a geopolitical event of the magnitude seen on March 9th would push the price directly to the cage boundary. All market information is backlogged, and when CME opens on Monday, if the actual price jumped by 8%, a significant gap would form. Traders with short positions would be liquidated instantly, and market makers would suffer losses due to being unable to hedge gradually.

In March 2026, tradeXYZ deployed "Price Discovery Boundary v2" on the crude oil contract. The key change: the size of the cage remains the same, but the cage can move. When the oracle price touches the 90% position of the current boundary, the system reanchors the cage's center to the boundary value, creating a new cage of the same size around the new anchor point. A maximum of two reanchors can occur in each direction.

Using specific numbers: initial cage of $95 to $105. When the oracle rises to $104.50, a reanchor is triggered, and the new cage becomes $99.75 to $110.25. After another trigger, it becomes $104.74 to $115.76, which is the endpoint. Starting from $100, the maximum price discovery range expands to approximately $115.76.

This design keeps the instantaneous fluctuation range at 5% at all times, allowing market makers' risk model to remain unchanged. Meanwhile, reanchoring means the system "acknowledges" the price movement that has occurred, reducing the gap size at Monday's opening. However, the trade-off is clear: a long position with a liquidation price at -8% would be absolutely safe under v1 (as the price cannot reach -8%), but under v2, it may enter the liquidation range after a downward reanchor. tradeXYZ chose to first deploy v2 on two crude oil contracts and will decide on further rollout after observing the effects.

Another key component of the pricing system is the Funding Rate. The Funding Rate is like a rubber band that ties the perpetual contract price to the oracle price: when the mark price is above the oracle price, longs pay shorts; when it is below, shorts pay longs. The funding rate formula for tradeXYZ is the same as that of most crypto exchanges, but with a 0.5 scaling factor applied at the beginning.

This 0.5 is a calibration for traditional assets. The basic annualized funding rate for crypto perpetual contracts is around 11%, reflecting the pure cost of leverage, which is reasonable for assets like Bitcoin that do not pay dividends. However, for stocks and commodities, the real cost of carry is closer to SOFR plus 1 to 2 percentage points, around 5% to 6%. Multiplying by 0.5 reduces the basic annualized rate from 11% to around 5.5%, aligning it with traditional assets. This is particularly crucial on weekends: the scaling factor directly halves the weekend funding rate, and in combination with a 1-hour time-constant oracle, allows traders positioned in the right direction to retain most of their profits.

Different Assets, Different Price Feeds

Precious metals have active global spot markets. The external prices of gold, silver, platinum, and palladium are directly taken from spot quotations, eliminating the issue of futures rollover. However, crude oil and industrial metals do not have a unified spot quotation, so tradeXYZ can only use CME futures contracts as the pricing reference. Futures contracts have expiration dates, and the system needs to roll from the current month to the next month contract each month. The problem lies in the fact that the prices of these two contracts are usually different. Storage costs and supply-demand expectations can cause the price of the far-month contract to be higher than that of the near-month contract. If there is a price jump during this rollover, it can cause unrealized P&L swings for holders, potentially triggering unwarranted liquidations.

tradeXYZ's approach is to transition gradually over 5 trading days: from the 5th business day to the 10th business day of each month, the oracle price is a daily linearly weighted average of the near-month and far-month contracts.

Pricing stock index futures adds another layer of complexity. The XYZ100 tracks the Nasdaq 100, but CME's Nasdaq futures trade almost around the clock (5 days x 23 hours), providing a longer price reference than the spot market. Initially, tradeXYZ used the futures price to back into the spot, applying a fixed 4% discount rate to strip out the cost of carry. However, this fixed value deviates when the Federal Reserve raises interest rates. The v2 solution launched in February 2026 switched to a dynamic calculation: the U.S. stock market's opening price is directly derived from the spot index value, while an implied discount rate is reverse-calculated from the futures-spot basis; this discount rate is then used to infer the spot price in the post-market period.

There is another special case: South Korean equities. tradeXYZ has listed Samsung Electronics, SK Hynix, and Hyundai Motor, which are quoted in Korean won on the Korean exchange. The oracle needs to add a layer of USD/KRW exchange rate conversion to the original price. Holders' gains and losses reflect both stock price fluctuations and exchange rate movements.

Who Is Responsible for the Consequences of Parameter Selection?

All these pricing mechanisms are built on one assumption: there are enough market makers willing to provide continuous liquidity. Hyperliquid's HLP liquidity pool provides liquidity for native BTC and ETH perpetual contracts, but it does not cover third-party contracts deployed on HIP-3. tradeXYZ's liquidity relies entirely on external market makers voluntarily participating. In extreme market conditions, if the liquidated positions cannot find counterparties to take over, the system will not have a treasury like Hyperliquid's main site to fall back on but will directly trigger ADL (Automatic Deleveraging), forcibly closing out the most profitable counterparty positions based on profit ranking.

The sophistication of this pricing system lies in its use of a set of interrelated parameters—the oracle's tracking speed, the price discovery boundary, and the funding rate scaling factor—to build a pricing environment that can be self-sustaining in the absence of external quotes. Standard & Poor's decision to authorize tradeXYZ on March 18 may be a testament to the resilience of this infrastructure in a real geopolitical crisis.

However, this system also has its costs. The oracle extracts information from the order book, which means that in periods of low liquidity (such as late-night South Korean stock futures), small orders can significantly move the oracle. Price discovery boundary v2 has expanded the scope of liquidation over weekends, requiring leveraged traders to reassess their safety margins. ADL means that even if you are correct in your judgment, you may still be forcibly liquidated in extreme market conditions.

tradeXYZ has chosen a path completely different from traditional exchanges: transferring the pricing power from a centralized matching engine to a set of on-chain parameter systems. Traditional exchanges close because clearing, risk control, and market making require manual intervention. tradeXYZ cannot close its doors because on-chain contracts do not have a concept of “closing time.” It must be able to provide a price at any moment. The oil event on March 9 demonstrated that this system can operate under pressure. However, it also exposed a fundamental issue: when you let on-chain protocols take on the pricing function of traditional financial infrastructure, who is responsible for the consequences of parameter selection?

The time constant was adjusted from 8 hours to 1 hour, a parameter decision made by the tradeXYZ team. The price discovery boundary upgrade from v1 to v2 was also such a decision. These determinations affect the liquidation line and funding rates of every holder. In traditional exchanges, rule changes of this kind require regulatory approval and a public notice period. On-chain, a parameter update can be carried out in one go.

In a system without HLP backing, without regulatory arbitration, and relying entirely on parameter design to maintain order, understanding how these parameters affect your position is understanding the risk you truly take.

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