Dissect the tradeXYZ pricing mechanism, how do they price in advance?

Editor’s Note: Last week, the AI chip startup Cerebras Systems, dubbed the “Nvidia Challenger,” officially listed on NASDAQ. On its first day of trading, the stock price soared to $350, nearly doubling the $185 IPO price, attracting widespread market attention.

But before 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. tradeXYZ achieves continuous trading and real-time price discovery through perpetual contracts—something traditional finance cannot touch—while allowing ordinary investors to participate in new stock pricing weeks ahead. This means that the gray market and roadshow models of traditional IPOs are being disrupted by on-chain finance, gradually eroding traditional pricing power.

Today, according to official news, tradeXYZ’s Pre-IPO market has officially launched SpaceX, with the code SPCX. As one of the most watched private companies globally, SpaceX is seen as a potential the largest IPO in human history, with market valuation expectations even reaching $2 trillion. If tradeXYZ successfully completes on-chain pricing for SpaceX again ahead of schedule, its influence could expand further.

This article was first published on March 19, providing a detailed breakdown of tradeXYZ’s pricing mechanism and operational logic. Below is the original content:

Early morning on March 9, tensions in Iran escalated. CME closed, ICE closed, all major global futures exchanges shut. The next official crude oil price quote would have to wait until Monday morning, hours later.

But Hyperliquid did not wait. On that day, the on-chain perpetual crude oil contract CL-USDC’s trading volume surged from the usual $21 million to over $1.2 billion. Traders, during the time window when traditional markets are closed, used an on-chain protocol to instantly price geopolitical risks.

This event was widely celebrated in crypto circles as another victory for DeFi. But few asked a more fundamental question: where does the price on this on-chain exchange come from when external markets are closed?

Where does the price come from when there are no external quotes?

tradeXYZ is the largest provider of traditional asset perpetual contracts on Hyperliquid, operating on the HIP-3 protocol, accounting for 90% of HIP-3’s total holdings. S&P 500, Nasdaq 100, WTI crude oil, gold, silver, and Korean stocks can all be traded 24/7 on it. But the pricing logic of perpetual contracts is completely different from spot markets. Spot prices are directly matched between buyers and sellers, while perpetual contracts need an “anchor” to tether the contract price to the real underlying asset. This anchor is the oracle.

In traditional futures markets, the anchor for pricing is the exchange itself. CME’s crude oil futures price is the crude oil price, requiring no additional reference. But tradeXYZ’s contracts run on Hyperliquid’s chain and are not directly connected to Chicago’s matching engine. When CME is open, tradeXYZ’s oracle directly references CME quotes, which is straightforward. The real challenge arises after CME closes.

tradeXYZ’s solution is to extract information from its own order book via the oracle. The system calculates a “impact price difference,” simply put: how much would the average transaction price be if someone buys or sells a large amount now? If someone sells a large amount, how much lower would the price be? This deviation reflects the imbalance of buy and sell forces in the order book. The oracle adds this deviation to the current price to produce a “target price,” then uses a decay function to slowly bring the current price toward the target.

The key is “slowly.” The oracle updates every 3 seconds, but each time it only moves a small part of the gap between current and target prices. The speed of this movement is controlled by a time constant. The larger the time constant, the more sluggish the oracle, making it harder to manipulate but also less responsive to real market sentiment.

At launch, tradeXYZ set this time constant to 8 hours. By November 2025, it was reduced to 1 hour. The reason relates to traders’ real money: tradeXYZ settles funding rates every hour. If the oracle tracks the real price too slowly, profitable traders will be drained by funding payments continuously.

As shown by the red line in the figure below, with an 8-hour delay, if you go long on crude oil and are correct, but it takes 8 hours for the oracle to catch up to the real price, during those 8 hours, the price never reaches your target (the real price), and your gains are heavily eroded by funding costs.

After reducing the parameter to 1 hour, the price reaches your expected level in just 5 hours (blue line), allowing the price to confirm your judgment faster and pay less in funding fees compared to before.

But a faster oracle also introduces new risks. If the oracle fails and stops for 6 hours, then suddenly recovers, the formula causes it to jump to 99.7% of the target price instantly. Such a sudden jump can trigger massive liquidations. tradeXYZ’s solution is to add a safety valve: no matter how long the actual downtime, each update’s effective time difference is capped at 6 minutes. Even if the oracle crashes and then recovers, the price can only move in small steps.

Cages, re-anchors, and Monday gaps

Oracle pricing solves the “how to price over the weekend” problem. But another question arises: how far can the price move freely?

tradeXYZ draws a “cage” around each contract. The mark price is limited within a certain percentage of the last external close price. This percentage equals the reciprocal of the maximum leverage. For example, crude oil contracts with 20x leverage have a cage of ±5% around the close price. If crude closed at $100 on Friday, the weekend mark price can only fluctuate between $95 and $105. Touching the boundary halts trading.

Crude oil contract closed over the weekend in March

Under normal weekends, this mechanism works well. The 5% space is enough to absorb most overnight volatility. But events like the geopolitical crisis on March 9 pushed the price directly to the cage boundary. All market information was compressed, and when CME opened on Monday, if the real price jumped 8%, a huge gap would form. Short sellers would be instantly liquidated, and market makers would suffer losses due to inability to hedge gradually.

By March 2026, tradeXYZ deployed “Price Discovery Boundary v2” on crude oil contracts. The core change: the cage size remains the same, but the cage can move. When the oracle price hits 90% of the current boundary, the system re-anchors the cage center to that boundary value, creating a new cage of the same size around the new anchor. Each direction can be re-anchored up to twice.

In concrete numbers: initial cage is $95 to $105. When the oracle rises to $104.50, re-anchoring triggers, and the new cage becomes $99.75 to $110.25. A second trigger shifts it to $104.74 to $115.76, which is the endpoint. Starting from $100, the maximum discoverable range expands to about $115.76.

This design ensures that the immediate volatility range at any moment remains within 5%, without changing the market maker’s risk model. Meanwhile, re-anchoring “acknowledges” the price movements that have already occurred, reducing the gap at Monday open. But the cost is clear: a long position with a liquidation price at -8% that was safe under v1 might, after a downward re-anchoring, enter the liquidation zone. tradeXYZ has deployed v2 first on two crude oil contracts and will observe the effects before deciding whether to expand.

Another key component of the pricing system is the funding rate. It acts like a rubber band tying the perpetual contract price to the oracle price: when the mark price is above the oracle, longs pay shorts; when below, shorts pay longs. tradeXYZ’s funding rate formula is similar to most crypto exchanges but scaled by a factor of 0.5.

This 0.5 is an adjustment for traditional assets. The basic annualized funding rate for crypto perpetuals is about 11%, reflecting the cost of leverage for assets like Bitcoin that have no dividends. But for stocks and commodities, the real holding cost is closer to SOFR plus 1-2 percentage points, around 5-6%. Multiplying by 0.5 reduces the annualized rate from 11% to about 5.5%, aligning with traditional assets. This is especially critical over weekends: the scale factor halves the weekend funding rate, and combined with the 1-hour time constant oracle, it allows traders with correct directional bets to retain most of their profits.

Different assets, different handling pipelines

Precious metals have active global spot markets. Gold, silver, platinum, and palladium prices are directly taken from spot quotes, with no futures roll-over issues. But crude oil and industrial metals lack a unified spot quote; tradeXYZ relies on CME futures as the basis for pricing. Futures have expiry dates, so the system switches from the current month to the next month contract each month. The problem is that prices of different contracts often differ. Storage costs and supply-demand expectations cause longer-dated futures to be priced higher than near-term ones. When switching, a price jump can cause unrealized profit/loss fluctuations, potentially triggering unwarranted liquidations.

tradeXYZ handles this with a gradual transition over five trading days: from the 5th to the 10th trading day of the month, the oracle price is a weighted average of the near-month and next-month contracts, with weights linearly changing each day.

Pricing of stock index contracts is even more complex. XYZ100 tracks the Nasdaq 100, but CME Nasdaq futures trade almost all day (5 days × 23 hours), providing a longer price reference than spot. tradeXYZ initially used futures prices to back out the spot, fixing a 4% discount rate to account for holding costs. But this fixed value diverges during Fed rate hikes. The v2 deployed in February 2026 switches to a dynamic calculation: at US market open, it uses the spot index directly, then derives an implied discount rate from the futures-spot spread; after hours, it uses this discount rate to back out the spot price.

There is also a special case: Korean stocks. tradeXYZ has listed Samsung Electronics, SK Hynix, and Hyundai Motor, which are quoted in Korean won on Korean exchanges. The oracle needs to overlay a USD/KRW exchange rate on the original quotes. Traders’ profits and losses reflect both stock price movements and exchange rate fluctuations.

Who is responsible for the consequences of parameter choices?

All these pricing mechanisms rely on a fundamental premise: there are enough market makers willing to continuously provide liquidity. Hyperliquid’s HLP market-making vault provides liquidity for native BTC and ETH perpetuals but does not cover third-party contracts deployed on HIP-3. tradeXYZ’s liquidity depends entirely on external market makers voluntarily participating. In extreme conditions, if liquidated positions cannot find counterparties, the system will not rely on a vault like Hyperliquid’s main platform but will trigger ADL (auto-deleveraging), forcibly closing the most profitable opposing positions in order of profitability.

The brilliance of this pricing system lies in its use of a set of mutually balancing parameters—oracle tracking speed, price discovery boundaries, funding rate scaling factors—to create a self-sufficient pricing environment even without external quotes. On March 18, the S&P chose to authorize tradeXYZ, likely because of this infrastructure that has proven resilient under real geopolitical crises.

But this system also has costs. Extracting information from the order book means that during periods of low liquidity (like late-night Korean stock contracts), small orders can cause large shifts in the oracle. The v2 price discovery boundary expands the weekend’s liquidation range, requiring leverage traders to reassess their safety margins. ADL means that even if you are correct, in extreme conditions, you can still be forcibly liquidated.

tradeXYZ has taken a radically different approach from traditional exchanges: shifting the power of pricing from centralized matching engines to a chain-based parameter system. Traditional exchanges close because clearing, risk control, and market making require human intervention. tradeXYZ cannot close; because on-chain contracts do not have “off-hours.” It must always provide a price. The March 9 crude oil event proved that this system can operate under pressure. But it also exposes a deeper question: when letting on-chain protocols take on the role of traditional financial infrastructure’s pricing, who is responsible for the consequences of parameter choices?

Adjusting the time constant from 8 hours to 1 hour was a decision by the tradeXYZ team. Upgrading from v1 to v2 price discovery boundaries was also a decision. These choices affect every trader’s liquidation line and funding rate. In traditional exchanges, such rule changes require regulatory approval and public notice. On-chain, a single parameter update can be done instantly.

In a system without HLP backstops, without regulatory arbitration, entirely reliant on parameter design to maintain order, understanding how these parameters influence your positions is understanding the true risks you bear.