Deconstructing tradeXYZ's Pricing Mechanism: How Do They Price Assets in Advance?

Editor’s Note: Last week, Cerebras Systems, the AI chip startup known as an "NVIDIA challenger," officially listed on Nasdaq. On its debut day, the stock price briefly surged to $350, nearly doubling from its $185 IPO price, sparking widespread market attention.

But before the official listing, Pre-IPO perpetual contracts on tradeXYZ had already provided on-chain price discovery for CBRS hours, or even weeks, in advance. By using perpetual contracts, tradeXYZ enables continuous trading and real-time price discovery that traditional finance cannot achieve, while allowing ordinary investors to participate in new stock pricing weeks ahead of schedule. This means that traditional finance’s IPO grey market and roadshow model are being upended by on-chain finance, with traditional financial pricing power gradually being eroded.

Today, according to official sources, tradeXYZ’s Pre-IPO market has officially launched SpaceX with the ticker SPCX. As one of the most closely watched private companies globally, SpaceX is considered a potential candidate for the largest IPO in human history, with market valuation expectations even pointing towards $2 trillion. If tradeXYZ once again successfully completes on-chain pricing for SpaceX ahead of time, 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 text:

In the early hours of March 9, tensions escalated in Iran. The CME was closed, the ICE was closed, and all major global futures exchanges had their doors shut. The next official quote for crude oil prices would not come until Monday’s morning session, over a dozen hours later.

But the CL-USDC crude oil contract on Hyperliquid did not wait. That day, the trading volume of this on-chain perpetual contract surged from its daily average of $21 million to over $1.2 billion. Traders used an on-chain protocol to instantly price geopolitical risks during the window when traditional markets were closed.

This was celebrated within the crypto circle as another victory for DeFi. But few asked a more fundamental question: When external markets are closed, where does the price on this on-chain exchange come from?

Where Does the Price Come From When There’s No External Quote?

tradeXYZ is the largest provider of perpetual contracts for traditional assets on Hyperliquid, operating on the HIP-3 protocol and accounting for 90% of all open positions on HIP-3. The S&P 500, Nasdaq 100, WTI crude oil, gold, silver, and individual Korean stocks can all be traded 24/7 on its platform. However, the pricing logic of perpetual contracts is fundamentally different from spot markets. While spot exchange prices are generated directly by matching buyers and sellers, perpetual contracts require an "anchor" to tether the contract price to the real price of the underlying asset. That anchor is the oracle.

In traditional futures markets, the anchor for pricing is the exchange itself. The CME crude oil futures price *is* the price of crude oil, requiring no additional frame of reference. But tradeXYZ’s contracts run on the Hyperliquid blockchain, with no direct connection to Chicago’s matching engines. When the CME is open, tradeXYZ’s oracle directly references CME quotes, which is technically straightforward. The real challenge arises after the CME closes.

tradeXYZ’s solution is to have its oracle extract information from its own order book. The system calculates an "impact price differential." Simply put, this measures how much higher the average execution price would be if someone made a large purchase compared to the current price, or how much lower for a large sale. This deviation reflects the imbalance of buying and selling pressure in the order book. The oracle adds this deviation to the current price to derive a "target price" and then uses a decay function to slowly move the current price towards the target price.

The keyword is "slowly." The oracle updates every 3 seconds, but each time it only moves a fraction 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, the more resistant it is to manipulation, but also the less it reflects real market sentiment.

Initially, tradeXYZ set this time constant to 8 hours. In November 2025, this parameter was lowered to 1 hour. The reason for the change was tied to traders’ actual profits: tradeXYZ settles funding rates every hour. If the oracle tracks the real price too slowly, profitable traders get continuously drained by funding rate payments.

As shown by the red line below, if you are long crude oil and your prediction is correct, but the oracle takes 8 hours to catch up to the real price, during those 8 hours, the price never reaches your target (the real price), and your profits are significantly eroded by funding rates.

After the parameter was reduced to 1 hour, the price reaches your expected level in just 5 hours (blue line). The price confirms your judgement faster, resulting in fewer funding fee payments compared to before.

But a faster oracle also brings new risks. If the oracle goes offline for, say, 6 hours and suddenly recovers, the formula would cause it to jump directly to 99.7% of the target price. Such a sudden price spike could trigger large-scale liquidations. tradeXYZ’s solution was to add a safety valve: regardless of how much actual time has passed, the effective time difference for each update is capped at a maximum of 6 minutes. Even if the oracle recovers after a crash, the price can only catch up step by step.

The Cage, Re-anchoring, and Monday’s Opening Gap

The oracle pricing solves the problem of "how to quote prices over the weekend." But another question arises: How freely can the price move?

tradeXYZ draws a "cage" for each contract. The mark price is constrained within a certain percentage above and below the last external closing price. This percentage equals the reciprocal of the maximum leverage. The crude oil contract offers maximum leverage of 20x, so the cage is within 5% above and below the closing price. If crude oil closes at $100 on Friday, the weekend mark price can only fluctuate between $95 and $105. If it hits the boundary, trading halts.

Weekend trading halt for crude oil contract in early March

On a normal weekend, this mechanism works fine. A 5% range is sufficient to absorb most overnight volatility. However, a geopolitical event like the one on March 9 can push the price directly to the cage boundary. If market information accumulates and the real price gaps up by 8% when the CME opens on Monday, a huge gap appears. Short sellers are liquidated instantly, and market makers suffer losses because they cannot hedge gradually.

In March 2026, tradeXYZ deployed "Price Discovery Boundary v2" for the crude oil contract. The core change: the cage size remains the same, but the cage can move. When the oracle price touches 90% of the current boundary, the system re-anchors the cage center to that boundary value, drawing a new cage of the same size around the new anchor. This re-anchoring can be executed a maximum of two times in each direction.

Using specific numbers: The initial cage is $95 to $105. When the oracle rises to $104.50, re-anchoring is triggered, and the new cage becomes $99.75 to $110.25. If triggered again, it becomes $104.74 to $115.76, which is the final point. Starting from $100, the maximum discoverable range expands to approximately $115.76.

This design ensures the instantaneous fluctuation range is always kept at 5%, so market makers’ risk models don’t need to change. At the same time, re-anchoring means the system "acknowledges" the price movement that has already occurred, reducing the size of the gap at Monday’s opening. But the trade-off is clear: a long position with a liquidation price at -8% is absolutely safe under v1 (since the price cannot reach -8%), but under v2, it could enter the liquidation zone after a downward re-anchoring. tradeXYZ chose to deploy v2 first on the two crude oil contracts and stated it would decide whether to expand after observing the results.

Another key component of the pricing system is the funding rate. The funding rate acts as the rubber band tethering the perpetual contract price to the oracle price: if the mark price is above the oracle, longs pay shorts; if below, shorts pay longs. tradeXYZ’s funding rate formula is similar to most crypto exchanges, but it incorporates a scaling factor of 0.5.

This 0.5 scaling factor is an adjustment specifically for traditional assets. The base annualized funding rate for crypto perpetuals is around 11%, reflecting the cost of holding pure leverage, which is reasonable for assets like Bitcoin that pay no dividends. However, for stocks and commodities, the real holding cost is closer to SOFR plus 1 to 2 percentage points, around 5% to 6%. Multiplying by 0.5 reduces the base annualized rate from about 11% to about 5.5%, aligning it with traditional assets. This is particularly crucial on weekends: the scaling factor effectively halves the weekend funding rate. When combined with the 1-hour time constant oracle, it allows traders on the right side of the trade to retain most of their profits.

Different Assets, Different Processing Pipelines

Precious metals have active global spot markets. External prices for gold, silver, platinum, and palladium are directly taken from spot quotes, so there is no issue with futures rollover. However, there is no unified spot quote for crude oil and industrial metals, so tradeXYZ must use CME futures contracts as the pricing basis. Futures have expiration dates, requiring the system to roll over from the current month’s contract to the next month’s contract each month. The problem is that the prices of these two contracts are usually different. Storage costs and supply-demand expectations can make the deferred month’s contract price higher than the nearby month’s. If prices jump abruptly during the rollover, a trader’s P&L can show artificial fluctuations, potentially triggering unwarranted liquidations.

tradeXYZ’s approach is to use a 5-trading-day transition period: from the 5th to the 10th business day of each month, the oracle price is a weighted average of the nearby and deferred month contracts, with the weight changing linearly each day.

Pricing for stock index contracts is more complex. XYZ100 tracks the Nasdaq 100, but CME Nasdaq futures trade almost around the clock (5 days x 23 hours), providing a price reference for a longer period than the spot market. Initially, tradeXYZ used futures prices to back-calculate spot prices, applying a fixed 4% discount rate to strip out the holding cost. However, this fixed value would become inaccurate when the Federal Reserve changes interest rates. The v2 solution, launched in February 2026, switched to dynamic calculation: it uses the spot index value directly during US stock market hours, while simultaneously back-calculating the implied discount rate from the futures/spot spread. During after-hours sessions, it uses this calculated discount rate to derive the spot price.

There is also a special case: individual Korean stocks. tradeXYZ lists Samsung Electronics, SK Hynix, and Hyundai Motor, which trade on the Korea Exchange quoted in Korean Won (KRW). So, the oracle must add a layer of USD/KRW exchange rate conversion to the original quote. Consequently, a trader’s P&L reflects both stock price fluctuations and exchange rate fluctuations.

Who is Responsible for the Consequences of Parameter Choices?

All these pricing mechanisms are built on one premise: there are enough market makers willing to continuously provide liquidity. Hyperliquid’s HLP vault provides liquidity for native BTC and ETH perpetuals but does not cover third-party contracts deployed on HIP-3. tradeXYZ’s liquidity relies entirely on the voluntary participation of external market makers. In extreme market conditions, if a liquidated position cannot find a counterparty to take it over, the system does not have a vault to backstop it like Hyperliquid’s main site does. Instead, it directly triggers ADL (Auto-Deleveraging), forcibly closing the most profitable counterparty positions in order of profitability.

The sophistication of this pricing system lies in its use of a set of interlocking parameters—the oracle’s tracking speed, the price discovery boundary, and the funding rate scaling factor—to construct a self-sufficient pricing environment that functions even without external quotes. When Standard & Poor’s decided to license to tradeXYZ on March 18, they were likely looking at this infrastructure that had been battle-tested during a real geopolitical crisis.

However, this system also has its costs. The oracle extracts information from the order book, meaning that during periods of thin liquidity (like late-night trading in Korean stock contracts), a few orders can significantly move the oracle. The Price Discovery Boundary v2 expands the range of liquidations possible over the weekend, forcing leveraged traders to reassess their safety margins. ADL means that even if your prediction is correct, you can be forcibly liquidated during extreme market conditions.

tradeXYZ has chosen a path completely different from traditional exchanges: transferring pricing power from centralized matching engines to a set of on-chain parameter systems. Traditional exchanges close because clearing, risk control, and market-making require windows for manual intervention. tradeXYZ cannot close because on-chain contracts don't have a concept of "closing time." It must be able to provide a price at any moment. The crude oil event on March 9 proved this system can function under pressure. But it also exposed a deeper issue: When on-chain protocols assume the pricing function of traditional financial infrastructure, who is responsible for the consequences of parameter choices?

Changing the time constant from 8 hours to 1 hour was a parameter decision made by the tradeXYZ team. Upgrading the Price Discovery Boundary from v1 to v2 was another. These decisions affect every trader's liquidation level and funding rate. In traditional exchanges, such rule changes require regulatory approval and a public notice period. On-chain, a single parameter update accomplishes the change.

In a system without HLP backstop, without regulatory arbitration, and relying entirely on parameter design to maintain order, understanding how these parameters affect your position is equivalent to understanding the real risks you are taking.