Price Reference Policy

The price reference policy is a module that contains logic to gather price data from on-chain sources and compute a price reference for the instruments created on Volorca.

Operation

The price reference policy is updatable by deploying a new policy smart contract and pointing the factory to the new policy. Instruments that are created henceforth will have their price reference policy parameter set to this new policy.

Instruments that have already been created will continue to use the old price reference policy. (The price reference policy is one of the immutable parameters of an instrument contract.)

Care should be taken by users to check that the price reference policy contract is non-upgradeable. This means that the contract's price methodology cannot be altered once it has been deployed, in order to prevent any potential manipulation.

Price Reference Considerations

The price reference policy is an essential part of the Volorca Protocol since it determines the settlement outcome of the option instruments.

Price reference methodology is a non-trivial subject and should be enhanced with on-going research. This is why Volorca allows for the price reference policy to be transparently updatable, without affecting already-deployed instruments.

A common approach to resist price reference manipulation is simply to average it over more swap pools and/or longer time periods.

This may however, reduce its sensitivity to price changes. As an options protocol, it is important that we capture the volatility factor, so we do not want to become too de-sensitized to price changes.

The price reference policy should strike a balance between resistance to manipulation and sensitivity to price changes.

(See implementation details here.)