Delta_neutrality_fee_sensitivity is a configuration parameter within the Levana Perps Market. Its purpose is to enhance the market's sensitivity compared to the overall spot market. By making the Levana Perps Market "more sensitive," the platform ensures that it can effectively prevent potential precognition attacks launched by influential entities in the short-term spot market.
The primary reason for increasing sensitivity in the Levana Perps Market is to counteract the possibility of a precognition attack. In this context, a precognition attack involves a large player who can manipulate the short-term spot market price and immediately exploit this manipulation through betting on the Levana platform. This exploitative behavior is often seen as frontrunning, where the attacker seeks to arbitrage opportunities before others can react.
By making the Levana Perps Market more sensitive than the spot market, the platform creates an advantage for counter traders. When an attacker attempts to exploit the price difference between the spot market and the Levana market, the increased sensitivity ensures that the transformation from delta_neutrality_fee_sensitivity (DNF) effectively results in slippage for the attacker. This slippage, or difference in expected and actual execution prices, can be higher than the attacker's profits, making such attacks less lucrative.
While delta_neutrality_fee_sensitivity is a crucial mechanism to prevent certain attacks, it has its limitations. It cannot fully defend against attackers who have the ability to influence the price by an amount greater than the delta_neutrality_cap. The delta_neutrality_cap represents the maximum price movement allowed in the Levana Perps Market. Moreover, this sensitivity mechanism is not effective against attackers who can manipulate the price for an extended period, maintaining it at a new price level.
In conclusion, delta_neutrality_fee_sensitivity plays a crucial role in maintaining the integrity of the Levana Perps Market. By increasing market sensitivity, the platform guards against precognition attacks and minimizes the profitability of short-term price manipulations. However, it is essential to be aware of its limitations and understand that it is just one part of a comprehensive security strategy to ensure fair and transparent trading on the Levana platform.