Hybrid Oracles

In this section we describe the mechanism behind the Hybrid Oracles

Hybrid Oracles combine TWAP Oracle with the Zero Coupon Bond pricing model for the PT in underlying asset by returning the maximum between the two feeds. Additionally, hybrid oracles upper bound the PT price by its redemption value.

Such approach enables

1. Having a LTV threshold under which no position can be liquidated by providing a lower bound on the price

2. Provide additional safeguards against price manipulation

Combining the TWAP Oracle with the Zero Coupon Bond Model

Assume we are given an expected implied rate $R$ at which we assume the PT will be trading. We then instantiate a Deterministic Oracle based on Zero Coupon Bond Model using the implied rate $R$, as described in Zero Coupon Bond Model, along with a TWAP Oracle that simply reports the EMA of the PT price in underlying asset.

We combine the two feeds by reporting the maximum between their two values. This allows to lower bound the TWAP oracle value in case of a large rise in the implied rate, thus effectively defining a LTV threshold at which no position can be liquidated assuming no negative rate. More specifically, let $D(t)$ be the value of the ZCB model based oracle at time $t$ and $S(t)$ be the value of the TWAP oracle feed at time $t$.

The hybrid oracle combines those two feeds by reporting

$$H(t) = \min \{\alpha, \max\{D(t), S(t)\}\}$$

where $\alpha$ is the redemption value of the PT.

Deployment

We describe in the TWAP and Hybrid Oracles Deploymenthow to deploy an instance of the Hybrid Oracle through the TWAP oracle factory.