# Open Interest

Mu Exchange utilizes a fully synthetic trading model that allows for greater theoretical open interest than traditional margin models, where open interest is limited to the TVL of a Margin LP. However, Mu has imposed two maximum limits to avoid tail risks: maxOI and maxnetOI.

maxOI defines the maximum open interest for either the long or short side that the vault can handle and is revised periodically based on the TVL of mxDAI Vault. Meanwhile, maxnetOI is an additional parameter implemented for risk management purposes. It is calculated as the absolute value of Long OI minus Short OI. It limits the net market exposure for a specific asset according to the maximum market risk on each asset.

To illustrate, let's use the ETH/USD trading pair as an example. Suppose the current long open interest over the maximum open interest is 12M/16M, while the current short open interest over the total open interest is 10M/16M. Assuming the maxnetOI is set at 2M for this pair, the resulting net open interest, 12M-10M=2M, has hit the total net open interest cap. As a result, new long positions can no longer be opened. However, the vault can accommodate an additional 4M short open interest without altering long open interest.

Last updated