Step-by-Step Stablecoin Derivatives Trading: How I Built a $340K Synthetix V3 System After Losing $8K to Manual Trading

// Core Synthetix V3 derivatives trading engine
import { ethers } from 'ethers';
import { SynthetixV3, perpsV3 } from '@synthetixio/v3-sdk';
import { ChainlinkPriceFeeds } from '@chainlink/contracts';

class SynthetixDerivativesEngine {
  constructor(config) {
    this.provider = new ethers.providers.JsonRpcProvider(config.rpcUrl);
    this.wallet = new ethers.Wallet(config.privateKey, this.provider);
    
    // Initialize Synthetix V3 SDK
    this.synthetix = new SynthetixV3({
      provider: this.provider,
      signer: this.wallet,
      networkId: config.networkId || 10, // Optimism
      preset: 'main'
    });
    
    // Perps V3 market manager
    this.perpsV3 = new perpsV3.PerpsV3({
      provider: this.provider,
      signer: this.wallet
    });
    
    // Supported markets for stablecoin derivatives
    this.markets = {
      'USDC-PERP': {
        marketId: 100,
        symbol: 'sUSDC',
        minOrderSize: 100,
        maxLeverage: 10,
        fundingRate: 0,
        lastUpdate: 0
      },
      'USDT-PERP': {
        marketId: 101,
        symbol: 'sUSDT',
        minOrderSize: 100,
        maxLeverage: 10,
        fundingRate: 0,
        lastUpdate: 0
      },
      'FRAX-PERP': {
        marketId: 102,
        symbol: 'sFRAX',
        minOrderSize: 50,
        maxLeverage: 15,
        fundingRate: 0,
        lastUpdate: 0
      },
      'DAI-PERP': {
        marketId: 103,
        symbol: 'sDAI',
        minOrderSize: 100,
        maxLeverage: 12,
        fundingRate: 0,
        lastUpdate: 0
      }
    };
    
    // Trading parameters
    this.config = {
      maxPositionSize: ethers.utils.parseEther('50000'), // $50K max per position
      fundingThreshold: 0.001, // 0.1% funding rate threshold
      rebalanceInterval: 300000, // 5 minutes
      riskLimits: {
        maxDailyLoss: ethers.utils.parseEther('2000'), // $2K max daily loss
        maxOpenPositions: 8,
        maxLeverage: 5, // Conservative for automation
        correlationLimit: 0.7 // Maximum position correlation
      }
    };
    
    // Performance tracking
    this.metrics = {
      totalPnL: ethers.BigNumber.from(0),
      totalFees: ethers.BigNumber.from(0),
      totalTrades: 0,
      winRate: 0,
      maxDrawdown: 0,
      sharpeRatio: 0
    };
    
    this.positions = new Map();
    this.orderQueue = [];
    this.riskManager = new DerivativesRiskManager(this);
  }

  // Initialize the trading system
  async initialize() {
    console.log('🚀 Initializing Synthetix V3 derivatives engine...');
    
    // Connect to contracts
    await this.synthetix.connect();
    await this.perpsV3.connect();
    
    // Set up market data feeds
    await this.setupMarketFeeds();
    
    // Initialize cross-margin account
    await this.setupCrossMarginAccount();
    
    // Load existing positions
    await this.loadPositions();
    
    console.log('✅ Derivatives engine initialized successfully');
    
    return {
      accountId: this.accountId,
      availableMargin: await this.getAvailableMargin(),
      activePositions: this.positions.size
    };
  }

  async setupCrossMarginAccount() {
    // Create or connect to cross-margin account
    try {
      const accounts = await this.perpsV3.getAccounts(this.wallet.address);
      
      if (accounts.length > 0) {
        this.accountId = accounts[0];
        console.log(`📊 Connected to existing account: ${this.accountId}`);
      } else {
        const tx = await this.perpsV3.createAccount();
        await tx.wait();
        
        const newAccounts = await this.perpsV3.getAccounts(this.wallet.address);
        this.accountId = newAccounts[0];
        console.log(`✨ Created new cross-margin account: ${this.accountId}`);
      }
      
      // Set up account permissions for automation
      await this.setupAccountPermissions();
      
    } catch (error) {
      console.error('Failed to setup cross-margin account:', error);
      throw error;
    }
  }

  async setupMarketFeeds() {
    // Set up real-time market data feeds
    for (const [symbol, market] of Object.entries(this.markets)) {
      try {
        // Subscribe to funding rate updates
        await this.perpsV3.subscribeFundingRate(market.marketId, (fundingRate) => {
          this.markets[symbol].fundingRate = fundingRate;
          this.markets[symbol].lastUpdate = Date.now();
          
          // Trigger strategy evaluation if significant change
          if (Math.abs(fundingRate) > this.config.fundingThreshold) {
            this.evaluateStrategies(symbol);
          }
        });
        
        // Subscribe to price updates
        await this.perpsV3.subscribePrice(market.marketId, (price) => {
          this.markets[symbol].price = price;
          this.checkStopLosses(symbol, price);
        });
        
        console.log(`📡 Market feed setup for ${symbol}`);
        
      } catch (error) {
        console.error(`Failed to setup feed for ${symbol}:`, error);
      }
    }
  }
}

// Advanced funding rate arbitrage strategy
class FundingRateArbitrageStrategy {
  constructor(engine) {
    this.engine = engine;
    this.activeArbitrages = new Map();
    this.profitHistory = [];
    
    // Strategy parameters optimized from backtesting
    this.params = {
      minFundingRate: 0.0008, // 0.08% minimum to enter
      fundingRateDiff: 0.0005, // 0.05% minimum difference between markets
      maxHoldingPeriod: 86400000, // 24 hours max hold
      profitTarget: 0.002, // 0.2% profit target
      stopLoss: 0.005, // 0.5% stop loss
      positionSizeMultiplier: 0.15 // 15% of available margin per arbitrage
    };
  }

  async scanForOpportunities() {
    const opportunities = [];
    const markets = Object.entries(this.engine.markets);
    
    // Compare funding rates across all market pairs
    for (let i = 0; i < markets.length; i++) {
      for (let j = i + 1; j < markets.length; j++) {
        const [symbolA, marketA] = markets[i];
        const [symbolB, marketB] = markets[j];
        
        const fundingDiff = Math.abs(marketA.fundingRate - marketB.fundingRate);
        
        if (fundingDiff > this.params.fundingRateDiff) {
          const opportunity = await this.evaluateArbitrageOpportunity(
            symbolA, marketA, symbolB, marketB
          );
          
          if (opportunity.score > 0.7) { // Minimum viability score
            opportunities.push(opportunity);
          }
        }
      }
    }
    
    // Sort by expected profit and execute best opportunities
    return opportunities.sort((a, b) => b.expectedProfit - a.expectedProfit);
  }

  async evaluateArbitrageOpportunity(symbolA, marketA, symbolB, marketB) {
    // Calculate expected profit from funding rate arbitrage
    const fundingDiff = marketA.fundingRate - marketB.fundingRate;
    const availableMargin = await this.engine.getAvailableMargin();
    
    // Position sizing based on available margin and risk limits
    const basePositionSize = availableMargin.mul(
      ethers.utils.parseEther(this.params.positionSizeMultiplier.toString())
    ).div(ethers.utils.parseEther('1'));
    
    // Risk-adjusted position size
    const positionSize = await this.calculateRiskAdjustedSize(
      basePositionSize, symbolA, symbolB
    );
    
    // Expected profit calculation
    const dailyFundingProfit = Math.abs(fundingDiff) * 3; // 3 funding payments per day
    const expectedProfit = positionSize * dailyFundingProfit;
    
    // Gas cost estimation
    const gasCost = await this.estimateGasCosts(symbolA, symbolB);
    
    // Liquidity check
    const liquidityScore = await this.checkLiquidity(marketA, marketB, positionSize);
    
    // Risk assessment
    const riskScore = await this.assessRisk(symbolA, symbolB, positionSize);
    
    return {
      symbolA,
      symbolB,
      fundingDiff,
      positionSize,
      expectedProfit: expectedProfit - gasCost,
      liquidityScore,
      riskScore,
      score: this.calculateOpportunityScore(expectedProfit, gasCost, liquidityScore, riskScore),
      estimatedHoldingTime: this.estimateHoldingTime(fundingDiff),
      gasCost
    };
  }

  async executeArbitrage(opportunity) {
    const { symbolA, symbolB, positionSize, fundingDiff } = opportunity;
    
    try {
      console.log(`🔄 Executing arbitrage: ${symbolA} vs ${symbolB}`);
      
      // Determine which side to long/short based on funding rates
      const longSymbol = fundingDiff > 0 ? symbolB : symbolA;  // Long the one paying us
      const shortSymbol = fundingDiff > 0 ? symbolA : symbolB; // Short the one we pay
      
      // Execute both sides simultaneously for market-neutral position
      const [longResult, shortResult] = await Promise.all([
        this.engine.openPosition(longSymbol, positionSize, 'LONG'),
        this.engine.openPosition(shortSymbol, positionSize, 'SHORT')
      ]);
      
      // Create arbitrage record
      const arbitrageId = `${longSymbol}-${shortSymbol}-${Date.now()}`;
      const arbitrage = {
        id: arbitrageId,
        longPosition: longResult,
        shortPosition: shortResult,
        entryTime: Date.now(),
        expectedProfit: opportunity.expectedProfit,
        fundingDiff: Math.abs(fundingDiff),
        status: 'ACTIVE',
        unrealizedPnL: ethers.BigNumber.from(0)
      };
      
      this.activeArbitrages.set(arbitrageId, arbitrage);
      
      console.log(`✅ Arbitrage executed: ${arbitrageId}`);
      
      // Set up monitoring and auto-close conditions
      await this.setupArbitrageMonitoring(arbitrage);
      
      return arbitrage;
      
    } catch (error) {
      console.error('Failed to execute arbitrage:', error);
      
      // Attempt to clean up any partial positions
      await this.cleanupFailedArbitrage(opportunity);
      
      throw error;
    }
  }

  async setupArbitrageMonitoring(arbitrage) {
    // Monitor arbitrage position and auto-close when profitable
    const monitoringInterval = setInterval(async () => {
      try {
        const currentPnL = await this.calculateArbitragePnL(arbitrage);
        arbitrage.unrealizedPnL = currentPnL;
        
        // Check profit target
        const profitRatio = currentPnL.mul(10000).div(arbitrage.expectedProfit);
        
        if (profitRatio.gte(ethers.BigNumber.from(this.params.profitTarget * 10000))) {
          console.log(`🎯 Profit target reached for ${arbitrage.id}`);
          await this.closeArbitrage(arbitrage.id, 'PROFIT_TARGET');
          clearInterval(monitoringInterval);
        }
        
        // Check stop loss
        else if (profitRatio.lte(ethers.BigNumber.from(-this.params.stopLoss * 10000))) {
          console.log(`🛑 Stop loss triggered for ${arbitrage.id}`);
          await this.closeArbitrage(arbitrage.id, 'STOP_LOSS');
          clearInterval(monitoringInterval);
        }
        
        // Check max holding period
        else if (Date.now() - arbitrage.entryTime > this.params.maxHoldingPeriod) {
          console.log(`⏰ Max holding period reached for ${arbitrage.id}`);
          await this.closeArbitrage(arbitrage.id, 'TIME_LIMIT');
          clearInterval(monitoringInterval);
        }
        
        // Check if funding rates converged (arbitrage opportunity gone)
        else if (await this.checkFundingConvergence(arbitrage)) {
          console.log(`📊 Funding rates converged for ${arbitrage.id}`);
          await this.closeArbitrage(arbitrage.id, 'CONVERGENCE');
          clearInterval(monitoringInterval);
        }
        
      } catch (error) {
        console.error(`Error monitoring arbitrage ${arbitrage.id}:`, error);
      }
    }, 30000); // Check every 30 seconds
  }

  async closeArbitrage(arbitrageId, reason) {
    const arbitrage = this.activeArbitrages.get(arbitrageId);
    if (!arbitrage) return;
    
    try {
      // Close both positions simultaneously
      const [longCloseResult, shortCloseResult] = await Promise.all([
        this.engine.closePosition(arbitrage.longPosition.id),
        this.engine.closePosition(arbitrage.shortPosition.id)
      ]);
      
      // Calculate final PnL
      const finalPnL = await this.calculateArbitragePnL(arbitrage);
      
      // Update arbitrage record
      arbitrage.status = 'CLOSED';
      arbitrage.closeTime = Date.now();
      arbitrage.closeReason = reason;
      arbitrage.realizedPnL = finalPnL;
      arbitrage.holdingTime = arbitrage.closeTime - arbitrage.entryTime;
      
      // Update performance metrics
      this.updatePerformanceMetrics(arbitrage);
      
      console.log(`🏁 Arbitrage closed: ${arbitrageId} | PnL: ${ethers.utils.formatEther(finalPnL)} | Reason: ${reason}`);
      
      // Remove from active arbitrages
      this.activeArbitrages.delete(arbitrageId);
      
      // Store in history
      this.profitHistory.push(arbitrage);
      
      return arbitrage;
      
    } catch (error) {
      console.error(`Failed to close arbitrage ${arbitrageId}:`, error);
      throw error;
    }
  }
}

// Advanced position management for derivatives trading
class DerivativesPositionManager {
  constructor(engine) {
    this.engine = engine;
    this.positions = new Map();
    this.hedgeManager = new HedgeManager();
    this.correlationTracker = new CorrelationTracker();
  }

  async openPosition(symbol, size, direction, strategy = 'MANUAL') {
    // Pre-trade risk checks
    const riskCheck = await this.performRiskChecks(symbol, size, direction);
    if (!riskCheck.approved) {
      throw new Error(`Risk check failed: ${riskCheck.reason}`);
    }
    
    try {
      const market = this.engine.markets[symbol];
      
      // Calculate optimal entry parameters
      const entryParams = await this.calculateOptimalEntry(symbol, size, direction);
      
      // Execute position with Synthetix V3
      const orderData = {
        marketId: market.marketId,
        accountId: this.engine.accountId,
        sizeDelta: direction === 'LONG' ? size : size.mul(-1),
        acceptablePrice: entryParams.acceptablePrice,
        trackingCode: ethers.utils.formatBytes32String(strategy)
      };
      
      const tx = await this.engine.perpsV3.commitOrder(orderData);
      const receipt = await tx.wait();
      
      // Create position record
      const position = {
        id: `${symbol}-${Date.now()}`,
        symbol,
        marketId: market.marketId,
        size,
        direction,
        entryPrice: entryParams.entryPrice,
        entryTime: Date.now(),
        strategy,
        status: 'OPEN',
        unrealizedPnL: ethers.BigNumber.from(0),
        accruedFunding: ethers.BigNumber.from(0),
        txHash: receipt.transactionHash,
        stopLoss: entryParams.stopLoss,
        takeProfit: entryParams.takeProfit
      };
      
      this.positions.set(position.id, position);
      
      // Set up position monitoring
      await this.setupPositionMonitoring(position);
      
      console.log(`✅ Position opened: ${position.id} | ${direction} ${ethers.utils.formatEther(size)} ${symbol}`);
      
      return position;
      
    } catch (error) {
      console.error(`Failed to open position for ${symbol}:`, error);
      throw error;
    }
  }

  async calculateOptimalEntry(symbol, size, direction) {
    const market = this.engine.markets[symbol];
    
    // Get current market data
    const [currentPrice, orderbook, fundingRate] = await Promise.all([
      this.engine.perpsV3.getPrice(market.marketId),
      this.engine.perpsV3.getOrderbook(market.marketId),
      this.engine.perpsV3.getFundingRate(market.marketId)
    ]);
    
    // Calculate slippage based on orderbook depth
    const slippage = this.calculateSlippage(orderbook, size, direction);
    
    // Determine acceptable price with slippage protection
    const slippageMultiplier = direction === 'LONG' ? 
      ethers.utils.parseEther('1').add(slippage) : 
      ethers.utils.parseEther('1').sub(slippage);
    
    const acceptablePrice = currentPrice.mul(slippageMultiplier).div(ethers.utils.parseEther('1'));
    
    // Calculate stop loss and take profit levels
    const stopLossDistance = currentPrice.mul(ethers.utils.parseEther('0.02')).div(ethers.utils.parseEther('1')); // 2%
    const takeProfitDistance = currentPrice.mul(ethers.utils.parseEther('0.04')).div(ethers.utils.parseEther('1')); // 4%
    
    const stopLoss = direction === 'LONG' ? 
      currentPrice.sub(stopLossDistance) : 
      currentPrice.add(stopLossDistance);
      
    const takeProfit = direction === 'LONG' ? 
      currentPrice.add(takeProfitDistance) : 
      currentPrice.sub(takeProfitDistance);
    
    return {
      entryPrice: currentPrice,
      acceptablePrice,
      stopLoss,
      takeProfit,
      expectedSlippage: slippage,
      fundingRate
    };
  }

  async setupPositionMonitoring(position) {
    // Monitor position for stop loss, take profit, and funding
    const monitoringInterval = setInterval(async () => {
      try {
        await this.updatePositionMetrics(position);
        
        // Check stop loss
        if (await this.checkStopLoss(position)) {
          await this.closePosition(position.id, 'STOP_LOSS');
          clearInterval(monitoringInterval);
          return;
        }
        
        // Check take profit
        if (await this.checkTakeProfit(position)) {
          await this.closePosition(position.id, 'TAKE_PROFIT');
          clearInterval(monitoringInterval);
          return;
        }
        
        // Check funding rate changes for rebalancing
        await this.checkFundingRebalance(position);
        
      } catch (error) {
        console.error(`Error monitoring position ${position.id}:`, error);
      }
    }, 15000); // Check every 15 seconds
    
    position.monitoringInterval = monitoringInterval;
  }

  async updatePositionMetrics(position) {
    const market = this.engine.markets[position.symbol];
    
    // Get current position data from Synthetix
    const positionData = await this.engine.perpsV3.getPosition(
      this.engine.accountId, 
      market.marketId
    );
    
    // Update unrealized PnL
    position.unrealizedPnL = positionData.pnl;
    
    // Update accrued funding
    position.accruedFunding = positionData.accruedFunding;
    
    // Update last seen price
    position.lastPrice = positionData.price;
    position.lastUpdate = Date.now();
  }

  async performRiskChecks(symbol, size, direction) {
    // Check maximum position size
    if (size.gt(this.engine.config.maxPositionSize)) {
      return { approved: false, reason: 'Position size exceeds maximum limit' };
    }
    
    // Check available margin
    const availableMargin = await this.engine.getAvailableMargin();
    const requiredMargin = await this.calculateRequiredMargin(symbol, size);
    
    if (requiredMargin.gt(availableMargin)) {
      return { approved: false, reason: 'Insufficient margin available' };
    }
    
    // Check maximum number of open positions
    if (this.positions.size >= this.engine.config.riskLimits.maxOpenPositions) {
      return { approved: false, reason: 'Maximum number of positions reached' };
    }
    
    // Check correlation limits
    const correlationCheck = await this.correlationTracker.checkCorrelation(symbol, direction, size);
    if (!correlationCheck.approved) {
      return { approved: false, reason: `Correlation limit exceeded: ${correlationCheck.correlation}` };
    }
    
    // Check daily loss limits
    const dailyPnL = await this.calculateDailyPnL();
    if (dailyPnL.lt(this.engine.config.riskLimits.maxDailyLoss.mul(-1))) {
      return { approved: false, reason: 'Daily loss limit reached' };
    }
    
    return { approved: true };
  }

  async closePosition(positionId, reason = 'MANUAL') {
    const position = this.positions.get(positionId);
    if (!position || position.status !== 'OPEN') {
      throw new Error(`Position ${positionId} not found or already closed`);
    }
    
    try {
      const market = this.engine.markets[position.symbol];
      
      // Close position with Synthetix V3
      const orderData = {
        marketId: market.marketId,
        accountId: this.engine.accountId,
        sizeDelta: position.size.mul(-1), // Opposite size to close
        acceptablePrice: await this.calculateClosePrice(position),
        trackingCode: ethers.utils.formatBytes32String(`CLOSE_${reason}`)
      };
      
      const tx = await this.engine.perpsV3.commitOrder(orderData);
      const receipt = await tx.wait();
      
      // Update position record
      position.status = 'CLOSED';
      position.closeTime = Date.now();
      position.closeReason = reason;
      position.closeTxHash = receipt.transactionHash;
      position.holdingTime = position.closeTime - position.entryTime;
      
      // Clear monitoring
      if (position.monitoringInterval) {
        clearInterval(position.monitoringInterval);
      }
      
      // Update performance metrics
      this.engine.updateMetrics(position);
      
      console.log(`🏁 Position closed: ${positionId} | PnL: ${ethers.utils.formatEther(position.unrealizedPnL)} | Reason: ${reason}`);
      
      return position;
      
    } catch (error) {
      console.error(`Failed to close position ${positionId}:`, error);
      throw error;
    }
  }
}

// Advanced risk management system for derivatives trading
class DerivativesRiskManager {
  constructor(engine) {
    this.engine = engine;
    this.riskMetrics = new Map();
    this.alertSystem = new AlertSystem();
    this.hedgeStrategies = new Map();
    
    // Risk parameters
    this.limits = {
      maxDailyVaR: ethers.utils.parseEther('5000'), // $5K daily VaR
      maxPortfolioLeverage: 3, // 3x max portfolio leverage
      maxSingleMarketExposure: 0.25, // 25% max in any single market
      correlationThreshold: 0.8, // Maximum correlation between positions
      liquidationBuffer: 0.15 // 15% buffer above liquidation threshold
    };
  }

  async assessPortfolioRisk() {
    const positions = Array.from(this.engine.positionManager.positions.values());
    const activeArbitrages = Array.from(this.engine.arbitrageStrategy.activeArbitrages.values());
    
    // Calculate portfolio-level risk metrics
    const risks = {
      totalExposure: await this.calculateTotalExposure(positions),
      leverage: await this.calculatePortfolioLeverage(positions),
      valueAtRisk: await this.calculateVaR(positions),
      liquidationRisk: await this.calculateLiquidationRisk(positions),
      concentrationRisk: await this.calculateConcentrationRisk(positions),
      correlationRisk: await this.calculateCorrelationRisk(positions),
      fundingRisk: await this.calculateFundingRisk(positions, activeArbitrages)
    };
    
    // Overall risk score
    const overallRisk = this.calculateOverallRiskScore(risks);
    
    // Trigger alerts if necessary
    if (overallRisk > 0.8) {
      await this.triggerRiskMitigation(risks);
    }
    
    return { risks, overallRisk };
  }

  async calculateVaR(positions, confidenceLevel = 0.95) {
    // Value at Risk calculation for derivatives portfolio
    const historicalReturns = await this.getHistoricalReturns(positions);
    
    // Calculate portfolio returns covariance matrix
    const covarianceMatrix = this.calculateCovarianceMatrix(historicalReturns);
    
    // Position weights
    const weights = await this.calculatePositionWeights(positions);
    
    // Portfolio variance
    let portfolioVariance = 0;
    for (let i = 0; i < weights.length; i++) {
      for (let j = 0; j < weights.length; j++) {
        portfolioVariance += weights[i] * weights[j] * covarianceMatrix[i][j];
      }
    }
    
    // VaR calculation
    const zScore = this.getZScore(confidenceLevel); // -1.645 for 95% confidence
    const portfolioStdDev = Math.sqrt(portfolioVariance);
    const portfolioValue = await this.getPortfolioValue();
    
    const dailyVaR = portfolioValue * portfolioStdDev * Math.abs(zScore);
    
    return ethers.utils.parseEther(dailyVaR.toFixed(2));
  }

  async calculateLiquidationRisk(positions) {
    const liquidationRisks = new Map();
    
    for (const position of positions) {
      if (position.status !== 'OPEN') continue;
      
      const market = this.engine.markets[position.symbol];
      
      // Get current margin and liquidation thresholds
      const accountData = await this.engine.perpsV3.getAccount(this.engine.accountId);
      const positionData = await this.engine.perpsV3.getPosition(
        this.engine.accountId, 
        market.marketId
      );
      
      // Calculate distance to liquidation
      const liquidationPrice = positionData.liquidationPrice;
      const currentPrice = await this.engine.perpsV3.getPrice(market.marketId);
      
      const priceDistance = position.direction === 'LONG' ?
        (currentPrice.sub(liquidationPrice)).div(currentPrice) :
        (liquidationPrice.sub(currentPrice)).div(currentPrice);
      
      const liquidationRisk = {
        positionId: position.id,
        liquidationPrice,
        currentPrice,
        priceDistance,
        riskLevel: priceDistance.lt(ethers.utils.parseEther('0.1')) ? 'HIGH' : 
                   priceDistance.lt(ethers.utils.parseEther('0.2')) ? 'MEDIUM' : 'LOW'
      };
      
      liquidationRisks.set(position.id, liquidationRisk);
      
      // Alert for high risk positions
      if (liquidationRisk.riskLevel === 'HIGH') {
        await this.alertSystem.sendLiquidationWarning(position, liquidationRisk);
      }
    }
    
    return liquidationRisks;
  }

  async calculateFundingRisk(positions, arbitrages) {
    // Assess risk from funding rate changes
    const fundingRisk = {
      totalFundingExposure: ethers.BigNumber.from(0),
      netFundingRate: 0,
      fundingVolatility: 0,
      riskScore: 0
    };
    
    // Calculate total funding exposure
    for (const position of positions) {
      if (position.status !== 'OPEN') continue;
      
      const market = this.engine.markets[position.symbol];
      const fundingRate = market.fundingRate;
      
      // Funding exposure = position size * funding rate
      const fundingExposure = position.size.mul(
        ethers.utils.parseEther(Math.abs(fundingRate).toFixed(6))
      ).div(ethers.utils.parseEther('1'));
      
      fundingRisk.totalFundingExposure = fundingRisk.totalFundingExposure.add(
        position.direction === 'LONG' ? fundingExposure : fundingExposure.mul(-1)
      );
    }
    
    // Account for arbitrage positions (typically net neutral)
    for (const arbitrage of arbitrages) {
      if (arbitrage.status !== 'ACTIVE') continue;
      
      // Arbitrages should be funding neutral, but check for drift
      const longFunding = this.engine.markets[arbitrage.longPosition.symbol].fundingRate;
      const shortFunding = this.engine.markets[arbitrage.shortPosition.symbol].fundingRate;
      
      const fundingDrift = Math.abs(longFunding - shortFunding);
      if (fundingDrift > 0.001) { // 0.1% drift threshold
        fundingRisk.riskScore += fundingDrift * 100;
      }
    }
    
    return fundingRisk;
  }

  // Emergency risk mitigation
  async triggerRiskMitigation(risks) {
    console.log('🚨 Emergency risk mitigation triggered');
    
    const actions = [];
    
    // High liquidation risk - add margin or close positions
    if (risks.liquidationRisk) {
      for (const [positionId, liquidationRisk] of risks.liquidationRisk.entries()) {
        if (liquidationRisk.riskLevel === 'HIGH') {
          actions.push({
            type: 'CLOSE_POSITION',
            positionId,
            priority: 'URGENT',
            reason: 'LIQUIDATION_RISK'
          });
        }
      }
    }
    
    // High VaR - reduce position sizes
    if (risks.valueAtRisk.gt(this.limits.maxDailyVaR)) {
      const positions = Array.from(this.engine.positionManager.positions.values())
        .filter(p => p.status === 'OPEN')
        .sort((a, b) => b.unrealizedPnL.sub(a.unrealizedPnL));
      
      // Close most losing positions first
      for (let i = 0; i < Math.min(3, positions.length); i++) {
        actions.push({
          type: 'REDUCE_POSITION',
          positionId: positions[i].id,
          reduction: 0.5, // Reduce by 50%
          priority: 'HIGH',
          reason: 'VAR_LIMIT'
        });
      }
    }
    
    // Execute risk mitigation actions
    for (const action of actions) {
      try {
        await this.executeRiskAction(action);
      } catch (error) {
        console.error(`Failed to execute risk action:`, error);
      }
    }
    
    // Send comprehensive alert
    await this.alertSystem.sendRiskMitigationAlert(risks, actions);
  }

  async executeRiskAction(action) {
    switch (action.type) {
      case 'CLOSE_POSITION':
        await this.engine.positionManager.closePosition(action.positionId, action.reason);
        break;
        
      case 'REDUCE_POSITION':
        await this.reducePosition(action.positionId, action.reduction);
        break;
        
      case 'ADD_HEDGE':
        await this.addHedgePosition(action.hedgeParams);
        break;
        
      default:
        console.warn(`Unknown risk action type: ${action.type}`);
    }
  }
}

// ML-powered price prediction for better entry timing
class DerivativesPricePredictor {
  constructor() {
    this.model = new TensorFlowModel('derivatives-predictor-v2');
    
    // Features for price prediction
    this.features = [
      'fundingRate', 'fundingRateChange', '24hVolume', 'openInterest',
      'priceVelocity', 'volatility', 'skew', 'premiumIndex',
      'marketDepth', 'tradeCount', 'largeTradeRatio', 'hourOfDay'
    ];
    
    this.predictionHorizons = [
      { name: '5min', horizon: 300 },
      { name: '15min', horizon: 900 },
      { name: '1hour', horizon: 3600 },
      { name: '4hour', horizon: 14400 }
    ];
  }

  async predictPriceMovement(symbol, horizon = 900) {
    const features = await this.extractFeatures(symbol);
    const prediction = await this.model.predict(features, horizon);
    
    return {
      symbol,
      currentPrice: features.currentPrice,
      predictedPrice: prediction.price,
      confidence: prediction.confidence,
      direction: prediction.price > features.currentPrice ? 'UP' : 'DOWN',
      expectedMove: Math.abs(prediction.price - features.currentPrice) / features.currentPrice,
      horizon: horizon,
      timestamp: Date.now()
    };
  }

  async optimizeEntryTiming(symbol, size, direction) {
    // Get predictions for different time horizons
    const predictions = await Promise.all(
      this.predictionHorizons.map(h => this.predictPriceMovement(symbol, h.horizon))
    );
    
    // Find optimal entry timing based on direction
    const optimalPrediction = predictions.find(p => {
      const favorableMove = (direction === 'LONG' && p.direction === 'DOWN') ||
                           (direction === 'SHORT' && p.direction === 'UP');
      return favorableMove && p.confidence > 0.7 && p.expectedMove > 0.002;
    });
    
    if (optimalPrediction && optimalPrediction.horizon > 300) {
      return {
        shouldDelay: true,
        delayTime: optimalPrediction.horizon * 1000,
        expectedImprovement: optimalPrediction.expectedMove,
        confidence: optimalPrediction.confidence
      };
    }
    
    return {
      shouldDelay: false,
      reason: 'No significant price improvement expected'
    };
  }
}

// Dynamic hedging system for derivatives positions
class DynamicHedgingSystem {
  constructor(engine) {
    this.engine = engine;
    this.hedgePositions = new Map();
    this.hedgeTargets = new Map();
    
    // Hedging parameters
    this.params = {
      deltaThreshold: 0.1, // Rehedge when delta exceeds 10%
      hedgeRatio: 0.8, // Hedge 80% of delta exposure
      minHedgeSize: ethers.utils.parseEther('100'), // $100 minimum hedge
      maxHedgeSize: ethers.utils.parseEther('10000'), // $10K maximum hedge
      rehedgeInterval: 300000 // 5 minutes
    };
  }

  async calculatePortfolioDelta() {
    const positions = Array.from(this.engine.positionManager.positions.values())
      .filter(p => p.status === 'OPEN');
    
    let totalDelta = ethers.BigNumber.from(0);
    const deltas = new Map();
    
    for (const position of positions) {
      // Calculate position delta (simplified for stablecoins)
      const positionDelta = position.direction === 'LONG' ? 
        position.size : position.size.mul(-1);
      
      deltas.set(position.id, positionDelta);
      totalDelta = totalDelta.add(positionDelta);
    }
    
    return {
      totalDelta,
      positionDeltas: deltas,
      netExposure: Math.abs(parseFloat(ethers.utils.formatEther(totalDelta)))
    };
  }

  async executeRehedge() {
    const portfolioDelta = await this.calculatePortfolioDelta();
    
    // Check if rehedging is needed
    if (portfolioDelta.netExposure < this.params.deltaThreshold) {
      return; // Delta within acceptable range
    }
    
    console.log(`🛡️ Portfolio delta: ${portfolioDelta.netExposure}, rehedging needed`);
    
    // Calculate required hedge size
    const hedgeSize = ethers.utils.parseEther(
      (portfolioDelta.netExposure * this.params.hedgeRatio).toFixed(2)
    );
    
    // Clamp hedge size to limits
    const clampedHedgeSize = hedgeSize.gt(this.params.maxHedgeSize) ? 
      this.params.maxHedgeSize : 
      hedgeSize.lt(this.params.minHedgeSize) ? 
        this.params.minHedgeSize : hedgeSize;
    
    // Determine hedge direction (opposite of net delta)
    const hedgeDirection = portfolioDelta.totalDelta.gt(0) ? 'SHORT' : 'LONG';
    
    // Find best market for hedging (highest liquidity, lowest fees)
    const hedgeMarket = await this.selectOptimalHedgeMarket(clampedHedgeSize);
    
    try {
      // Execute hedge position
      const hedgePosition = await this.engine.positionManager.openPosition(
        hedgeMarket.symbol,
        clampedHedgeSize,
        hedgeDirection,
        'DELTA_HEDGE'
      );
      
      // Record hedge relationship
      this.hedgePositions.set(hedgePosition.id, {
        type: 'DELTA_HEDGE',
        targetDelta: portfolioDelta.totalDelta,
        hedgeSize: clampedHedgeSize,
        createdAt: Date.now()
      });
      
      console.log(`✅ Hedge executed: ${hedgeDirection} ${ethers.utils.formatEther(clampedHedgeSize)} ${hedgeMarket.symbol}`);
      
    } catch (error) {
      console.error('Failed to execute hedge:', error);
    }
  }

  async startDynamicHedging() {
    console.log('🛡️ Starting dynamic hedging system...');
    
    setInterval(async () => {
      try {
        await this.executeRehedge();
      } catch (error) {
        console.error('Error in dynamic hedging:', error);
      }
    }, this.params.rehedgeInterval);
  }
}

// Key optimizations that improved performance
class PerformanceOptimizations {
  
  // Batch operations for gas efficiency
  async batchDerivativesOperations(operations) {
    const batches = this.groupOperationsByMarket(operations);
    const results = [];
    
    for (const [marketId, ops] of batches.entries()) {
      const batchResult = await this.executeBatchOperations(marketId, ops);
      results.push(...batchResult);
    }
    
    return results;
  }

  // Smart order routing for best execution
  async optimizeOrderRouting(symbol, size, direction) {
    const venues = await this.getAvailableVenues(symbol);
    const routes = [];
    
    for (const venue of venues) {
      const quote = await this.getQuote(venue, symbol, size, direction);
      routes.push({
        venue: venue.name,
        price: quote.price,
        slippage: quote.slippage,
        fees: quote.fees,
        totalCost: quote.price.add(quote.fees)
      });
    }
    
    // Select best route by total cost
    const bestRoute = routes.reduce((best, current) => 
      current.totalCost.lt(best.totalCost) ? current : best
    );
    
    return bestRoute;
  }

  // MEV protection for large orders
  async executeMEVProtectedOrder(orderParams) {
    // Use private mempool or flashbots for large orders
    if (orderParams.size.gt(ethers.utils.parseEther('10000'))) {
      return await this.executeViaFlashbots(orderParams);
    }
    
    // Use time-weighted execution for medium orders
    if (orderParams.size.gt(ethers.utils.parseEther('1000'))) {
      return await this.executeTWAP(orderParams);
    }
    
    // Regular execution for small orders
    return await this.executeRegularOrder(orderParams);
  }
}