Exercise 7: Drift Market Creation and Strategy Analysis

⏰ Time Investment: 45-60 minutes 🎯 Goal: Understand Drift's hybrid architecture and cross-margin system for advanced strategies

📚 Required Reading Integration 📖 Primary: Lesson 7: Drift Protocol - Solana's Hybrid Architecture 📖 Supporting: Lesson 3: Architecture Types and Market Structure

🔍 Phase 1: Liquidity Trifecta Understanding (15 minutes)

Cross-Margin Strategy Template
Drift Market Analysis Template

Exercise 1: Execution Flow Analysis

Scenario: Market order to buy 100 SOL-PERP

Trace the Execution:

  1. Order submitted → Enters _______ (Layer 1)

  2. Duration: _______ seconds

  3. If filled: Best price from _______

  4. If not filled: Moves to _______ (Layer 2)

  5. If still not filled: Routes to _______ (Layer 3)

Question: Why does this protect LPs?

  • Your answer: _________________________________

Exercise 2: JIT Auction Mechanics

Auction Parameters:

  • Duration: _______ seconds

  • Starting price: $_______

  • AMM price: $_______

Maker Competition:

  • Maker 1 bid: $_______

  • Maker 2 bid: $_______

  • Winner: Maker _______

  • Price improvement: $_______

Question: How does JIT internalize MEV?

  • Your answer: _________________________________

Exercise 3: DLOB vs. DAMM Comparison

Fill in the table:

Feature
DLOB
DAMM

Order Types

_______

_______

Price Precision

_______

_______

Liquidity Source

_______

_______

Execution Speed

_______

_______

Primary Use

_______

_______

💰 Phase 2: Cross-Margin System (20 minutes)

Exercise 4: Unified Margin Calculation

Portfolio Composition:

  • USDC: $5,000 (weight: 1.0x)

  • SOL: $3,000 (weight: 0.8x)

  • ETH: $2,000 (weight: 0.8x)

Calculate:

  • Total Portfolio Value: $_______

  • Weighted Buying Power: $_______

  • Available for Trading: $_______

Exercise 5: Cross-Margin Hedging Strategy

Setup:

  • Long BTC-PERP: $10,000

  • Short ETH-PERP: $10,000

  • Collateral: $5,000 USDC

Scenario 1: BTC +5%, ETH -3%

  • BTC P&L: $_______

  • ETH P&L: $_______

  • Net P&L: $_______

  • Portfolio Health: Improved / Worsened

Scenario 2: BTC -5%, ETH +3%

  • BTC P&L: $_______

  • ETH P&L: $_______

  • Net P&L: $_______

  • Portfolio Health: Improved / Worsened

Question: How does cross-margin help in this scenario?

  • Your answer: _________________________________

Exercise 6: Asset Weighting Impact

Collateral Options:

Asset
Amount
Weight
Buying Power

USDC

$10,000

1.0x

$_______

SOL

$10,000

0.8x

$_______

BONK

$10,000

0.5x

$_______

Question: Which collateral is most capital efficient?

  • Your answer: _______

  • Why: _________________________________

🎯 Phase 3: Advanced Order Types (15 minutes)

Exercise 7: Oracle-Pegged Orders

Use Case: Market maker wants to provide liquidity without constant updates

Order Setup:

  • Type: Oracle-Pegged

  • Offset: Oracle - $0.50

  • Current Oracle: $150

  • Your Order Price: $_______

If Oracle moves to $155:

  • Your Order Price: $_______

  • Benefit: _______

Question: When would you use oracle-pegged orders?

  • Your answer: _________________________________

Exercise 8: Stop Loss Strategy

Position: Long SOL-PERP at $150

Stop Loss Options:

  • Stop-Market: $145

  • Stop-Limit: $145 (limit: $144.50)

Scenario: Flash crash to $140, then recovery to $150

Stop-Market Result: Filled at $_______ Stop-Limit Result: Filled at $_______ / Not Filled

Question: Which is better for volatile markets?

  • Your answer: _______

  • Why: _________________________________

🔬 Phase 4: Strategy Design (15 minutes)

Exercise 9: Multi-Product Strategy

Design a cross-margin strategy using:

  • Spot trading

  • Perpetual swaps

  • Lending (if available)

Your Strategy:

Capital Efficiency:

  • Total Capital: $_______

  • Positions: $_______

  • Utilization: _______%

Question: How does cross-margin improve capital efficiency?

  • Your answer: _________________________________

Exercise 10: JIT Participation Strategy

For Market Makers:

Setup Requirements:

Expected Benefits:

  • Access to flow: _______

  • Rebates/fees: _______%

  • Price improvement opportunities: _______

Question: What infrastructure do you need to participate in JIT?

  • Your answer: _________________________________

✅ Self-Assessment

Rate your Drift proficiency (1 = Beginner, 5 = Expert):

Areas needing more practice: _________________________________

🎯 Next Steps

If you scored < 4 on any topic:

  • Review Lesson 7 on that topic

  • Explore Drift documentation

  • Practice on Drift testnet (if available)

  • Study cross-margin examples

If all topics ≥ 4:

  • Proceed to Exercise 8 (Multi-Protocol Comparison)

  • You're ready for advanced Drift strategies!

← Back to Summary | Next: Lesson 8 →

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