Providing Liquidity

Liquidity is provided through automated individual PX Pools. Liquidity providers earn 63% of the fees from leverage trading, liquidations, borrowing fees, and swaps.

PX Pools

A PX pool (PX Market pool) consists of:

• Index Price Feed: Long and short tokens will be opened / closed based on this price feed

• Long Token: This is the token that will back long positions

• Short Token: This is the token that will back short positions

For example, a market could be ETH/USD [WETH-USDC], in this case:

• Index Price Feed: ETH/USD

• Long Token: WETH tokens back long positions

• Short Token: USDC tokens back short positions

If a market is labelled as SWAP-ONLY or SPOT-ONLY, then the market only supports swaps and does not support leverage trading.

For single-token backed pools, both the long and short token would be the same, e.g. a single token WETH pool would have both the long token and short token as WETH.

Token Pricing

The price of the PX token depends on the price of the long / short tokens and the net pending PnL of traders' open positions.

Fees from leverage trading and swaps will automatically increase the price of PX tokens.

There may be a spread for some long / short tokens which would result in a spread when buying / selling PX tokens as well.

PX pools aim to maintain an equal worth of long and short tokens, so e.g. when the price of a long token increases there may be a positive price impact to incentivise selling of long tokens for short tokens to rebalance the pool. While this balancing is incentivised by the pool it is still possible for pools to not be balanced at times. If a pool keeps its balance, its pricing excluding PnL should mimic a pool that is 50% long token and 50% short token and that rebalances as price changes.

Performance APY Calculation

The annualized performance APY for PX tokens measures the excess return compared to a benchmark investment strategy (holding the underlying tokens in a geometric mean portfolio).

Variable Definitions

Variable	Definition
TokenA_S	Token A starting price
TokenB_S	Token B starting price
TokenA_E	Token A ending price
TokenB_E	Token B ending price
PX_S	PX token starting price
PX_E	PX token ending price
Benchmark_S	Benchmark investment starting price (equals PX_S)
Benchmark_E	Benchmark investment ending price
duration	Number of days in the measurement period

Calculation Steps

Step 1: Calculate Benchmark Ending Price

The benchmark represents a geometric mean portfolio of the underlying tokens:

Benchmark_E = PX_S × √((TokenA_E × TokenB_E) / (TokenA_S × TokenB_S))

Step 2: Calculate Annualized Performance

The annualized performance APY is the excess return of PX compared to the benchmark, annualized:

Annualized Performance (%) = ((PX_E - Benchmark_E) / PX_S) × 100 × (365 / duration)

Example

Given:

• TokenA_S = $100, TokenA_E = $110

• TokenB_S = $200, TokenB_E = $190

• PX_S = $141.42, PX_E = $144.57

• duration = 30 days

Benchmark Calculation:

Benchmark_E = 141.42 × √((110 × 190) / (100 × 200))
            = 141.42 × √(20,900 / 20,000)
            = 141.42 × √1.045
            = 141.42 × 1.0222
            = 144.56

Performance Calculation:

Annualized Performance = ((144.57 - 144.56) / 141.42) × 100 × (365 / 30)
                       = (0.01 / 141.42) × 100 × 12.167
                       = 0.000071 × 100 × 12.167
                       = 0.086%

Hedging Open Interest Imbalance

While long and short open interest is incentivised to be balanced through funding rates and price impact, it is possible for long and short open interest to not be balanced at all times.

For liquidity providers that hedge this difference it should be noted that the difference that should be hedged would be the difference between the long / short openInterestInTokens values and not the difference in openInterest USD values.

Currently, long and short open interest is incentivised to be balanced based on the openInterest USD value, this will be changed to the notional value in the next contract iteration, this change will further help to ensure that trader PnL is hedged within a market.

Risks

Caution should be exercised when interacting with any smart contract or blockchain application. While risks are attempted to be mitigated through testing, audits and bug bounties, there is always a risk of vulnerabilities in smart contract code.

For details of contract operation please see Contracts.

A non-exhaustive list of risks:

• Smart contract risks

• Counterparty risks: The PX pool is the counterparty to traders, if traders make a profit that comes from the value of the PX pool

• Token risks: Bridged tokens may depend on the security of the bridge, pegged tokens have risks of depegging

While counterparty risk is attempted to be minimized through funding fees and price impact it is not guaranteed that long and short positions will always be balanced. An additional case to note is that if, for example, long positions happen to be balanced with high leverage short positions and there is a sudden price spike, the high leverage short positions could be liquidated, temporarily causing an imbalance of longs and shorts.