This piece of documentation is intended to provide a high level overview of the important details behind the Parcl Protocol. For a complete picture of the Protocol, underlying mathematics and rationale for Protocol Design – Please refer to the White Paper.
Parcl City Markets
Every Parcl City is made up of USDC deposited into a Pool by both Traders and Liquidity Providers to put on their respective positions. All fees, rebates, profits and losses are paid and received to and from the liquidity pool.
This means that when fees and losses are reinvested in the pool, there will be more USDC in the liquidity pool after those transactions have been validated. Inversely, rebates and profits are paid from the liquidity pool which results in less USDC in the liquidity pool for all other participants.
Every participant – trader or LP – receives Liquidity tokens when making deposits into the pool at the respective Exchange Rate for that pool. The exchange rate represents the amount of USDC in a liquidity pool for the number of Liquidity Tokens outstanding.
In other words, it represents the individual stakes Traders and LPs have on the USDC within a liquidity pool. Those stakes change with the change in USDC in and out of the liquidity pool due to fees, rebates, profits and losses being paid/received from the liquidity pool.
median price per Sq. Ft. – for any Parcl City Market with the available resources in the pool – Total USDC relative to Liquidity Tokens – Exchange Rate. Overview
Participants – LPs & Traders
There are two types of participants on Parcl → Liquidity Providers (LPs) and Traders.
📣 Reminder → LPs AND Traders receive Liquidity Tokens when opening positions to represent their stake of USDC in the pool.
Liquidity Providers (LPs)
Because participants who are LPs are not directionally interested in the movement in price of a specific city, LPs want the value of their Liquidity Tokens to increase reflected in the Exchange Rate increasing. The Exchange Rate increases and decreases based on fees, rebates, profits and losses – paid/received from the liquidity pool.
In other words, LPs are always interested in more USDC left in the pool per Liquidity Token outstanding. This ultimately means that LPs desire high trading volumes to collect fees and losses left within the liquidity pool.
8 hour delay until the USDC is available in your wallet.
Traders
Participants focused on trading the price for cities are most interested in the directional price movements. However, Traders ARE ALSO LPs – therefore, traders are also impacted by the exchange rate decreasing significantly from a disproportionate amount of winning trades being paid out from the liquidity pool.
Additionally, there are incentive and disincentive structures – Pool Impact Fee & Funding Fee/Rebate – which impact the economics of opening traders which negatively impact the balance between longs & shorts in any given liquidity pool. These fees & rebates are paid/received from the liquidity pool itself which also impacts the respective exchange rate.
Lastly and most importantly, traders have Profits & Losses for their trading positions. These profits and losses are paid to and from the liquidity pool.
8 hour delay until the USDC is available in your wallet.
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Key Components & Concepts
There are many components that play critical roles on the Parcl Protocol. Many of the key components are covered below.
Parcl Price Indexes
Represented as the Median Price per Sq. Ft, City prices reflect real world residential real estate transactions in a given Parcl Market.
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Exchange Rate → Parcl Market Pools
The exchange rate for any Parcl market is represented in the below equations:
Where:
The Exchange rate is the “price” where Traders AND LPs will swap Liquidity Tokens for USDC and vice versa.
Increases Exchange Rate
⬆️ Trading Fee Paid into Pool
⬆️ Pool Impact Fee Paid into Pool
⬆️ Funding Fee/Rebate Paid into Pool
⬆️ Negative Trader P&L – Trader Losses
Decreases Exchange Rate
⬇️ Funding Fee/Rebate Paid to Trader
⬇️ Positive Trader P&L – Trader Gains
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Trader P&L
Trader’s Profits and Losses come from the liquidity pool’s available USDC. A trader’s net payout is directly proportionate to the size a trader’s P&L represents of the overall liquidity within the pool – USDC.
Profits and Losses are paid using Liquidity Tokens.
Realizing Gains
When closing a position, gains are minted in new Liquidity Tokens at the current exchange rate.
⬇️ Decreases Pool Exchange Rate after closing transaction
Realizing Losses
When closing a position, losses are burned from the original Liquidity Tokens provided to the trader when first depositing USDC into the liquidity pool when opening a position at the current exchange rate.
⬆️ Increases Pool Exchange Rate after closing transaction
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Market Sentiment → Long/Short Balance
Represented in percentage terms for Long and Short respectively, Market sentiment refers to distribution of Open Interest – Deposits * Leverage – between Long and Short positions.
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Pool Impact Fee
Providing incentives and disincentives to balance longs and shorts is thoughtfully implemented into the protocol to dampen the impact Profits and Losses have on a liquidity pool’s Exchange Rate. Pool Impact fee is charged only on opening trade positions that worsen the balance of longs and shorts.
Traders opening positions that worsen the balance between Longs and Shorts are proportionality taxed for the amount their position worsens the balance.
Inversely, Traders opening positions that do not worsen skew at all – but rather improve the balance – WILL NOT be charged a fee.
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Cumulative Funding Rate
Updated at the beginning of every trade, this funding rate represents a per second rate of change in the Pool’s balance between longs and shorts.
Traders receive an Entry Funding Rate and an Exit Funding Rate to calculate the accrued funding fee or rebate paid to and from the Pool when closing a position.
pay a funding fee. Inversely, the trader in the minority the entire time they hold a position would receive funding as a rebate. ↓ Click below for Related Article
Leverage → No Borrowing
On Parcl, leverage is applied to the price movements rather than creating credit markets for traders to borrow in a collateralized manner. Solvency is explicitly handled by the liquidity pool where traders can put on positions with varying liquidity without requiring a borrowing market.
Enabling Leveraged Trading – Up to 10x – is only available to traders who enable Advanced Features.
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Trading Fee
A flat trading fee is set at the creation of every Parcl Market Pool and applied to the entered trading amount.
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Delayed Withdrawals → Pending Transfers
When removing liquidity – whether through closing a trading position or closing a LP position – there will be an 8 hour delay until the USDC is available and will be reflected in the dApp as a Pending Transfer on the Portfolio page.
🚨 However – USDC that is Pending Transfer, CAN BE USED to open new Trading and LP positions PRIOR to the 8 hour transfer window.