By providing liquidity, participants earn yield on their funds through the collection of fees and trader losses. However, liquidity providers also have the risk of impermanent loss given that rebates and positive P&L is paid from the liquidity pool as well.
Although liquidity provision is not required on Parcl because Traders are also liquidity providers, more capital in a liquidity pool dampens the impact that fees, rebates, profits and losses have on the exchange rate and thus overall performance.
Opening & Closing LP positions DOES NOT impact the exchange rate. Only trading positions impact the exchange rate.
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.