In Parcl v3, liquidity providers play a crucial role in maintaining a robust trading ecosystem. By contributing to the liquidity pool, these participants have the opportunity to earn yield through fee collection and potentially benefit from market movements. While there are inherent risks, including exposure to trader profits, the system is designed to balance these factors. Liquidity providers and traders have distinct roles, each contributing to the platform's dynamics in their own way.
This structure not only supports the overall health of the platform but also creates a potentially rewarding environment for liquidity providers who contribute to its foundational strength.
While adding or removing liquidity doesn't directly impact trading prices, it affects the pool's capacity to absorb trades and manage risk.
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. / Sq. Metre , City prices reflect real world residential real estate transactions in a given Parcl Market.
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Liquidity Pool
- Single pool per exchange backs all trades
- LPs provide liquidity and take on trader
PnL
- Acts as counterparty for all trades across markets
- LPs retain 80% of the trading fees.
Markets belong to a single exchange. Each market's counterparty for trading is its associated exchange's LP pool. LPs underwrite and clear all trades, collect the majority of trading fees that they split with the protocol, and act as that particular exchange's insurance fund. It is as if the LP pool has a monopoly market making privilege on its exchange's markets.
The protocol's risk management features promote a delta neutral LP experience by creating incentives to decrease market skew and levying penalties on trader who increase market skew.
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Trader PnL and Liquidations
- PnL based on price movements: pricePnL = positionSize * (currentFillPrice - lastFillPrice)
- Profits/losses paid to/from liquidity pool
- Liquidations based on index price, not market price
- Liquidations occurs when account falls below required margin: totalRequiredMargin = accountMaintenance + liquidationFeeMargin
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Trading Mechanics
- Open long/short positions on real estate markets
- Use margin to trade, no direct borrowing
- Gain exposure to real estate price movements without physical property ownership
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Price Impact
Each trade’s fill price is adjusted linearly by the trade’s impact on the market’s premium/discount. It produces a symmetrical high frequency rebalancing opportunity since any trade that reduces skew will receive a discounted price and any trade that widens skew will receive a price premium.
The purpose of the dynamic fill price is to disincentivize volume that increases skew and promote volume that contracts skew by directly adjusting entry prices similar to how a perps market maker might widen or tighten spreads on a perps clob in response to price drift or net exposure to funding.
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Price PnL
Price PnL is the change in price multiplied by the position's size in base asset units. Price change is the current (exit) fill price less the last fill price.
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Each trade on a position is effectively a close and resets the position's last fill price and last funding per unit.
Funding Rate
- Balances market by taxing majority side, paying minority side
- Calculated using velocity model: Δrate = max(-1, min(1, skew / skewScale)) · maxFundingVelocity · daysElapsed
- Helps maintain market equilibrium over time
paying a fee and the minority side receiving a rebate. This means that traders holding positions on the majority side of the market (whether long or short) will continuously pay funding fees as long as their side remains the majority. Conversely, traders on the minority side will receive funding payments as a rebate for as long as they remain in the minority. This continuous adjustment helps to promote market balance by creating a financial incentive for traders to take positions that reduce overall market skew.↓ Click below for Related Article
Leverage → No Borrowing
Parcl v3 offers a unique approach to leverage and liquidity in its trading system. Instead of creating traditional credit markets for traders to borrow funds, leverage is applied directly to price movements. This means traders can gain exposure to market changes without the need for collateralized borrowing.
In this system, traders open positions using margin, and their exposure is based on the notional value of their position. The liquidity pool acts as the counterparty for all trades, effectively managing solvency and risk for the entire platform. This structure allows traders to put on positions with varying levels of exposure without requiring a separate borrowing market.
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Trading Fee
• Blend of maker and taker rates • Based on trade's impact on market skew
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Delayed Withdrawals → Pending Transfers
When removing liquidity – Collateral withdrawals from the exchange, including LP withdrawals and margin account withdrawals, are subject to a 24-hour settlement delay. This delay serves as a security feature.
🚨 However – USDC that is pending transfer cannot be used to open new trading and LP positions prior to the 24-hour settlement delay window.