We try to design a mechanism for synthesizing assets to achieve the following goals:
- Users directly buy and sell to realize short and long; if users want to short, they don’t need to synthesize assets as in the current design
- The market is sustainable
- You can increase leverage.
The core design of the product is:
- The market maker synthesizes long and short assets at the same time and puts them into the liquidity pool
- The user pledges to purchase related long and short assets; if the user is long, then buys the long asset; if the user is short, then buys the short asset
- When the value of the user’s collateral reaches the liquidation line, the UMA’s liquidation and DVM mechanism is used to ensure that the user will not lose more than his mortgage
- When a long or short position is cleared, the counterparty liquidity pool will also be cleared together to ensure a long and short balance. Users can use passively liquidated money to invest again in purchases or market making
The risk of liquidity providers is reduced to a minimum, and the only risk comes from liquidation (when the market fluctuates, it is too late to liquidate).