Market Backers
Markets require funds to backstop against bad debt losses
Key Terminology
Market Backers: Users who buy market tokens and provide the funds necessary for markets to function. They also stake these tokens to collect fees periodically from the market.
Minimum Funds: Markets require a minimum of $100 worth of backing collateral. Additionally, the market needs sufficient backing to cover bad debt from open positions (calculated as total_OI × bad_debt_rate). The minimum is the greater of these two values
Frozen Market: A market where the backstop has dropped below the minimum. In this case, the market will not accept new positions until new funds are added.
Market Tokens: Tokens, minted before the market begins trading in exchange for backstop funding. Market token holders can stake market tokens in exchange for the fees the market generates as perps trade.
Buying Market Tokens
Users back markets by buying market tokens from the Imperial protocol for a fixed price before they move to an AMM. Once they graduate to an AMM, the perpetual market also launches as enough funds are available for the backstop.
Market Token Staking
In order to earn trading fees, users must stake their market tokens. As the market trades and fees are paid, 50% of the open/close fees of the market are paid into the fund that goes to market stakers. Mathematically, stakers are paid their % of the fees generated only during the time they have their tokens staked.
Minimum Guarantee Amount
The minimum amount to backstop a market is the maximum of a constant set on the global settings (100 USDC) and a function of the outstanding gross open interest of the market multiplied by a bad_debt_rate constant (4%)
minimum_backstop_amount = MAX(gross_oi * 4%, 100 USDC)Places this is used
This minimum backstop amount is a really important number throughout the market lifecycle and is used:
When a user opens a market
To determine of a market is frozen when bad debt occurs
Last updated