PLP
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PLP consists of an index of assets used for swaps and leverage trading. It can be minted using any index asset and burnt to redeem any index asset. The price for minting and redemption is calculated based on (total worth of assets in index including profits and losses of open positions) / (PLP supply).
Minted PLP will automatically be staked into PLP Staking Pool. After that, users can choose to sell all PLP in PLP Staking Pool to redeem one of the coins or hold for as long as they can to receive ePINK and share 60% of the system fees along with other PLP stakers.
As PLP holders provide liquidity for leverage trading, they will make a profit when leverage traders make a loss and vice versa.
The asset weight within the pool is initially set to ensure PinkTrade's liquidity and sustainability. Fees for PLP minting and redemption will vary based on the proportion of assets in the pool.
For instance:
If ETH holdings exceed the default level while USDT reserves are below it, the pool will encourage transactions to rebalance these assets. Transactions boosting ETH reserves will incur higher fees, whereas those increasing USDT reserves will face lower fees.
Furthermore, the token weight will adjust based on the value of open derivative trading orders, supporting hedging for PLP holders. For example, if there's a significant volume shorting ETH, ETH's token weight will rise; conversely, more longing with the ETHUSDT pair will elevate stablecoin token weight.
As the value of tokens in the liquidity pool rises, the price of PLP will also go up, regardless of the number of long positions open on the exchange. A portion of the assets in the liquidity pool will be set aside to cover potential losses from these long positions. This reserve maintains a stable value because profits from it are used to compensate users if prices rise, while losses from leveraged trading help stabilize the reserve's value during price decreases.
The fees to mint PLP, burn PLP or to perform swaps will vary based on whether the action improves the balance of assets or reduces it. For example, if the index has a large percentage of ETH and a small percentage of USDT, actions which further increase the amount of ETH the index has will have a high fee while actions which reduces the amount of ETH the index has will have a low fee.
Token weights are adjusted to help hedge PLP holders based on the open positions of traders. For example, if a lot of traders are long ETH, then ETH would have a higher token weight, if a lot of traders are short, then a higher token weight will be given to stablecoins.
If token prices are increasing, then the price of PLP will increase as well, even if there is a larger number of open long positions on the platform. The portion reserved for long positions can be treated as stable in terms of its USD value since if prices increase the profits from that portion will be used to pay traders, and if prices decrease, the losses of traders will keep the USD value of the reserve portion the same.
If a lot of traders are short and larger weights are given to stablecoins, then PLP holders would have a synthetic exposure to the tokens being shorted, e.g. if ETH is being shorted then the price of PLP will decrease if the price of ETH decreases, if the price of ETH increases then the price of PLP will increase from the losses of the short positions.