Protocol Overview

Parcl v3 is a perpetuals dex that offers real estate index markets for speculating or hedging. Core features and improvements on previous iterations include more scalable liquidity provision, flexible governance, and risk management features that protect LPs and traders from excessive market imbalance. The design is heavily influenced by Synthetix perps.

LP

The protocol can support many exchanges where each exchange has a single collateral and a single LP pool.

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.

If risk management settings are insufficient for maintaining balanced markets, then governance adjusts the exchange and/or market settings. Additionally, governance and the community is responsible for fine tuning protocol settings over time.

Flexible Governance

Exchange settings and market settings are configurable by the protocol admin, which can be migrated to a DAO. This allows the protocol admin to adjust and respond to changing market conditions and user behaviors.

Risk management settings on the exchange and markets are a crucial subset of the total settings that the protocol admin can configure to better align LP and trader incentives.

Risk Management

The exchange's risk management features promote balance in each market by incentivizing traders to decrease skew and disincentivizing traders to increase skew. The core risk management features are funding, the margin system, and price impact.

Funding is the cost of carry for a position based on the market's skew with respect to time. The margin system dynamically sets higher initial margin requirements for trades that put more imbalance risk on the market. Each trade's fill price is the adjusted index price where the adjustment is the trade's marginal impact on skew averaged with the previous skew impact adjusted index price.