LP Tokens and Target Ratio

The user can mint or burn liquidity pool tokens. By minting a liquidity pool token they are participating to be a market maker for futures and options in that asset.

Every pool is composed of two assets: a stablecoin and the token. For example, a pool can be composed of USDC and SOL.

Every pool has a target ratio. For example the target ratio could be 0.7 meaning that the pool is 70% SOL and 30% USDC. SOL is used as collateral for covered calls, expiry long, and perpetual long. USDC is used as collateral for cash-secured puts, expiry short, and perpetual short.

When you deposit or withdraw money into the liquidity pool, the final fee is calculated using:

$$\mathrm{fee}= \begin{cases} \dfrac{B}{R}, & \text{if improved,}\\ B\cdot R, & \text{otherwise.} \end{cases}$$

Where R(N) is:

$$R(N) = 1 + k\begin{cases} \dfrac{T-N}{T-m}, & \text{if } N \le T \text{ and } T\ne m,\\ \dfrac{N-T}{M-T}, & \text{if } N > T \text{ and } T\ne M,\\ 0, & \text{otherwise.} \end{cases}$$

And:

$$\text{improved} = \begin{cases} \lvert N - T\rvert < \lvert C - T\rvert, & \text{if } N \neq T,\\ C \neq T, & \text{if } N = T. \end{cases}$$

Where:

• C is the current ratio
• N is the new ratio
• T is the target ratio
• k is the multiplier
• m is the lower fee band anchor ratio
• M is the upper fee band anchor ratio
• B is the base fee

The lower and upper fee band anchor ratios are used to shape the liquidity fee curve. They are fee-band anchors, not hard forbidden boundaries.