USDC-Settled Trades
Last updated
Last updated
In Aark Digital, all perpetual swaps are settled in cash (USDC). Therefore, LPs and traders earn or lose USDC based on their PnL.
In the LP's case, its collateral remains intact, while only the USDC balance fluctuates in response to traders’ profit and loss.
The LP’s USDC balance is solely altered by the following factors:
1. Receiving trading fees and funding fees from traders. 2. Traders’ PnL (increasing if traders lose and decreasing if traders earn).
It is important to note that if the sum of the USDC balance of the entire user exceeds the actual USDC balance held in the protocol, the excess amount will not be available for instant withdrawal. However, the peg to USDC will remain stable due to collaterals deposited by users.
The core of the USDC pegging mechanism is over-collateralization, which is achieved by the user's deposited assets as collateral. As stated in the Cross Margin, every asset whitelisted as collateral in Aark Digital has its Collateral Weight ratio.
For example, the Collateral Weight of ETH is 85%. If a trader deposits $100 worth of ETH as collateral, the margin balance of the trader will be 85 USDC.
In essence, the USDC balance in Aark Digital takes the form of a collateralized debt position. The user's negative USD balances are treated as debts owed to the protocol. If the collateralization ratio falls below a certain level, liquidators will liquidate a portion of the collateral from users with negative balances to maintain the over-collateralization.
