To the Linear Community:

To the Linear Community:

Today we introduce the start of the perpetual contract series on the Linear Exchange. Our current exchange allowed users to solely gain long exposure to our listed liquid assets but there was no way for users to take a short position. As a result, users who are bearish on certain assets are unable to trade this insight without using another platform. Also, as Linear Exchange only allowed long positions, stakers who mint ℓUSD are always effectively shorting the market which may not be favourable in certain market conditions.

This perpetual contract series is the result of a culmination of long hours from our development team and represents just the start as we will continue to develop, add assets, and tweak based on user feedback.

Perpetual Assets and Mechanism:

Liquid Assets: BTC and ETH

Position: Long and Short

• Opening a long position is equivalent to borrowing ℓUSD and buying liquid BTC or ETH. In this case, the buy proceeds in liquid BTC or ETH is minted and locked. When closing a long position, the locked BTC or ETH is sold into ℓUSD and, together with the margin initially put in by the user, used to repay the ℓUSD debt
• On the contrary, opening a short position is equivalent to borrowing liquid BTC or ETH and sold into ℓUSD and locked. When closing a short position, the locked ℓUSD together with the margin initially put in by the user is used to purchase liquid BTC or ETH for repayment

Note that instead of tying perpetual positions to user addresses, they’re represented by positional NFTs which are minted to users upon position creation, and burnt when positions are closed. Similar to Uniswap V3 non-fungible liquidity, this allows perpetual positions to be transferred between users and “wrapped” into ERC20 tokens for yield farming and much more.

Max Leverage: Up to 1x

Minimum Initial Margin Ratio: 100%

(The minimum ratio of collateral to position value when opening positions and partially withdrawing collateral)

Maintenance Ratio: 20%

(If the collateral ratio falls below the maintenance ratio, liquidation can be triggered by liquidators)

Collateral Ratio: Note that the Collateral Ratio is calculated differently depending upon whether the position is long or short:

• For long positions: Collateral Ratio = (Collateral + Amount of liquid BTC/ETH*Price) / Amount of ℓUSD borrowed — 1
• For short positions: Collateral Ratio = Collateral / (Amount of liquid BTC/ETH*Price) — 1

Fee Rate: 0.25%

Liquidation:

When a perpetual position is liquidated the debt is repaid by:

• Long positions: Selling the locked amount of liquid BTC/ETH and taking from user-posted collateral if needed
• Short positions: Purchasing liquid liquid BTC/ETH with ℓUSD collateral

Liquidation Penalty: 5% (of which 25% is given to the liquidator and 75% will be put into an insurance fund)

Examples

Long Position:

• ETH Price: $2,000
• Bob would like to take a long position of 0.5 ETH.
• In order to open a position, Bob posts collateral of $1,000 ℓUSD to meet the 100% minimum initial Ratio and this is locked by the protocol.
• The protocol generates debt of $1,000 ℓUSD and mints 0.5 liquid ETH. This is locked by the protocol and the position is opened
• Collateral Ratio at current state: 100% = ($1,000 collateral + 0.5 ℓETH*$2,000) / $1,000–1. (Note that if this collateral ratio reaches 20%, the position will be liquidated)

If ETH Price increases to $3,000

• Bob would like to close his long perp position of 0.5 ETH.
• The protocol sells 0.5 ETH for proceeds of $1,500 ℓUSD, the debt of $1,000 ℓUSD is repaid and Bob earns $500 ℓUSD in profit.
• Bob’s initial collateral of $1,000 ℓUSD is also unlocked and returned.

Short Position:

• ETH Price: $2,000
• Bob would like to take a short position of 0.5 ETH.
• In order to open a position, Bob posts collateral of $1,000 ℓUSD to meet the 100% minimum initial Ratio and this is locked by the protocol.
• The protocol generates debt of 0.5 Liquid ETH and sells this for $1,000 ℓUSD. This is locked by the protocol and the position is opened
• Collateral Ratio at current state: 100% = $1,000 / (0.5 ℓETH*$2,000) — 1. (Note that if this collateral ratio reaches 20%, the position will be liquidated)

If ETH Price decreases to $800

• Bob would like to close his short perp position of 0.5 ETH.
• The protocol purchases 0.5 ℓETH for proceeds of $800, the debt of 0.5 ℓETH is repaid and Bob earns $600 ℓUSD in profit.
• Bob’s initial collateral of $1,000 ℓUSD is also unlocked and returned.

About Linear Finance

Linear Finance is a cross-chain compatible, decentralized delta-one asset protocol that allows users to get synthetic exposure to various assets, including cryptocurrency, commodities, and market indices. Users can utilize our cross-chain swap functionality to instantly swap assets across leading blockchain environments and DeFi protocols with unlimited liquidity and zero slippage.

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