User Positions

When creating a new position, Takers and Makers are required to nominate a fixed Term from one of five standard values. Takers have the option when joining the protocol to protect their ETH at different floor prices, while Makers have the option to select a Risk Tier, again both from lists of five standard values.

The chosen Term and Floor (for Takers) and Tier (for Makers) maps to a set of ‘risk’ multipliers. For Takers, these multipliers represent the user’s level of liability risk to the Maker pool, and by extension to the protocol in general. Maker risk multipliers provide an ability for new Makers to differentiate themselves from existing Makers (we assume that the set of all Makers have some nonzero distribution of risk appetite and outlook on the price of the underlying).

The user’s risk rating is multiplied with their deposit value to generate a risk-weighted value, which is added/subtracted to protocol state variables when the user joins/leaves.

A given Taker or Maker position is considered to be in either an “Active” or “Expired” state, where Active refers to the position being within the nominated fixed term, and Expired referring to a position that has existed for longer than its fixed term.

For users who stay in the protocol beyond the end of their term, an “expired” rate applies that is higher than the rate for their fixed term. This ensures that future protocol liabilities tend towards ‘knowable’, because the protocol provides a disincentive for individual users to remain in the protocol with positions that may be claimed at any time. We encourage the user to either make a withdrawal or renew for another fixed term. Because it cannot be known ahead of time just how long a user will remain in the protocol after the end of their Term, we apply this extra premium retroactively to update the protocol state.