docs

How products work

Methodology

The rules each product follows.

Each PerpToken gets its exposure from positions on perpetual markets, which today trade on Phoenix. A product holds whatever positions its methodology calls for. Minting adds exposure, redeeming removes it, and the rules for both are set out below.

Value and NAV

A product's equity is everything it holds, valued live:

equity = USDC held by the product
       + Σ over its trading accounts (cash + unrealized PnL + unsettled funding)
       − protocol fees accrued but not yet collected
  • Unrealized PnL is valued at each market's mark price, with no haircut.
  • Funding that has accrued but not settled is included, so settling it does not move the value.
  • Collateral escrowed by resting limit orders is excluded until it fills.

NAV per token is equity / supply. Nothing stores NAV; it's computed from onchain state whenever a mint, redeem, or rebalance runs.

Target exposure

Each product has one or more legs. A leg is one position on one market, long or short. For each leg:

target notional = basis × target ratio
  • The basis is the equity assigned to that leg (see the multi-leg rules below).
  • The target ratio is always positive. A short leg carries its sign from its side, so a −1x product is a short leg with a target ratio of 1x.
  • Each leg also has a band, a minimum and maximum ratio. While the leg stays inside its band nothing is traded, and once it leaves, the product rebalances.
  • Each leg may also have a hard cap on its true leverage.

Multi-leg products

Each leg has a weight. A leg's share is weight / Σ weights.

Legs are either isolated (their own trading account and collateral) or cross (sharing one trading account and its collateral within the product).

  • Cross legs: each leg's target is target ratio × (weight / Σ weights) × cross-account equity, which makes each leg's multiple of the product's value target ratio × weight / Σ weights.
  • Isolated legs: each leg is sized against its own account's equity. Weights steer where new mints and redemptions go; they do not move money between legs.

Single-market products

A single-market product has one leg:

  • Spot (1x): NVDA targets 1x long NVDA and SPCX targets 1x long SPCX, each kept between 0.98x and 1.02x.
  • Short: SPCXS targets 1x short SPCX (−1x), kept between 0.975x and 1.025x.
  • Hyper (3x): NVDAH targets 3x long NVDA, kept between 2.5x and 3.5x.
  • Giga (5x): QQQG targets 5x long QQQ, kept between 4.5x and 5.5x.

Baskets

METALS holds three isolated long legs, GOLD, SILVER, and COPPER, each with weight 1 and a 1x target ratio. Each leg is 1x of its own collateral, so the product is about 1x overall, with capital split equally at launch.

  • Each leg's leverage is kept inside its band (0.85x to 1.15x at launch) by rebalancing.
  • Rebalancing never moves collateral between legs, so the weights drift with relative performance, much as they would if you held the metals yourself.
  • New mints and redemptions are routed to steer the legs back toward equal weight.

FLIPS

SOL Flips ETH (SOLFETH) holds two cross legs in one shared account:

  • SOL long, weight 2, target ratio 3x → 3 × 2/3 = +2x SOL.
  • ETH short, weight 1, target ratio 3x → 3 × 1/3 = −1x ETH.

So the product targets 2x SOL − 1x ETH, which equals 1x SOL + 1x (SOL − ETH). Gross exposure is 3x and net exposure is 1x long.

Before funding, fees, execution, and path effects, over a short period:

R_FLIP = 2 × R_SOL − R_ETH
R_FLIP − R_SOL = R_SOL − R_ETH

Each leg's band is 2.55x to 3.45x of its slice at launch, which is 1.7x to 2.3x of NAV for SOL and 0.85x to 1.15x for ETH. Between rebalances the 2 : 1 ratio can drift within those bands.

Rebalancing

Anyone can call rebalance. It only acts when a leg is outside its band or above its hard cap. There is no schedule or cooldown. PerpTokens runs a keeper that checks products and calls it when needed.

  • Isolated legs: the leg is traded back just inside its band, to the edge plus a recovery margin, rather than all the way to target. Mints and redemptions re-center it further.
  • Cross legs: a leg outside its band is traded back to its full target. If the shared account's margin use exceeds its cap, every cross leg is scaled down together, keeping their ratio.
  • Cost: each rebalance's trading cost is capped by a rebalance budget, a fraction of equity. On a thin market it may trade partially and continue on a later call. Rebalance costs are paid from the product's equity, so all holders share them.

Leverage and path dependence

A leveraged product aims for a multiple of its market's move. When the market rises 1%, a 3x product rises about 3% and a 5x product about 5%. A short product moves the other way, so a −1x product rises about 1% when its market falls 1%.

Between rebalances, true leverage drifts as prices move. For a long position at leverage L after a price move r:

L' = L × (1 + r) / (1 + L × r)
  • For L = 1 this stays exactly 1, so a 1x long does not drift.
  • For L > 1, rises lower leverage and falls raise it.

For a −1x short after a price move r, leverage becomes (1 + r) / (1 − r), so rises push it above 1x.

For leveraged longs, rebalancing buys after rises and sells after falls to get back toward target. Because it only trades once leverage leaves the band, the result depends on the path the market takes as well as where it finishes.

  • Trending market: buying after rises and selling after falls compounds in your favor. A steady rise can return more than the straight multiple, and a steady fall loses less. Over a steady 20% rise, a 3x product gains about 62% and a 5x product about 130%. Over a steady 20% fall, they lose about 53% and 70%.
  • Choppy or sideways market: each reversal leaves the product having bought high and sold low, so it can lose money even when the market ends where it started. If the market falls 10% and then recovers to its starting price, a 3x product ends about 2.4% down and a 5x product about 7.1% down.
  • Small swings: a swing that keeps leverage inside its band costs nothing. Starting from 3x, leverage leaves a 2.5x to 3.5x band after a rise of about 11% or a fall of about 6.7%. Starting from 5x, it leaves a 4.5x to 5.5x band after a rise of about 2.9% or a fall of about 2.2%, so a 5x product rebalances far more often.

A −1x short works the same way in reverse, and its exposure drifts the wrong way. A rise makes the short larger than 1x of the product's value, and a fall makes it smaller. SPCXS rebalances when its exposure leaves 0.975x to 1.025x, which takes a market move of only about 1.25%, so it cuts the short after rises and adds to it after falls. Over a steady 20% fall in its market, it gains about 24.5%, and over a steady 20% rise, it loses about 17%. If the market rises 10% and falls back to where it started, it ends about 0.3% down, and five such swings cost about 1.5%.

These examples ignore fees, funding, trading costs, and mints and redemptions, which also move leverage. Funding is paid or received on the full leveraged exposure. When it runs against the position, a 3x product pays three times and a 5x product five times what spot exposure would, and that adds up over time. A Spot product is a 1x long, so its leverage doesn't drift with price and none of these path effects apply to it, though it still pays or receives funding at 1x.

Funding

Each position pays or receives its market's funding, which accrues into equity and so shows up in NAV. Which way it goes, and how much, depends on the market. Over time it can add up to a meaningful cost, or a meaningful gain.

Fees

Each product sets its fees in its onchain config.

  • Mint fee: ceil(USDC in × mint fee bps / 10,000).
  • Redeem fee: ceil(value removed × redeem fee bps / 10,000).
  • Each fee is split. The protocol cut accrues to the protocol. The holder cut stays in the product and raises NAV for existing holders.
  • METALS and SOLFETH launched with 10 bps mint and 10 bps redeem fees.
  • There is no management, streaming, or performance fee.

Mint and redeem pricing

Mint. Your deposit is traded into the product's positions in the same transaction. The tokens you get reflect the equity you actually added:

tokens out = (equity after − equity before − holder fee) × supply / equity before

You pay your own execution cost (trading fee and slippage) this way, and existing holders aren't diluted by it.

Redeem. Your tokens are priced at the value before your trade:

value removed = tokens in × equity before / supply
USDC out      = value removed − redeem fee − execution cost

Execution cost is measured at the mark price at the start of the transaction, so a price refresh inside the same transaction does not change your payout.

Execution. Orders are immediate-or-cancel with a price bound. If an order cannot fill within its bound, the whole transaction fails. Each mint and redeem must trade at least the exposure the flow requires. Any extra trading to correct existing drift is capped by an impact budget.

Limits. A mint fails if it would push the product past its maximum equity or maximum net exposure.

Limit orders

A limit order is a mint or redeem that executes at a maker price on one of the product's underlying markets.

  • A buy limit escrows USDC and rests a post-only order sized to the product's target on that leg. The escrow does not count toward NAV while it rests.
  • A sell limit escrows tokens and rests a reduce-only, post-only order.
  • The protocol learns of a fill at the next sweep, which runs inside every mint, redeem, rebalance, claim, and cancel and can be called by anyone. The fill is priced at that sweep's mark and NAV, and from then on you share in the product's value like every holder.
  • A filled limit order pays only the holder cut of the flow fee. The protocol cut is waived. The venue's maker fee applies.
  • Placing and cancelling are free.

Price inputs

Products are valued with each market's mark price and funding, read from the venue's onchain state. There is no separate external oracle in valuation. If a mark price is stale or its market is halted, mints, redemptions, and rebalances fail until it recovers.

Anyone can publish a product's NAV to a Switchboard feed signed by the product. Valuation never reads that feed back; it exists for other programs to read.