⁉️FAQs

Frequently Asked Questions

Who is providing the leverage?

• Liquidity Providers (LPs) are fronting leverage and pricing the leverage based on how well the Marginal pool price is tracking spot.

How are traders collateralized?

• Traders are undercollateralized but the position itself is collateralized from the LPs fronting collateral to traders.

Why is this model an improvement over existing peer-to-pool perp DEXs?

• Majority of competitors have their LPs take on delta risk (delta in price). With this type of model, if all traders are long on each platform and price goes to infinity, LPs lose all their capital. This is not the case for Marginal as a trader's position is physically settled vs cash settlement on GMX or SNX for example.

• There's zero price discovery on competitive protocols so there’s a natural arbitrage LPs are exposed to. Marginal is effectively Uniswap v2 with the option for leveraged positions so there’s price discovery on Marginal pools — this means natural arbitrage volume goes to Marginal between Uniswap v3 spot and Marginal's futures pools.

How do I create a position?

• Traders go to the Marginal UI, select the token they want to long/short, provide collateral

How do I close a position?

• Traders can settle by delivering the debt in the “you pay” token (similar to Uniswap "amount in") — this occurs by calling the “burn” function on the Marginal Trading Position NFT.

• Traders can settle by selling some of the margin and size on the spot Uniswap pool to cover debt owed to Marginal — this occurs by calling the “ignite” function on on the Marginal Trading Position NFT.

• Marginal zaps enable traders to cash out in ETH or USDC.

How do I provide liquidity?

• Providing liquidity for existing markets is exactly the same as on Uniswap v2.

• Marginal LPs are similar to Uniswap v2 LPs except Marginal LPs automatically take out an Impermanent Loss (IL) hedge anytime a leveraged position is taken.

How do I create new markets?

• To create a new market, a Uniswap v3 spot pool must first exist.

• Specify tokens you want to create, the max leverage/maintenance margin, and the Uniswap v3 oracle.

• Select the Uniswap v3 pool you wish to use as oracle in the LP dropdown.

How do Liquidations work?

• When a position is opened, the trader sets aside a small % of position size in escrow for liquidation rewards.

• Marginal uses a 12-hour Uniswap v3 time-weighted average price (TWAP) to value the position margin and reduce oracle manipulation risk substantially — it would take around $4B to manipulate a Uniswap v3 oracle 50 bps for a full-range liquidity pool of $1M.

• When the 12-hour TWAP goes below liquidation price, any user can call the liquidation without collateral, sending the liquidation reward to liquidator.

• Funds get sent back to the available Marginal pool reserves on liquidation.

• Liquidation price (appedenix)

  • See equation 8 for liquidation.

What is the trust model?

• Marginal is built to be permissionless, immutable, and censorship resistant.

• LPs are guaranteed to never be exposed to bad debt.

• Marginal's physical settlement model ensures that traders are guaranteed their payout since there is never any auto-deleveraging (ADL).

What happens if someone removes 50% liquidity from the Uniswap v3 pool with $1M liquidity?

• Marginal LPs are safe even in this extreme scenario, but traders may be more likely to face oracle manipulation.

• With the numbers above, attackers would need $4B to move the 12-hour TWAP by 50 basis points.

What asset am I using as collateral?

• Traders are able to use the token they wish to long as collateral.

Can I add margin/collateral to existing positions?

• Yes, traders can add margin to their positions via the position page to lower their effective leverage and liquidation price.

What is the liquidity threshold for a Uniswap v3 pool and the corresponding Marginal pool?

• Conservatively, $1M is needed in the Uniswap v3 pool.

• No minimum amount is needed on the corresponding Marginal pool, but traders face higher slippage based on amount of liquidity and position utilization.

How does it work?

• Traders specify the size desired for a token, the amount of collateral to back their position and then they create a position.

• Example:

  • Trader is looking to long ETH/USDC at $2000 per ETH.

  • Trader deposits 2 ETH into Marginal as collateral.

  • Trader takes 3x leverage for their position.

  • Trader gets total position size of 6E and owes the pool $8000 USDC in debt.

  • To close the position, the trader has 2 options:

    • Direct physical settlement: trader repays $8000 USDC and withdraws 6E from the pool.

    • Flash Settlement: pool swaps portion of the open position into debt token.

      • If closing at $4000 per ETH:

        • Total position size is 2x in USD terms

        • PNL = 4 ETH * $4000 - $8000

        • Trader is up $8000 in ETH terms

What are the risks?

• For LPs:

  • Like lending protocols, your liquidity provided can be locked up based on pool utilization (similar to Aave). Marginal guarantees LPs will get their lent liquidity back, but the timeline is based on pool utilization.

    • For more detail on safety and potential LP returns see here

• For Traders:

  • Possible oracle manipulation of illiquid Uniswap v3 pools that trigger scam wick liquidations — this is mitigated by Marginal's use of the 12-hour TWAP.

  • Funding rate can affect liquidation price as debt owed by the trader fluctuates.

How does the funding rate work?

• Inspired by Squeeth, it is continuous in-kind funding.

• Funding rate is calculated based on the difference between the average price of the Marginal pool and the corresponding Uniswap v3 spot pool.

  • If Marginal price (mark) > Uniswap v3 oracle (index), long traders pay funding to LPs and short traders receive funding from LPs.

  • If mark price < index price, long traders receive funding payments from LPs and short traders pay funding to LPs.