Leveraged Long Trades
Last updated
Last updated
Note: U.S. users are legally prohibited from placing leveraged long trades. Longship’s UI is geofenced to ensure full compliance. However, U.S. users can to Longship's pools.
New traders start with access to 5x leverage and can gradually unlock higher leverage (up to 100x) with each successful trade. All leveraged long trades pay out earnings on a dollar-denominated basis.
-> NEEDS TO BE CLEANED UP ONCE UI IS FINALIZED
Input the collateral amount and select the amount of leverage you want to use. The market maker responds with a wager offer that consists of:
A leverage amount. This amount may be different than what the trader originally specified.*
Strike price is defined as the value at which the leveraged long is breakeven. In general, Longship’s AMM will increase the strike price as the amount of leverage increases.
An input amount, in dollars corresponding to the current oracle price. This amount may be different than what the trader originally specified, see below.
A liquidation price, which is determined by the strike price and the leverage.
Units of the underlying trade: input dollars divided by the strike price.
All trades go live (for either redemption or liquidation) after 24 hours to mitigate any short-term arbitrage on the price oracle.
*To allow Longship’s market maker to calculate how much money it owes at varying prices without exceeding gas limits, Longship’s protocol does not offer orders that meet the exact leverage/input parameters (and corresponding strike) requested by a user.
Learn more about Longship’s Protocol Risk Management here.
Timing
The leveraged long cannot be liquidated or redeemed for a brief waiting period after it is placed - it “goes live” after a few minutes, in order to prevent immediate oracle arbitrage. Traders can keep their position open for as long as they would like, although there are some incentives in the contracts for them to close their position out in a timely manner, to prevent long-standing positions at low strikes from bankrupting the market maker.\
Payouts
All leveraged long positions pay out in US dollars, expressed in units of the underlying cryptocurrency at current oracle prices.
On redemption at oracle price v the position the trader selected is worth, in total: units*strike + (v - strike) * leverage * units dollars.
Liquidation
When the payout of an order is 10% or less of the input collateral, it can be liquidated by anyone in exchange for 10% of the input collateral in underlying units. Note that it is possible for highly leveraged bets to open underwater if the strike price is high enough; in which case if the price does not move in the trader’s direction the position can be liquidated as soon as the 24 hours “go live” waiting period is up.