About Pools

What is the Public Liquidity Pool?

The Public Liquidity pool, or LP1, is the senior tranche of liquidity, to be used only in case sufficient funds aren’t available in the Private Liquidity pool (LP2). The Public Liquidity pool ( LP1), carries significantly less counterparty risks compared to LP2.

What is the Private Liquidity Pool?

The Private Liquidity pool, or LP2, is designed for professional traders with higher risk appetite, preferably with the ability to properly hedge their positions. Users are rewarded directly with SLD tokens, in contrast to LP1, and can be swapped for stable coins available in the fee pool (see Swap&Burn) at the holder’s discretion.

What are reTokens?

reTokens are the LP tokens that you receive for providing liquidity to Shield’s Decentralized Perpetual Options Contracts in the Public Liquidity pool (LP1). This will be automatically created using smart contracts, and denote your contribution of stable coins to the public pool. You can choose to swap your reTokens for SLD on a pro-rata basis.

How to be a liquidator?

Shield will open the liquidation API, anyone can become a liquidator. In order to trigger the liquidation conditions, the liquidator competes to initiate on-chain liquidation transactions, the liquidation contract for on-chain verification, confirmed to meet the liquidation conditions, then complete the liquidation to lastly be issued a liquidation reward. The clearing reward is 150% of the system Gas fee equivalent to the stable coin when the clearing transaction is packaged.

How does the private pool work?

Shield pioneered the first on-chain random order taking algorithm. Newly opened orders are randomly generated by two random factors: the hash of the block and the block time, and the remainder is taken using the current private pool length, i.e., the order is assigned to the corresponding private pool first. If the private pool is critical or the available balance is insufficient, it is polled sequentially until an available private pool is encountered.

How does private pool shift the liquidity?

When one of the private pools of LP2 experiences a shortfall in the total balance to pay out the trader's position profit, the position will automatically be liquidated by a third-party liquidator. However, the liquidation of a single position blowout does not simultaneously trigger the liquidation of the trader's position but instead; executes the closing of the position to the public pool. If an over loss occurs during the unwinding, the loss of the penetrated position is first compensated by the available balance of the Private Pool. Then the risk reserve compensates for any shortfall in the available balance. Subsequently, the liquidity of the Public Pool is judged, sufficient; and if so, the margin, compensation, and position fees of the liquidation order are transferred to the public pool together to form a new liquidity lock. If no over loss occurs at the time of liquidation, only the margin and holding fees of the position orders are closed out. When the liquidity in the public pool is also insufficient to catch the liquidated position order value, the order will execute with an agreed closeout.

How does Private Pool adjust order taking?

For the Private Pool market makers to effectively manage their market-making capital risk, Shield provides the function to change the order status on-chain.

For example, if the private pool market maker has insufficient funds to replenish the private pool balance, and the funds already taken cannot be unlocked from the positioned smart contract, continuous passive order taking will increase the market-making risk significantly. Therefore, Shield provides the ability to change the status of orders taken on-chain. It is enabled by default and can be modified by initiating on-chain signature transactions.

How does Private Pool add margin?

The margin rate for private pool order-taking is 20% (including 2% maintenance margin) and will force liquidate when the margin falls below the trader's profit. Therefore, to ensure that the order doesn't liquidate, the Private Pool market-maker can add margin to the order at any time. Margin can only be drawn from the available balance of the Private Pool. This allows for flexible control of market-making positions and effectively reduces market-making risk.

Shield will open the liquidation API, anyone can become a liquidator. In order to trigger the liquidation conditions, the liquidator competes to initiate on-chain liquidation transactions, the liquidation contract for on-chain verification, confirmed to meet the liquidation conditions, then complete the liquidation to lastly be issued a liquidation reward. The clearing reward is 150% of the system Gas fee equivalent to the stable coin when the clearing transaction is packaged.