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MLP Mechanism

Target Asset Weights

MLP has a target weight for each asset. Token weights are set, and adjusted to ensure that there is sufficient liquidity in order to market make the expected order-flow (open interest). Mycelium Perpetual Swaps has a target split between the assets based on the historical split of open interest between long and short positions in the market for various assets. This will be based on a trailing average of open interest over the previous month. The target weights are visible on the "Dashboard" page of the application.

MLP Rebalancing

The fees to mint MLP, burn MLP or to perform swaps will vary based on whether the action improves the balance of assets or reduces it. For example, if the MLP has a large percentage of ETH and a small percentage of USDC, actions which further increase the amount of ETH the MLP has will have a high fee while actions which reduces the amount of ETH the MLP has will have a low fee. These fee incentives will ensure that the MLP rebalances toward the targeted asset weights stated.

Market Making Long Positions

When a trader enters a long position, the liquidity pool will lend out the notional value (Notional Value is defined as the USD value of the position). Notional Value is calculated by = (units of asset * oracle price of asset of the base asset (e.g. ETH) to the user).
At close, the trader will only have to return the USD value of the initial notional value to the liquidity pool (in the borrowed base asset). Thus, the trader is effectively entitled to any future “PnL” (Profit and Loss) of an asset.

Market Making Short Positions

When a trader enters a short position, the liquidity pool will fully collateralise the position with stablecoins. For short positions, the liquidity pool is essentially a market maker that takes the opposite side of the position, increasing the long exposure of the pool. If the price of the base asset depreciates, the trader receives stablecoins from the liquidity pool. If the price of the base asset appreciates, the liquidity pool receives a portion of the user’s margin as compensation.
At close, the trader will only have to return the USD value of the initial notional value to the liquidity pool. Thus, the trader is effectively entitled to the inverse of the future “PnL” (Profit and Loss) of an asset.