Protocol Rules

# Black Swan Event

In some case, during huge price swing or any other kind of fear-euphoria event - it is possible for the protocol to run out of LP's liquidities or for the funding rate to reach the maximum value (6044.6%). This is called a Black Swan Event.

The protocol has a debt and can no longer honor the trader PnL - in more technical term, the protocol is undercollateralized.

The situation could eventually resolve itself as traders exit the pool. If it doesn't here what it would mean for a trader.

# Trader exit with a pool debt

For each trader, the pool keep a mapping of averageSharesValue that get updated on every trader's mint. This variable is used to calculate the trader's principal - ie the average value of the trader's collateral as he minted the synthetic. The PnL is then calculated as the difference between the current value of the trader's shares and the principal.

If the pool has no debt, the value received by the trader is equal to Principal + PnL.

In case of a debt, the value received by the trader is equal to Principal + PnL * ActiveLiquidities / (ActiveLiquidities + debt).

As you can see, only the trader's PnL is affected by the debt, the principal is not affected. If the PnL is negative, the trader will actually receive more money than he should have.

If the PnL is positive, the trader will receive less money than he should have, but the principal will be unaffected.

# Liquidity Provider exit with a pool debt

Liquidity provider are not affected by the debt, they will receive the same amount of liquidity as they should have. They can leave or enter the pool at any time.