PerlinX & UMA Synthetic PxAsset Minting

Published in

PERL.eco

10 min readSep 25, 2020

Part 1: Introducing PxUSD & what you can do with it

PerlinX is the 1st synthetic asset minting platform implementation of UMA Protocol & allows users to mint synthetic PxAssets using just PERL as collateral.

TLDR — Mint & Stake PxUSD for DOUBLE rewards

PERL is now a collateral asset on UMA Protocol, allowing users to mint and farm synthetic token assets of any kind (PxAssets).
1st PxAsset you can mint is PxUSD, which is a ‘yield dollar’ pegged to USD and minted with PERL as collateral.
DOUBLE REWARDS for minting PxUSD and staking in the new PERL<>PxUSD liquidity pool.
Weekly rewards increased by 20% from 1mil PERL/week to 1.2mil PERL/week.
You can start minting PxUSD today using 100% PERLs and no other assets.
TRIPLE REWARDS will soon be available as part of a joint liquidity program in PERL, BAL (now available) and UMA tokens (coming soon).

An overview of PerlinX V.2 PxAsset minting and staking.

This is the 1st of a series of articles the PerlinX team will be posting to help you understand synth PxAsset minting, staking and rewards.

In this article, we’ll give you an introduction to:

1. Minting & Staking — Incentives in PERL, BAL & UMA

PerlinX users are already earning incentives in PERL and BAL. Also coming soon are UMA rewards when you mint and stake PxUSD (and other PxAssets coming soon!).

Current Liquidity Farming & Minting Rewards

PerlinX users farming liquidity will share in the following total weekly reward amounts in proportion to their staked assets:

Now increased to 1,200,000 PERL tokens
BAL tokens based on Balancer’s calculations

Earning Double Rewards for Minting & Staking PxUSD

You can currently mint $1 USD worth of PxUSD using ~$2 USD worth of PERL as collateral (2:1 collateral ratio). You can earn double rewards since the PERL<>pxUSD pool has triple the reward weightage of other pools. For example — imagine you have $3 USD to spend on staking — you now have 2 options:

Scenario 1: You use USD $2 worth of PERL to mint $1 USD of pxUSD. You can then provide $1 USD of PERL and 1 pxUSD into the PERL<>pxUSD pool. Based on the reward multiplier of x3, you will then be eligible for a $1 USD x3 portion of the reward pool ($3 USD in PERL).
Scenario 2: You us $1.5 USD to buy PERL and $1.5 USD to buy the required other asset (e.g. WETH, DAI, BUSD etc). You then provide $1.5 USD of PERL and $1.5 USD of the other asset into the relevant pool. You will then be eligible for a $1.5 USD portion of the reward pool.

Conclusion: By minting and staking PxUSD, you have effectively earned double the reward.

Part 2 of this article series will go deeper into the maths behind all this.

You can now mint and stake 100% in PERL

You only need PERLs to participate since you can mint PxUSD (using just PERL as the only collateral) and staking in the PERL<>PxUSD pool!

Weekly snapshots

Please remember that snapshots to determine rewards will be taken at a random time every Tuesday. Users will need to claim their reward after the snapshot following Rewards Guide HERE. Please make sure to claim your rewards at each era or you won’t be able to claim rewards in later eras.

TRIPLE liquidity pool rewards coming soon

We’ll soon be adding UMA rewards for minting and staking in the next few weeks. Keep posted on our community channels for the announcement. TRIPLE incentive rewards will be available in PERL, BAL and UMA tokens.

2. What is PxUSD?

We chose USD as the 1st underlying asset because it is relatively easy for users to understand before we launch more complex PxAssets. PxUSD is a ‘yield dollar’ synthetic token pegged to USD and minted using PERL as collateral. PerlinX V.2 now allows users to (1) use their existing PERL (or buy PERL), (2) lock it as collateral with UMA, and (3) mint PxUSD tokens — ALL USING JUST PERL.

Based on UMA’s design (one month expiry date and settlement), PxUSD tokens are structured as a type of “zero-coupon bond”. Basically this just means that the “borrower” (user who mints and sells the PxUSD) doesn’t pay interest to the “lender” (user who buys the PxUSD) but sells their PxUSD at a discount based on a ‘fair’ interest rate. For example:

On expiry (also known as maturity), 1 PxUSD will settle to $1 USD, and will be redeemable for $1 USD worth of PERL. At this point, the PxUSD minter/seller effectively pays the PxUSD buyer an amount that mirrors the fair interest rate.

3. How to Mint PxUSD

We gave you a simplified run through on how to mint PxUSD in our PerlinX V.2 Launch & Partnership with UMA Protocol. For detailed instructions on how to mint PxUSD, see our Synthetic Asset Guide HERE.

4. What You Can Do With PxUSD

PxUSD tokens can be used in other parts of the DeFi ecosystem and for a number of other exciting purposes, including:

A. Staking in liquidity pools to earn rewards:

The simplest way to use PxUSD is to stake and lock PxUSD and PERL to earn liquidity farming rewards, following these steps:

(a) use PERLs you already hold (or buy on market) to mint PxUSD

(b) stake the PxUSD to the PxUSD<>PERL liquidity pool

(c) claim the incentive rewards in PERL, BAL and UMA after each weekly snapshot.

B. Borrowing liquidity

You can effectively “borrow” funds in PERL following these steps:

(a) mint PxUSD using PERL as collateral based on the 1:2 collateralization ratio

(b) sell the PxUSD for PERL in the PerlinX PxUSD<>PERL liquidity pool

(c) use that PERL for other transactions e.g. settle expenses, purchase other assets (e.g. BTC, ETH, etc) and/or buy more PERL (i.e. leverage long on PERL).

Example: John mints $1 PxUSD using $2 PERL as collateral (based on a 1:2 ratio) — this minted PxUSD is basically a claim for an underlying $1 USD worth of PERL collateral at expiry (1 month). John then sells the $1 PxUSD at a discount in the PxUSD<>PERL pool (e.g. $1 PxUSD for $0.97 PERL). John then uses the PERL to trade other assets or interact with other DeFi platforms for profit. John also receives liquidity farming rewards in PERL, BAL and UMA.
Since the PxUSD will settle at $1 USD worth of PERL at expiry, John has effectively paid “interest” of $0.03 USD for the loan. The over-collateralized amount of PERL locked to mint the PxUSD at the 1:2 ratio will be used to account for any decrease in the PERL price to ensure the PxUSD buyer receives $1 USD in PERL tokens at expiry. Any remaining excess PERLs are returned to John.
John’s main exposure (not taking into account divergent loss) is to any decrease in the value of his PERL collateral. John has made a net gain as long as:
The sum of his profits from the use of the PERL “borrowed” for trading + the liquidity farming rewards
is greater than
The sum of any decrease in PERL price + the $0.03 USD he paid to “borrow” the PERL.

C. Lending liquidity

You can effectively “lend” funds in PERL following these steps:

(1) buy PxUSD in the PxUSD<>PERL liquidity pool (usually at a discount)

(2) hold the PxUSD until expiry (1 month) to claim $1 USD in underlying PERL collateral and liquidity farming rewards.

Example: Jane sells $0.97 PERL into the PxUSD<>PERL pool for $1 PxUSD — this minted PxUSD is again a claim for an underlying $1 USD worth of PERL collateral at expiry (1 month).
Since the PxUSD will settle at $1 USD worth of PERL at expiry, Jane has effectively earned “interest” of $0.03USD for the loan. The over-collateralized amount of PERL locked to mint the PxUSD at the 2:1 ratio will be used to account for any decrease in the PERL price to ensure Jane receives $1 USD in PERL tokens at expiry.
Jane’s key exposure (not taking into account divergent loss) is to any decrease in the value of PERL. Jane has made a net gain as long as:
The sum of the $0.03 she is paid to “lend” PERL + the liquidity farming rewards
is greater than
The sum of any decrease in the value of PERL.

5. Other Stuff to Consider for PxUSD

When considering whether to mint PxUSD, you can also take into account a range of other short and long term factors, including macroeconomic conditions and events. The scenarios below are merely examples for PxUSD and are not exhaustive.

Bull case — why you would buy PxUSD (i.e. go long on USD):

USD is the world reserve currency and will remain dominant (at least in the short term).
USD is heavily sought after during periods of liquidity crunch (e.g. if traditional markets resume rationality).

Bear case — why you would mint and sell PxUSD (i.e. go short on USD):

Massive and ongoing quantitative easing by the US government (e.g. printing of currency to bolster struggling markets) erodes confidence of global investors in USD.
COVID-19 has been handled poorly in the US and will negatively impact the USD.
The upcoming US elections may have a negative impact on the USD if Trump is re-elected.

What Does It Mean When PxUSD Is BELOW $1 USD Before Settlement?

As a Yield Dollar, PxUSD should usually trade below $1 USD worth of PERL. The price difference between PxUSD and $1 USD represents the interest rate receivable by the lender (i.e. buyer of PxUSD).

Example: if PxUSD-OCT2020 is trading at $0.98 worth of PERL on 4 Sept, that means the lender (i.e. buyer of PxUSD) is willing to take an interest rate of $0.02 to lend $0.98 for 57 days (directly peer-to-peer or through the liquidity pool). In addition to the $0.02 interest effectively paid, the lender will also receive liquidity farming rewards.
Interest is calculated using this formula:
Rate = (final price/current price)1/n-1
Where n is time in years until expiry, or 57/365. The rate for this example is
(1/0.98)365/57–1 =13.8%

What Does It Mean When PxUSD Is ABOVE $1 USD Before Settlement?

Market factors may distort market dynamics and cause PxUSD to trade above $1 USD. That means PxUSD lenders are willing to lend out at a negative interest rate (i.e. pay someone to borrow PxUSD from you). While this appears counterintuitive, lenders (i.e. PxUSD buyers) may do this if they want to receive the liquidity farming rewards but do not want exposure to PERL price volatility.

Example: if psUSD-OCT2020 is trading at $1.02 on 4 Sept, that means the lender (i.e. buyer of PxUSD) is willing to take a negative interest rate of $-0.02 to lend $1.02 for 57 days (directly peer-to-peer or through the liquidity pool).

5. Other Synthetic PxAssets Coming Soon

PxUSD is just the first of many synthetic assets you can mint using PerlinX. We are actively exploring other PxAssets to onboard soon.

Please let us know what other PxAssets you want us to list (and why) in our Discord community discussion channel HERE.

6. Useful Guides