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Parameter Tradeoffs

There are various tradeoffs to consider when choosing parameters for a prePO market.

Choosing a Valuation Range

The Valuation Range impacts leverage for traders, and the frequency of market migrations.

Narrow valuation ranges

  • Increase the leverage of Long and Short tokens
  • Increase the frequency of market migrations

Wide valuation ranges

  • Decrease the leverage of Long and Short tokens
  • Decrease the frequency of market migrations

An optimal Valuation Range creates sufficient leverage to reward traders, without being so narrow that markets need to be migrated too frequently.

Leverage Examples

Assume a market is being created with a payout range of 0.2-0.8:

  • Valuation Range 100B-400B provides 11x leverage
  • Valuation Range 100B-250B provides 22x leverage
  • Valuation Range 100B-700B provides 12\frac{1}{2}x leverage

Choosing a Payout Range

The Payout Range impacts the maximum position loss (PL) LPs can incur, and the frequency of market migrations.

Narrow payout ranges

  • Decrease the maximum PL LPs can incur
  • Increase the frequency of market migrations

Wide valuation ranges

  • Increase the maximum PL LPs can incur
  • Decrease the frequency of market migrations

An optimal Payout Range reduces maximum IL enough to satisfy LP safety requirements, without being so narrow that markets need to be migrated too frequently.

Simulating Payout Range Impact

prePO Simulator advanced mode can be used to simulate the impact of Payout Range on maximum PL.