LP Leverage

In traditional centralized exchanges (CEX) like Binance and BitMex, because of the order book model, traders (Takers) and market makers (Makers) trade under the same model, allowing for up to 100x leverage, which makes the capital utilization efficiency of both parties very high. However, in most decentralized perpetual contract products, including YFX, because traders trade with liquidity pools, LPs cannot use leverage, leading to low capital utilization rates for LPs.

The innovative measures in the YFX V4 version effectively solve this problem by providing leverage functionality to LPs, allowing them to use up to 100x leverage when adding liquidity. In other words, LPs can buy into the fund pool's YLP with 100x leverage. When the price of YLP rises, it generates a profit 100 times greater than before. Of course, this also brings greater risk to LPs; when the price of YLP falls, it will generate a loss 100 times greater than before.

For example:

Assume the YLP Price = 1, and Alice has 100 USDC. She buys YLP with 100x leverage, which means she now owns 10,000 YLP. When the YLP price rises by 1% to 1.01, the value of her YLP becomes 1.01 * 10,000 = 10,100 USDC, making her profit 10,100 - 10,000 = 100, which is a 100% return on her investment. However, if the YLP price drops to 0.99, the value of her YLP becomes 0.99 * 10,000 = 9,900 USDC, a loss of 9,900 - 10,000 = -100 USDC, making her return -100%.

Thus, after adding leverage for LPs, there is no difference from traditional leverage trading, except that the trading subject has become YLP, and the trading index has become the YLP Price.

Under this trading model, the YFX fund pool undergoes an essential change. The YLP Price will change following the value of the fund pool. Essentially, buying YLP represents going long on the fund pool, believing that trading users will incur losses during some trading period.


Since users used leverage to purchase YLP, forced liquidation will be triggered when the price of YLP drops to a certain level. When liquidation occurs, 0.2% of the position value will go into the risk fund, and the remaining money will be returned to the wallet address.

YLP Maintenance Margin Rate:

Max LeverageMaintenance Margin Rate





YLP Liquidation:

Liquidation price = Entry Price*(1-1/Leverage)*(1 + Maintenance Margin Rate)


Since LPs can use leverage to buy YLP, in extreme cases, all LPs' margins may not be sufficient to cover all traders' unrealized profit and loss differences. At this time, the LP fund pool might not be able to compensate. In such cases, the system will take automatic position reduction measures, where all trading users and LPs' positions will be automatically reduced and settled at a certain price, and the trading pair will be automatically restarted, resetting the YLP price back to $1.

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