Liquidity Risk

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Overview

Liquidity risk is the risk that users cannot execute trades at fair prices due to insufficient market depth. PIPO manages liquidity through AMM design, LP incentives, and platform operations.

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Liquidity Sources

Primary: AMM Pools

AMM Liquidity Structure:

Pool Composition:
├── Warrant Tokens (supply side)
├── USDC (demand side)
└── LP tokens (ownership claims)

Sources:
├── Platform seed liquidity (initial)
├── External LPs (ongoing)
├── Put writers (USDC side)
└── Arbitrageurs (rebalancing)

Secondary: OTC Desk

OTC Desk (VIP Only):

For orders >$100K:
├── Dedicated trader assistance
├── Block trade execution
├── Reduced price impact
└── Custom settlement options

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Liquidity Metrics

Key Indicators

Metric	Definition	Target
TVL	Total pool value	>$100K per series
Depth	2% price impact trade size	>$10K
Utilization	Volume / TVL	20-100%
Spread	Bid-ask difference	<3%

Monitoring Dashboard

┌─────────────────────────────────────────────────────────────────┐
│              LIQUIDITY HEALTH                                   │
├─────────────────────────────────────────────────────────────────┤
│                                                                 │
│  Overall Status: 🟢 HEALTHY                                     │
│                                                                 │
│  By Market:                                                     │
│  ┌────────────────────────────────────────────────────────┐    │
│  │ Market              │ TVL     │ Depth  │ Util  │ Status│    │
│  │─────────────────────────────────────────────────────── │    │
│  │ SPACEX-CALL-200B    │ $350K   │ $15K   │ 45%   │  🟢   │    │
│  │ SPACEX-CALL-180B    │ $280K   │ $12K   │ 62%   │  🟢   │    │
│  │ SPACEX-PUT-150B     │ $120K   │ $8K    │ 35%   │  🟢   │    │
│  │ OPENAI-CALL-100B    │ $85K    │ $5K    │ 28%   │  🟡   │    │
│  │ STRIPE-CALL-65B     │ $45K    │ $3K    │ 22%   │  🟡   │    │
│  └────────────────────────────────────────────────────────┘    │
│                                                                 │
│  Low Liquidity Alerts:                                         │
│  ├── STRIPE-CALL-65B: Below $50K TVL threshold                │
│  └── Recommendation: Increase LP incentives                    │
│                                                                 │
│  [View Details] [Adjust Incentives] [Add Seed Liquidity]       │
│                                                                 │
└─────────────────────────────────────────────────────────────────┘

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LP Incentives

Points System

LP Rewards Program:

Base Points:
├── 1 point per $1 per day in pool
└── Example: $10K for 30 days = 300,000 points

Multipliers:
├── Early LPs (first month): 2x
├── Low-liquidity pools: 1.5x
├── Long-term lock (90 days): 1.3x
└── VIP status: 1.2x

Points Utility:
├── Future token airdrop eligibility
├── Fee discounts
├── Priority access to new markets
└── Governance participation

LP Returns

LP Revenue Sources:

1. Trading Fees (0.25% of volume):
   ├── Pool TVL: $100K
   ├── Daily volume: $20K
   ├── Daily fees: $50
   └── Annualized: 18.25% APY

2. Points Value (TBD):
   └── Estimated: 5-20% additional

3. Impermanent Loss:
   └── Risk: -5% to -20% in volatile markets

Net Expected Return:
├── Bull market: 15-30% APY
├── Stable market: 10-20% APY
└── Bear/volatile: 0-15% APY

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Liquidity Crisis Management

Triggers

Condition	Severity	Response
TVL < $50K	Warning	Increase incentives
TVL < $25K	High	Platform adds seed
Utilization > 150%	Warning	Monitor closely
Single LP > 50%	Warning	Diversification push

Response Protocol

Liquidity Crisis Response:

Level 1 - Low Liquidity Warning:
├── Display warning to users
├── Increase LP points multiplier
├── Reach out to large LPs
└── Consider platform seeding

Level 2 - Critical Low Liquidity:
├── Platform adds emergency seed liquidity
├── Pause large orders (>$10K)
├── OTC desk referral for large trades
└── Communication to users

Level 3 - Liquidity Emergency:
├── Pause new positions
├── Allow exits only
├── Emergency LP recruitment
└── Post-mortem analysis

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Slippage Management

User Protection

Slippage Settings:

Default: 2%
├── Suitable for most retail trades
└── Protects against minor price movements

Custom Options:
├── 0.5%: For stable markets, may fail
├── 1%: Conservative
├── 2%: Standard
├── 5%: For volatile markets
└── Custom: User-defined

Transaction Behavior:
├── If slippage exceeded: Transaction reverts
├── User funds returned (minus gas)
└── Can retry with higher tolerance

Price Impact Preview

┌─────────────────────────────────────────────────────────────────┐
│              TRADE PREVIEW                                      │
├─────────────────────────────────────────────────────────────────┤
│                                                                 │
│  Buy SPACEX-CALL-200B-Q42025                                   │
│                                                                 │
│  Amount: $5,000 USDC                                           │
│                                                                 │
│  Price Impact:                                                  │
│  ├── Current Price: $0.350                                     │
│  ├── Your Price: $0.358                                        │
│  ├── Price Impact: 2.3%                                        │
│  └── Status: 🟡 Moderate                                        │
│                                                                 │
│  Breakdown:                                                     │
│  ├── Tokens Received: 13,966                                   │
│  ├── Effective Price: $0.358 per token                         │
│  ├── Trading Fee: $15.00 (0.3%)                                │
│  └── Total Cost: $5,015.00                                     │
│                                                                 │
│  ⚠️ Consider splitting into smaller orders for better price    │
│                                                                 │
│  Slippage Tolerance: [2%] ▼                                    │
│                                                                 │
│  [Execute Trade] [Cancel]                                       │
│                                                                 │
└─────────────────────────────────────────────────────────────────┘

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Market Making

Platform Market Making

Platform as Market Maker:

Role:
├── Provide initial liquidity (seed)
├── Maintain tight spreads
├── Absorb temporary imbalances
└── Support price discovery

Limits:
├── Max 30% of any pool
├── Profit returned to treasury
└── Transparent reporting

External Market Makers

Professional MM Program:

Benefits:
├── Reduced fees (0.1% vs 0.3%)
├── API access (low latency)
├── Dedicated support
└── Custom integrations

Requirements:
├── $500K+ committed
├── Uptime SLA
├── Spread requirements
└── Monthly review

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API Reference

Get Liquidity Info

const liquidity = await pipo.getLiquidityInfo('SPACEX-CALL-200B-Q42025');

// Response
{
  warrant: 'SPACEX-CALL-200B-Q42025',
  tvl: 350000,
  warrantReserve: 700000,
  usdcReserve: 245000,
  depth: {
    buy10K: 0.8, // 0.8% price impact
    buy50K: 4.2, // 4.2% price impact
    buy100K: 9.1 // 9.1% price impact
  },
  utilization: 0.45,
  lpCount: 23,
  largestLP: 0.12, // 12% of pool
  status: 'HEALTHY'
}

Simulate Trade

const simulation = await pipo.simulateTrade({
  warrant: 'SPACEX-CALL-200B-Q42025',
  side: 'BUY',
  amount: 5000
});

// Response
{
  inputAmount: 5000,
  outputTokens: 13966,
  effectivePrice: 0.358,
  priceImpact: 2.3,
  fee: 15.00,
  minimumReceived: 13687, // with 2% slippage
  recommendation: 'CONSIDER_SPLITTING'
}

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Next Steps

• Oracle Committee
• Risk Framework
• LP Incentives