Read time: 4 minutesApril 13, 2022

Mycelium's Perpetual Pools ELI5

A beginners guide to understanding Mycelium's Perpetual PoolsMycelium's Perpetual Pools ELI5

Liquidations, leverages, value transfers and oracles?! Perpetual Pools can be very confusing to understand; so today we are taking a big step back from the technical stuff and explaining the underlying Perpetual Pools mechanism to an absolute beginner using simple language.

This is Perpetual Pools - Explained like I’m 5.

What are Perpetual Pools?

A Perpetual Pool market is basically a wager (or trade) between two groups of people who think something will either increase or decrease. The thing people are speculating might increase or decrease is typically the price of an asset like Bitcoin or Ethereum, but it can be anything - even the temperature.

We call the thing that people are making trades on the price feed, and the price feed is supplied by an oracle.

How does the mechanism work?

A Perpetual Pool market is split into two sides, the long side and short side. When you put your funds into the long side of the pool, you win if the price feed increases. When you put funds into the short side of a pool, you win if the price feed decreases.

Every hour, the Perpetual Pool checks the price feed to see which group was right and moves money from the people who were wrong, to those who were right.

short vs long price movement

The amount of money that is moved from the losers to the winners is determined by two different things:

  1. how much the price feed increased or decreased since the last transfer; and
  2. the leverage multiplier of the Perpetual Pool market.

What is leverage?

Leverage is a concept which we could replace with confidence. If you are really confident that you are making the correct trade, you will want to increase your leverage so that when you win, you win even more. However, leverage will also make you lose even more when you are wrong. Therefore, higher leverage is only a good thing if you are very confident.

Normally when people place trades with leverage, they risk being liquidated if their trade is wrong - this means they lose all of the funds they put in and they no longer have a chance to win even if they turn out to be right in the long run.

The cool thing about Perpetual Pool markets is that they make it impossible to be liquidated so people can continue to have exposure even if the market goes against them in the short term.

How are there no liquidations with Perpetual Pools?

The way the Perpetual Pool market calculates how much money to move from the losers to the winners prevents the loser from ever losing 100% of their money. The pool does this by, in extreme scenarios, sacrificing some of the gains of the winners in order to protect the loser’s from losing everything. This is why we say Perpetual Pool positions cannot be liquidated.

However; this does not mean you cannot lose money by trading with Perpetual Pools.

What makes a Perpetual Pool, perpetual?

A Perpetual Pool is “perpetual” because it will continue to check the price feed and move money between participants forever. Because you can not be liquidated, your position exists forever - although it is possible for it to get very very small if your trade is wrong consistently.

What if nobody is in the other side of the Pool?

Sometimes there will be more people who think something will increase than people who think it will decrease or vice versa. In this scenario, it pays to have the unpopular opinion as you will have better odds than if you were following the crowd. This is very similar to how in sports betting backing the favourite will pay less of a reward, with the same potential loss, as betting on the underdog.

How to get started with Perpetual Pools

Mycelium Perpetual Pools is simple to use, and we’ve provided all the info you’ll need to get started in our docs. Find the user-guides here and mint your first leveraged token on the Perpetual Pools App.


Legal and Financial Disclaimers:

The above description is an intentional oversimplification of the mechanism design for people starting to learn about Perpetual Pools. For more technical details about how the mechanism works consult the technical documents or ask our friendly community in the Mycelium Discord.

The information provided in this article is for informational purposes only. Any material in this article should NOT be considered legal or financial advice.

The reader bears responsibility for their own investment research and decisions. The material found on in this article is not intended to be used as a basis for an investment decision nor is it to be construed as advice. No information is intended as securities brokerage, investment, tax, accounting, or legal advice.

This blog post was originally posted by Tracer DAO.

The DAO voted to transition to Mycelium in August 2022.
As a result, we have updated all of our documentation and content including this post to reflect the change to Mycelium.

Posted on Tracer
Mycelium Docs
The home of Mycelium’s documentation

FAQs


All of Mycelium’s products are hosted on Ethereum Layer 2, Arbitrum. Users will need to bridge their assets to Arbitrum in order to trade Perpetual Swaps, Perpetual Pools, or Lend via MYC Lending.

Arbitrum is a secure, low-cost scaling solution that ensures our users can access low-cost derivatives in a safe, simple, and speedy environment.

If you need assistance bridging your assets, our team has prepared a guide here.


Mycelium Perpetual Swaps is a decentralised derivative platform, which allows users to open leveraged long and/or short positions on crypto-assets.

Perpetual Swaps are similar to a Future where traders can take a position based on the future price of an asset, the key difference being Perpetual Swaps mechanisms allows traders to take this position at an unspecified point in the future, making it ‘perpetual’ or unable to expire. Mycelium Perpetual Swaps allows traders to take a position on digital assets such as Bitcoin and Ethereum.


Mycelium Perpetual Swaps doesn’t use an order book model for leveraged trading. Rather, all traders trade against the Mycelium Liquidity Pool (MLP). The MLP is a basket of blue-chip assets and stablecoins pooled together (ETH, BTC, LINK, UNI, BAL, CRV, FXS, FRAX, USDT, DAI, USDC) which acts as a global AMM for leveraged trading. Liquidity providers can deposit any whitelisted asset into the MLP pool in return for MLP tokens, which represent the LPs share in the diversified liquidity pool. By acting as a universal counterparty (AMM) to traders, meaning that it agrees to be the counterparty to any long or short trade at the given price, for an asset it holds, until it runs out of said asset.


In exchange for providing liquidity to the Mycelium Liquidity Pool (MLP), liquidity providers earn rewards. Primarily, MLP holders earn 70% of fees generated on the platform, which is distributed fortnightly in ETH and or esMYC.

  • ETH Rewards: The MLP pool earns 70% of fees generated from swaps and leveraged trading. These fees are converted to ETH, before being continuously distributed to MLP stakers.
  • Escrowed MYC Rewards: These are rewards in the form of a token which has the right to vest into $MYC when staked in the esMYC vesting vault.

The trading fees that make up this revenue are entry/exit fees, borrowing fees, and or a spot trading fees. For a full overview of the trading fees, visit this page.

Additionally, LPs earn rewards from a small bid/ask spread that is charged on long-tail assets (there is no spread on BTC or ETH). These rewards accrue as MLP, shown on our front-end as Market Making APR. These rewards can be redeemed at any time, in any asset form within the MLP basket of assets.


Yes. Perpetual Pools are a marketplace for leveraged tokens, while perpetual swaps simulate spot trading with margin. They are both derivatives, but Perpetual Pool tokens act most like a leveraged ETF, where positions are transferable.


Mycelium Staking is a program established by Mycelium to give utility to our governance token. MYC holders can stake their $MYC to earn ETH rewards. MYC Stakers effectively enter a loan agreement with the Mycelium Treasury to lend their MYC. The Loan Cycles occur fortnightly, meaning deposits and withdrawals are processed at the beginning/end of each cycle. Stakers can request withdrawals throughout the cycle, noting the withdrawal will be processed and distributed at the end of the cycle.


Don’t worry, you are earning rewards! The rewards only show at the end of the 14 day loan cycle.


The way the Perpetual Pool market calculates how much money to move from the losers to the winners prevents the loser from ever losing 100% of their money. The pool does this by, in extreme scenarios, sacrificing some of the gains of the winners in order to protect the losers from losing everything. This is why we say Perpetual Pool positions cannot be liquidated.

However; this does not mean you cannot lose money by trading with Perpetual Pools.


In August 2022, TracerDAO voted to transition and rebrand to core service provider Mycelium, and $MYC as the native token. All TCR holders are entitled to change their token 1:1 to MYC via this site: https://migrate.mycelium.xyz/

The majority of TCR holders have migrated to MYC, but the site will remain active for approx. 3 years to ensure all TCR holders have the opportunity to migrate.


When a trader enters a short position, the liquidity pool will fully collateralise the position with stablecoins. For short positions, the liquidity pool is essentially a market maker that takes the opposite side of the position, increasing the long exposure of the pool. If the price of the base asset depreciates, the trader receives stablecoins from the liquidity pool. If the price of the base asset appreciates, the liquidity pool receives a portion of the user’s margin as compensation.

At close, the trader will only have to return the USD value of the initial notional value to the liquidity pool. Thus, the trader is effectively entitled to the inverse of the future “PnL” (Profit and Loss) of an asset.


With Perpetual Pools v2, users can deposit any sort of collateral for maximal optionality. Additionally, there is no minimum-commit size.


On Mycelium Perpetual Swaps traders can access up to 30x Leverage. On Mycelium Perpetual Pools traders can access up to 10x Leverage.

Swaps logo

More Leverage. Less Overhead