Power Perpetuals as a Unifying Model for DeFi Primitives
Summary
The document presents power perpetuals as a common framework for understanding several DeFi instruments. A power perp tracks an index price raised to an exponent, with collateralized positions maintained above a minimum collateral ratio and funding payments that encourage the traded mark to track its target. The author maps collateralized stablecoins to zero-power exposure and margined futures to first-power exposure, describing how collateral and funding create those payoffs.
It then connects constant-product liquidity pools to half-power exposure: an LP position’s value varies with the square root of the relative asset price, so combining the LP with a corresponding perp can offset price exposure, leaving fees and funding as the return difference. The discussion extends the framework to geometric-mean pools and higher powers as building blocks for approximating other payoffs. These are conceptual replication arguments, not a complete treatment of implementation details, market frictions, or empirical performance; the examples rely on simplifying assumptions about collateral, pricing, and funding.
Key ideas
- A power perpetual tracks an index price raised to a selected exponent and uses collateral requirements to manage solvency.
- Collateralized stablecoins can be interpreted as zero-power perps, while margined futures resemble first-power perps.
- A constant-product liquidity position has a value proportional to the square root of relative price, resembling half-power exposure.
- Pairing an LP position with a matching perp can offset price risk, leaving the difference between fees and funding.
- Combining power perps with different exponents can approximate a broader range of payoff shapes.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.