How does prePO work?
Learn about prePO's markets, technology, and core design!
prePO is a decentralized trading platform allowing anyone, anywhere to speculate on the valuation of any pre-IPO company or pre-token project.
By now you should understand why we're building prePO.
Today we’ll be diving a bit deeper into how prePO works!
3 Key Actors
There are 3 key actors in the prePO system:
- Liquidity Providers (LPs)
- PPO Token Holders (Pregens)
LPs provide liquidity (in the form of USD stablecoins) to one or more prePO markets. In return they receive 3 Layers of Rewards:
- trading fees
- PPO token rewards
- collateral farming rewards (more on this later)
Additionally, prePO markets are designed to minimize risk for LPs. With prePO's novel architecture, LPs face no liquidation risk and can achieve very close to a market neutral position.
Put simply: any LPs who are yield farming with stablecoins would be better off doing so indirectly via prePO, in order to capture two additional layers of rewards.
With low risk and 3 Layers of Rewards, more liquidity will be attracted to prePO markets, which kicks off the LP Flywheel:
Traders open long or short positions in one or more prePO markets. In return they receive 3 Layers of Rewards:
- profit (or loss) from their position
- PPO token rewards
- collateral farming rewards
If a trader exits their position at a better price than they entered in at, they’ve made a profit. The profit comes from other traders or LPs in the system.
However, it’s not a zero-sum game, due to the 3 Layers of Rewards.
A trader could be making a loss on a WeWork long position, but still make an overall profit due to PPO incentives and collateral farming!
Finally, we have our beloved pregens (PPO token holders), who participate in the prePO DAO governance system. Token holders will be able to make and vote on proposals, including proposals for the creation and settlement of prePO markets, and will be rewarded for doing so!
We have an entire upcoming blog post dedicated to PPO Tokenomics & Governance, so we'll save further details for then!
So, now we understand the 3 Key Actors in our system, and how they're rewarded.
But what about the markets, how do they work?
A prePO market allows you to speculate on a particular pre-public asset, such as a pre-IPO company or a pre-token project. Through this speculation, prePO can derive an estimated valuation for the asset; in other words, prePO facilitates price discovery for the benefit of the general public.
The markets listed on prePO will be decided on by you and other pregens. We’d love to see listings from all around the world and across many different industries - let’s make it happen!
Have a particular asset you’d like to speculate on? Let us know on Discord!
Each prePO market is defined by an asset (e.g. SpaceX), a valuation range (e.g. $100B - $250B), and an expiry date (e.g. Jan 1 2025).
When you enter a position, you’ll be informed of your entry price, max loss, and max profit. You can exit your position at any time.
Your max profit or loss will be when the asset’s valuation reaches the lower or upper bound of the valuation range.
If the asset is consistently trading at the lower or upper bound, prePO governance can decide to create a new market with a new valuation range. Traders can then migrate over to the new market with the updated range.
When the asset goes public, you can exit your position at a final settlement price, based on the price at the end of the first day of public trading for stocks, or on a time-weighted average price for tokens.
If the asset doesn’t go public by the expiry date, you can exit your position at the bottom of the market’s valuation range.
Note that you aren’t purchasing real stocks or tokens here; you are getting synthetic exposure to the upside (or downside) of an asset’s eventual public price. The synthetic nature of our markets is what allows us to infinitely scale participation, transforming limited access into unlimited access.
Because we want to abstract away as much complexity as possible, this is as much as most users will need to know.
But some of you may be curious - what's happening under the hood?
The prePO Protocol is a system of Ethereum-compatible smart contracts.
Initially, prePO will launch on the Polygon Network, for its 'zero-gas' transactions and strong DeFi & NFT ecosystem.
In future, we'll be exploring a presence across multiple chains and layer 2 solutions, in order to expand our user base and cement prePO as the definitive decentralized platform for pre-IPO & pre-token exposure.
prePO's core architecture consists of 3 Layers:
On this layer, USD stablecoins (e.g. DAI or USDC) are converted into prePO Collateral Tokens (“preCT”), which are yield-bearing tokens used as collateral in the prePO system.
The stablecoins backing preCT are then allocated towards a 'meta' yield-earning strategy, such as a diversified basket of Yearn Finance vaults.
When a user eventually cashes out from the prePO system by converting their preCT back into a stablecoin, the same collateral should be worth more than before, due to the accumulated yield.
Put simply: LPs AND traders earn idle interest whenever they have a position open. We call this collateral farming.
This layer is responsible for conversions between preCT and LONG/SHORT outcome tokens for each market, where 1 preCT = 1 LONG + 1 SHORT.
Allowing 1 LONG + 1 SHORT to always be redeemable for 1 preCT is what guarantees that LONG & SHORT tokens are always fully-collateralized.
At market settlement time - when an asset goes public or if the asset doesn't go public by the market expiry date - this layer also facilitates the conversion of individual LONG or SHORT tokens back into preCT.
This final layer is responsible for interactions with an Automated Market Maker (AMM), allowing LPs to provide liquidity to the AMM's liquidity pools, and allowing traders to speculatively trade LONG & SHORT tokens.
By having a separate AMM Layer, we give ourselves the flexibility to migrate to different AMM protocols in future. For our V1, we’ll be utilizing an AMM with concentrated liquidity (which drastically improves capital efficiency); and for our V2 and beyond, we’ll be exploring AMMs with features such as weighted pools and dynamic fees.
Congratulations, you now understand the core mechanics of prePO!
Still have some questions? Ask us on Discord!
Next up: PPO Tokenomics & Governance (coming soon!)
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