PAPER AND THE MINT CURVE

//01_ WHAT PAPER IS

Paper is a share of the house. It is minted to a trader when a position closes at a loss or is liquidated, and only then. It earns half of every fee and all of the house's surplus above $75,000 (see rewards).

• It is a balance in the exchange contract, not a token. It cannot be transferred, sold, lent or used as margin.
• It cannot be redeemed for the house's cash. It earns rewards, which you claim in USDG.
• There is no pre-mint and no team allocation. Every unit of paper in existence was minted to a wallet that lost the amount it is based on.
• It has 18 decimals in the contract. The app shows it rounded.

//02_ THE BASIS

The amount of paper you receive is the basis times the rate. The basis depends on how the position ended:

//03_ THE MINT CURVE

The rate is read from the net house equity trackedLp (cash minus what the queue line still owes), before the settlement changes it.

if trackedLp < $25,000:            rate = 100              (negative equity included)

otherwise:
    H    = max(hwm, trackedLp - $25,000)
    hwm  = H                                                  (stored, never decreases)
    rate = 100 x (S / (S + H))^2,      S = $1,500,000

The flat rate (100), the flat threshold ($25,000) and the scale S ($1,500,000) are constants of the contract. The rate rounds down.

//04_ RATES AT SEVERAL HOUSE SIZES

Assuming the high-water mark is not above the current excess:

A losing close with a $9.80 basis mints 980 paper on the flat part of the curve, and 917.79 paper when net equity is $75,000 (9.80 x 93.652).

Because the cash above $75,000 is swept to paper holders whenever nobody is queued, net equity rarely sits far above $75,000 and the rate normally stays in the first two rows. The lower rows apply only if the house grows faster than the sweeps run.

//05_ THE HIGH-WATER MARK

Once net equity is at or above $25,000, the rate is set by the largest excess the house has ever had at a settlement, not by the current one. The high-water mark hwm is stored at every loss and liquidation and only ever goes up. Sweeping the excess to paper holders does not lower it.

• While net equity stays at or above $25,000, the rate never goes back up. A house that once reached $275,000 mints 73.469 per $1 or less from then on, even after its cash has been swept back to $75,000.
• If net equity falls below $25,000, for example because a large win opened the queue, the flat rate of 100 applies again, whatever the high-water mark.

The result: losers who fund a small or indebted house get the most paper per dollar, and losers who join a house that has already been large get less.